The Ethics of Bitcoin
Nobel Laureate Paul Krugman declared the digital currency Bitcoin to be “evil” in his 2013 New York Times article. In their newest research, Georgetown University's McDonough School of Business Professors James Angel and Doug McCabe explore many ethical considerations behind how consumers pay and how businesses receive payments. They challenge Krugman’s assessment in their study, “The Ethics of Payments: Paper, Plastic, or Bitcoin?” which was recently published in the Journal of Business Ethics.
“Consumers and businesses have many choices of how to make payments and what forms of payments to accept, each of which imposes different levels of costs and benefits,” said James Angel, associate professor of finance. “The continuing evolution in the technology of payments, particularly with Bitcoin, raises interesting ethical questions.”
Bitcoin is a digital currency that uses encryption techniques to verify the transfer of funds. Bitcoins are transferred directly from one digital wallet to another with no central bank in between. Consequently, Bitcoin operates almost independently of any country or banking regulations. Bitcoins can be traded under any username one chooses to create, allowing transactions to be almost anonymous.
Krugman and others who oppose Bitcoin argue it is part of a political agenda to damage central banks and the abilities of governments to collect taxes. They fear that Bitcoin supporters want to use it as a replacement currency to government-issued money. A single, world-wide currency would eliminate the role of central banks in the world economy. Without using a central bank, the government's ability to collect taxes is weakened. Furthermore, the near anonymity of a Bitcoin transaction can be used to facilitate illegal activities such as narcotics trafficking, terrorism, and tax evasion.
Professors Angel and McCabe counter those arguments with the potential benefits of Bitcoin. A currency that is not tied to any country and has minimal fees or regulations makes it much easier for consumers to send money internationally. Likewise, the open-architecture payment network may provide a cheaper method for businesses to receive payments without the fees charged by Visa and MasterCard systems. The incentive to use Bitcoin for illegal activities is little different than using cash, they argue. After all, if someone buys illegal substances with cash, then would it be fair to claim cash is evil?
The research reminds both consumers and businesses that it is important to balance any product’s potential for abuse with its benefits. As long as a product has significant potential benefits, then ethical judgment should be made on the use of the product, not the product itself.
“Bitcoin itself is not evil, although it, like any other payment method, can be used for evil purposes,” said Doug McCabe, professor of management. “For example, painkillers like Oxycodone have a serious potential for abuse, but also important medical uses as well.”
Bitcoin has generated a lot of excitement and media attention. Bitcoin-related projects have started to receive venture capital funding and mainstream businesses such as Overstock.com have started to accept it. Using computers and cell phones for payments is rapidly becoming common place. As technology continues to evolve passionate debates about Bitcoin will continue to grow and it will be important to keep in mind the ethics of our payment choices.