In a free market capitalist system 'price signals' are everything. Prices are determined by buyers and sellers in the free market and these prices are broadcast from the exchanges reaching all corners of the economy -- where they are used to transact business. In a centrally planned economy, prices are set by fiat and implemented in a 'top down' approach organized by a committee; rather than by the bottoms-up, animal-spirits-driven, self-interested, individualistic, free market approach.
But we have a problem with free market capitalism. Where free markets have failed over the past few decades is in maintaining fair and equitable 'price discovery' on various exchanges to compliment those animal spirits. Instead of buyers and sellers coming together and letting the 'invisible hand' of self-interest determine prices; more and more we see the dead hand of Wall Street monopolists and their market-rigging determining prices.
We saw this trend take shape with the petro-dollar, post-Bretton Woods, post Nixon's closing of the 'gold window' in 1971 era in pricing oil -- not according to free market principles - but rather the dead-market interference of Wall Street and Washington insiders who profit mightily from this rent-seeking corruption. It can be argued that Iraq, Iran and LIbya all wanted to trade oil outside of the petro-dollar fixed pricing scheme and paid dearly for it.
Another example: in the 1990s a market and price-discovery for future box office results for movies was tried (HSX.com) but the oligopoly in Hollywood made sure that never succeeded; breaking up the company that created it and selling the technology to Wall Street where it sits warehoused and out of reach from any good it might have done establishing freer markets benefiting the public's interest. The Hollywood industry's lobbyist, the MPAA, is known for aggressive tactics. At Aaron Swarz's funeral (the copyright freedom activist) his father pointed to representatives at the MPAA as being responsible for the death of his son -- who hanged himself rather than face 30 years in prison; the term the 'copyright cartel' was looking for to 'send a message.' Note that when box-office futures were attempted again a few years later it was Chris Dodd again, while in Congress, (who now heads up the MPAA) who shot this initiative down in the Dodd-Frank bill.
Another example of taking down competing market-makers who might generate prices that monopolists don't like is InTrade (in Ireland) who was looking to do something similar for politics that HSX tried to do for box office -- with their 'prediction market.' InTrade was broadcasting 'price signals' about which candidates were actually winning and losing market share ahead of elections and this infuriated Washington's corrupt insiders. When InTrade and other 'quants' sunk Mitt Romney's chances to win the last presidential election, the powers that be had had enough. InTrade has been taken off line without much by way of explanation.
This brings me to bitcoin and the exchanges that broadcast current prices for bitcoin such as MtGox and what insiders might do to stop this from continuing. Success of bitcoin and the exchanges that deal in it could be interpreted by some to mean the demise of central banks, Wall Street and the Washington insiders who trade on inside information and market manipulation. So will we see these insides try to do to bitcoin exchanges what they did to similar challenges to oil price fixing, Hollywood propaganda, and political market making?
My thought is that as bitcoin and the exchanges become more prevalent we'll see Wall Street and the central banks challenge the exchanges on intellectual property grounds. They will argue the technology for trading in virtual securities with a virtual currency is a patented technology owned by Wall Street and that virtual market making is violating this patent (U.S. pat. no. 5950176) that is held by a major Wall Street firm (and primary U.S. government bond dealer).
What are the chances of this happening? So far the collateral damage has been high for anyone trying to combat the enemies of free markets in oil, entertainment and politics but perhaps the sheer size of bitcoin's global distributed network will prevail. Let's hope so. Let's hope bitcoin does not become an intellectual property farce the way seeds have when Monsanto claims to hold the patent rights on various seeds or the way the drug industry claims to have the patent rights on various DNA.
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