Is Bitcoin more than just publishing huge returns for HODLers? Will cryptocurrency play an important role in society as time goes on? What can blockchain actually do? These are the questions that cryptocurrency users ask themselves as the cryptocurrency industry matures. The bottom line is that Bitcoin could play a very important role for society in the future, and we want to take a closer look at the potential impact that the widespread use of Bitcoin would have on today’s world.
Before we go any further, it is important to recognise the role that money currently plays in society.
First, imagine a world without money: we would have to rely on barter if we wanted to exchange goods and services with others. Barter does not scale, however, because the two people involved in a trade rarely have the exact quantities of goods to make a fair trade. Henry David Thoreau wrote about this concept while living in his Walden hut, after having a conversation with a “simple lumberjack” who worked in the nearby woods:
“If an ox was owned [by the lumberjack] and wished to take needles and thread to the store, he thought it would be inconvenient and impossible soon to mortgage a part of the creature each time for that amount.”
Money solves this problem, known as “coincidence of desires”, and allows us to store and exchange value over time. The simple lumberjack can sell his ox for money and then use the money to buy his needles and thread, as well as anything else he needs to buy.
In order for something to be useful as money, it requires the following properties:
- Divisibility: Good money can be used for both very low and very high value transactions.
- Portability: Good money is easy to carry and transfer.
- Durability: Good money can be easily stored over time without degrading.
- Saleability: Good money remains in high demand in time and space.
- Hardness: Good money is hard money, and if money is difficult to produce, then it will be resistant to inflation.
Money has played a huge role in the progress of civilization. It has allowed people to specialize in the fields of agriculture, science, technology, philosophy, and more. Our whole society exists as it does today because of the hyperspecialization that money allowed.
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Problems with today’s money
Originally, gold was probably considered valuable simply because it was a shiny rock. Over time, however, gold has become the most commonly used money due to its extreme durability, saleability and production difficulties. Gold has its downsides as money as it is difficult to transport and divide, which led to the replacement of gold in the 20th century with government fiat money.
Fiat money, like the U.S. dollar, consists of paper notes and accounting records, making transportation and division mundane as needed. Fiat money worked well for a while, but in the same way that society became too big for printing and faxing, so too did we, overtaken fiat money.
The biggest problems with fiat money stem from its ease of production: governments can easily create everything they need out of thin air. The control that governments have over money has always led to abuses, resulting in inflation, wealth inequality and financial censorship.
inflation
Inflation is typically defined as the rate at which prices rise. A main cause of price inflation is money supply inflation. By creating more money, governments increase supply without an equal increase in demand. This causes the purchasing power of money to decrease, diluting the value of people’s cash savings. The ability to inflate the money supply fundamentally breaks one of the most important uses of money: storing value over time.
Inflation is an area where bitcoin is undoubtedly better money. The supply of bitcoins simply cannot be inflated – it is a well-known fact that there can never be more than 21 million bitcoins. The supply of bitcoins is encoded in bitcoin software running on thousands of computers around the world. Once the last bitcoin is mined, the bitcoin network will reject any further increase in its money supply, making bitcoin the most difficult money ever.
Unequal distribution of wealth
Government control over fiat money has led to extreme wealth inequality. Our monetary system is designed to allow only the rich to participate, while the rest of us are left sitting on the sidelines, living paycheck for paycheck and watching the value of our savings fade away.
One of the main causes of an unequal distribution of wealth is the benefit that an increase in the money supply has on the rich at the expense of the non-rich. Wealthy corporations and individuals get the first access to new money as it is created. This allows them to shop with the new money while market prices still reflect the old money supply, essentially giving the rich a discount. Small businesses and working-class individuals are the last to have access to the new money, and so they are the ones who pay for the discount given to the rich. This effect is known as the Cantillon effect.
With bitcoin, the rules are the same for everyone. Bitcoin cannot solve wealth inequality, but it does level the playing field so that anyone can participate without permission.
Financial censorship
Our monetary system is very centralized around governments, banks and payment service providers. These central authorities can easily censor transactions as they see fit, including transactions of those seeking to move to a more peaceful country or those holding opposing political views.
Bitcoin is a decentralized, peer-to-peer monetary system. Bitcoin transactions can be processed by anyone, so we no longer need to rely on governments, banks and payment service providers to transfer value.
Bitcoin is money for the 21st century
Our monetary system was designed for the physical world, but so many things happen online now. The fiat monetary system cannot keep up with the instantaneous nature of the Internet. This has led to billions of people being excluded from today’s monetary system because it makes no sense for financial institutions to operate in areas where they cannot operate profitably.
To participate in the bitcoin monetary system, all you need is an internet connection, which many of these “unbanked” individuals already have. Anyone with access to the Internet can send money around the world in minutes: 24 hours a day, 7 days a week, 365 days a year. Bitcoin is a monetary system built for the digital age.
