Oh and by the way. Don't think that Senators or anybody else that rallies against Bitcoin really acts against it because of reasons they tell you. Discrediting and and using semi true problems like the ability to launder money is just a pretense.

So writing a congressman about how swell Bitcoin is won't really do anything. They don't care!

The real Threat to Bitcoin

Many of you see some difficulty ahead for the digital currency Bitcoin. These problems, sometimes euphemistically called growing pains, have of course real implications. Even if that just means an effect on the exchange rate for some period of time. The biggest threat though, imho, has yet not been addressed. Many see the government as the potentially most powerful force to act against Bitcoin, if it would get motivated to do so. This is true in the sense that if somebody chooses to act against Bitcoin it would of course use the legal lever an official government can provide by passing laws. The group with the most interest to act against Bitcoin are of course the Banks. The Banks will push the government to act against Bitcoin and the government will help gladly because it is in its interest as well. Here is why.

The need for creating money
An economy is the combination of existing value (like goods) and services (like workforce). This value is represented by the amount of money available. If an economy grows that means that either A: the goods have more value (e.g. new-goods-value exceeds old-goods-devaluation from its use) or B: the value of services is higher than previously (e.g. greater workforce) or a combination of A and B (and smaller influences I won't get into). This growth in value has to be represented by an increase of money available otherwise there will be a deflation of the currency used by that economy (Why deflation is not wanted is not something I will not go into her either).

The creators of money
We live in an economy where money is governed by the rules something called the "fractional-reserve banking system." There are two types of money in a fractional-reserve banking system operating with a central bank: The one you can hold in your hand, the notes and coins, i.e. "central bank money". The second is the kind you have in your bank account, the demand deposit, i.e. "commercial bank money." To act against deflation of its currency the government has set up the central bank in such a way that it regulates the currency in an economy by mincing and destroying notes and coins. The government is usually very interested in an increasing economy because when it hast to mince money to cover the increase in economical value it "sells" the money to the economy. So any minced money is a profit that goes into the budget of the administration i.e. seigniorage. But the "central bank money" is just a small part of the money in circulation. The most of it is of the "commercial bank money". (This is easily understood by thinking about the money oneself owns. Some is as hard cash in one's own wallet. But most of it is as credit in a bank account.) And therefore a much bigger part of the money, when the economy grows, is created by private banks. For example the in the EU the governments and the banks had 2010 real tangible extra income of about 36 Billion for the governments and an estimated 400 Billion EUR for EU Banks. Extrapolated for the U.S. this equals to about 53 Billion USD for the U.S. government and 725 Billion USD for U.S. banks. These are not peanuts!

The resulting issue
Bitcoin of course does away with the need for banks to create money (and maybe for banks in general) and probably in some small part for hard cash (hard cash will probably never go away, that’s why governments could chose to care not that much). I don't have to tell anybody that money is something banks (I'm excluding governments of my argument now because their decrease in profit is greatly smaller than that of banks) cherish or that having a lot of money equals power. But apparently I do. Bitcoin and their miners are cutting in on the profits of the banks. This has been the sole right of the banks for centuries now. They started wars with countries and discredited loyal government officials who tried to take that right away from them. This is not something they will let happen. They are already fighting it by letting their bought lackeys Sen. Charles Schumer of New York and Sen. Joe Manchin of West Virginia discredit Bitcoin and push for a legal solution. Appreciate the real threat: Banks!

Further insight
I encourage everybody to inform themselves more about this. The easiest way to get to know more about why creating money is such a huge issue and the fractional-reserve banking system, is the great and truly exciting documentary "The secret of Oz", winner of Best Documentary of 2010 at the Benoit International Film Festival, available on youtube, free to watch:

http://www.youtube.com/watch?v=swkq2E8mswI


Also support your local initiative to take this power away from banks and give it back to the people.
http://www.positivemoney.org.uk/
http://www.monetative.de/
http://www.monetative.ch/


I am just a layman but I think i covered it mostly correct. If somebody sees same grave error please contact me.