Opinion

Bitcoin – The Quest for Non- State Money

The technophiles and cypherpunks behind bitcoin are elusive characters that have no celebrity status like the economists, investment and money managers, hedge funds and bankers. They have worked in fear and paranoia to produce a revolutionary technology that’s going to define the future and history of humanity forthwith. They have opened a Pandora’s box and the gin is out of the bottle and will never get back in. Bitcoin has opened a debate on the nature and origin of money. It has awakened the interest in humanity in what money is and questions the monopoly the governments and banks have in money creation and control.

In 2008 a whitepaper appeared on the newsgroup of crypto enthusiasts and libertarians to announce the birth of Bitcoin. The creator or creators pseudonymously called Satoshi Nakamoto announced to the world that they have managed to create a digital internet cash and wanted the world to evaluate this new technology and see whether there was any merit to their creation.

Bitcoin is the amalgamation of different technologies and subjects namely, blockchain, cryptography, economics(including game theory), finance, mathematics and networks. There has been attempts to create digital cash before but all had ended in failure. Satoshi Nakamoto managed to put these pieces together and thus the bitcoin protocol was born. Bitcoin is the next iteration of the internet. Whereas internet was for the transfer of information, the premise of bitcoin is a protocol for the transfer of value. Its a peer to peer(P2P) network that enables people to transfer value between each other without any intermediary ie i will be able to sent bitcoin to someone in lets say Zimbabwe as long as they have a bitcoin wallet. Thus people are able to send value to each other without a middleman. This means there is an existential threat to the business model of the banks.

Bitcoin is a revolutionary technological marvel whose creator(s) deserve a Nobel Prize in Economics but i doubt they are ever going to get it. Maybe posthumously when the future of the human race appreciate this paradigm shift and bitcoin becomes ubiquitous like the internet in our daily lives. Right now to many especially in the western world bitcoin(BTC) is just a speculative asset. This is different in a lot of developing nations where the volatility ascribed to bitcoin is far better than the issued currencies. A lot of highly regarded economists, investors, bank CEOs and politicians with little understanding of the technology have termed it a currency of the underground or a ponzi scheme with no real utility. But monetary history tells us that society decides what is money and once they coalesce on that money item it becomes the medium of exchange and the money thing. In the forgone past cattle, beads, iron, copper, etc have been the money thing at one time and in some societies remains so. There is evidence of use of cigarettes as money in prisons.

BTC(Bitcoin) is the humanity’s desire to disintermediate the nation state from printing money and put money printing in the hands of the people. This has been the dream of many heterodox economists like Hayek and Minsk. Hayek questioned the role of the government in money printing and saw the inherent problems with politicians and bureaucrats in having charge of the amount of money in the economy. In his seminal paper “Choice in Currency” he highlighted these issues. He advocated for money to be private just as other markets are. This would eliminate the political cycle which leads to booms and busts in the economy. It is because politicians are tempted to print money at the political cycle to boost their chances of re-election. Milton Friedman predicted the rise of such a currency.

Whether Bitcoin will be the ultimate winner in this sphere that has ballooned to thousands of cryptocurrencies remains to be seen. At the moment Bitcoin remains at the top of the pack with a market capitalisation of over $700B. It has to be noted that it appears to have failed to be the digital cash that was advocated in the whitepaper but there is still a lot of experimentation that’s happening in the space with layer two solutions like the lightning network to enable micropayments. Some are speculating that it will end up replacing gold ie become the digital gold. It is observed to have many characteristics that makes it a better store of value than gold namely easy of transport and security.

There is also talk of stablecoins and Central Bank Digital Currencies(CBDCs) eclipsing bitcoin and becoming the currencies of the digital world. Only time will tell. We are living at an inflection point in history were geopolitics, climate change, trade, rivalries, wars are ushering in a new cycle in our history as a species. A cross road in the history of humanity and our planet. The old certainties are being appended. What a time to be alive!

David Mutanga is a Co-Founder of Favco Ltd. Favco Ltd imports fruits and vegetables from Africa to Europe. David’s holds a Diploma of Nursing(Mental Health), BSc in Computer Science and Mathematical Sciences and MSc in Economics. He is a Monetary history reader with interests in Austrian Economics, Cryptocurrencies, Political Economy. 

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