As the big banks in the USA have proven, government regulation is definitively not the answer to the question "How can you know whom to trust?”
A common sentiment: “Big Government doesn’t work.” No, it doesn’t work. But in many cases, it’s less broken then no government a/k/a The Free Market. I’m reminded of Winston Churchill’s quip: "It has been said that democracy is the worst form of government except all the others that have been tried.”
It could be that trusting democratic governments to manage a monetary system is fundamentally unsound. I’m listening: What alternative do you propose, and how is it going to scale beyond protecting the few wealthy info-elite that can protect themselves?
>how is it going to scale beyond protecting the few wealthy info-elite that can protect themselves?
This is why I have trouble with Bit Coin. I actually like the idea of Bit Coin, a predictable monetary policy that has many of the advantages of a traditional inflationary economy, but without the ability of a political entity to make short term fixes that screw us over in the long term. But the problem is that we're transferring elite status to a different group of people. In the end, your ability to mine coins, process transactions, protect yourself and transact business using a non-trivial system is an advantage and screw everyone who doesn't get it. If you don't have advanced hardware and cheap electricity, you're disadvantaged. If you don't know how to use a mouse, you're disadvantaged.
I wish I was smart enough to come up with a better solution.
Without any rules, there is no such thing as personal property and therefore a free market cannot exist. You're describing anarchy, where people take what they want by force.
You're free to move to someplace where they do not impose taxes, like Somalia.
Of course, you will have to vie with various competing warlords, all of whom will demand "protection money", but that's the price of freedom from taxation.
It's necessary to have a framework that makes taking the correct action more rewarding or less punitive than taking incorrect action.
We mostly rely on government to handle this. It's not perfect and it works in some folks' interests more than others, but I feel comfortable saying that it does increase the cost of most socially undesirable activities beyond their worth to most people most of the time.
Is it possible to come up with similar protection for Bitcoin without such an authority? I think you have to find a way to introduce risk for people handling Bitcoins they don't own, where they've got an amount of their own Bitcoins held as a security that could be forfeit if they fail to meet obligations.
But then, who holds the security? Who determines if it's forfeit? This doesn't have the feel to me of a situation that can be handled without human interaction, but I would definitely be intrigued if somebody figured it out.
I think it's considerably more complex than that, and not at all a red herring. I agree it's a coordination/network problem either way, but you would need actual evidence to argue that some methods of coordination are better than others.
I've read a reasonable amount about currency history, and the U.S. government's stewardship of currency in particular is not bad imo. Its stewardship of the banking system leaves more to be desired. I'm not sure its stewardship of the banking system is worse than what we had in the "free banking" era, though. You don't really have to be against markets to have an ordoliberal-style view (vaguely following Hayek) that markets work best within certain frameworks, as opposed to having a view that anarcho-capitalism will always produce the best solutions (more following Rothbard).
Saying that government regulation for financial markets is a red herring is like saying that SSL for ecommerce is a red herring. Sure, it's imperfect. It's not a complete solution. It gets circumvented sometimes. It creates a false sense of security sometimes. The people who run it do embarrassingly dumb things sometimes. But there's still a big difference between marketplaces with that protection and marketplaces without it.
Seriously. Knock that shit off. It's a red herring.
You can't abstract away the personal process of choosing trust anchors and metrics, no matter how hard you try.
Changing your trust anchor to "the government" just means you end up getting fucked on a larger scale, over a larger timeline.