When Will Cryptocurrencies Destroy States?

Intro

State will exist forever, but in the future we are likely to imply something different under this word. History is familiar with such turning points like signing the Westphalia peace treaty in Europe in 1648, which laid the foundations of what we call a sovereign state now. Crypto technologies are probably shaping the basis for serious changes. Maybe, the current notion of “state/country” will no longer exist.

I won’t try to predict what it may be like. I am just explaining what should happen to trigger irreversible changes, namely, how the common usage of the blockchain and crypto currencies will make impossible centralized political systems and legislation.

So, the current notion of state started in 1648, today it is called the Westphalia system. After the eighty-year-long wars in Europe people produced the concept of sovereignty to define the territory integrity and protect state borders. Thus, the Westphalia system is very close to its dramatic end. No, there won’t be another war (I hope so, although some experts have a different opinions, and discuss this possibility of the third world war in the terms of ICO and crypto currencies). But the concept “sovereign territory” is going to be greatly changed.

Internet put the first nail in its coffin, when it started demolishing of informational state boarders. If we omit several other technologies, the second factor is the blockchain that has started shaking sovereigns’ currencies. The blockchain first ever provided a competitive alternative: now each single market entity can theoretically deal without the currency provided by the central bank, of course, it is quite difficult to do at the moment. Nevertheless, states start losing their power and control over people’s minds through money.

For example, today we see the arise of ICO phenomenon which in many cases exists beyond national jurisdictions and borders. Entrepreneurs are issuing and selling tokens for cryptocurrencies to fund their commercial projects and many of such projects are very similar to joint-stock companies: they have their stocks and stock exchanges to trade them; stockholders have rights, possibilities to vote and get incomes. But many of them are not registered in any jurisdictions, and they don’t exist in any official paper.

Nonetheless, I would like to point out several significant obstacles, which, in my opinion, prevent mass crypto currency from expanding.

Scalability

The first problem is the blockchain-system scalability. Segwit hardfork gave hope for better future, because it was useless to compete with, for example Visa while bitcoin off-take capacity was 7 transactions per second against those of 22 thousand. However today we have successfully working other non-PoW protocols and technologies with better performance. To add this, such projects like The Lighting Network, EOS or Red Belly Blockchain and perhaps will change the picture completely.

Volatility

It should be admitted that nowadays to trade bitcoin is rather difficult due to its sharp rate changes to fiat currencies. It is practically impossible to provide any long-term obligations while bitcoin is used as a speculative investment. Just imagine if you got a debt to pay 1 bitcoin someone one year ago, it would worth $400. But today you would have returned 1 BTC while it worth ten times more. Some experts have an opinion that bitcoin volatility will lower down in 2019. But others claim that it will cost $500.000 by 2030 or even in three years.

Energy Market

Thirdly, it is impossible to include Bitcoin or other similar crypto currencies in the suppliers’ chain. If the volatility issue was solved, it could be profitable for us to trade products and services for crypto currencies; to achieve that bitcoin should be introduced into the energy production cycle to pay for electricity and energy resources. The thing is that even if end consumers and vendors agree on using Bitcoin for payments, vendors will still have problems with suppliers. The vendors’ suppliers have to accept Bitcoin, otherwise how are vendors going to purchase products? Of course, they can exchange crypto currency to money, but exchangers will rip them off with commissions, so nothing will come out of the trick. This chain doesn’t end with suppliers. Manufacturers also have to agree for Bitcoin. As 70–90 percent of production is industrial, energy products are at the top of the real economics chain. Hence, the energy purchase must be done with Bitcoin.

You may ask how to resolve this situation? OPEC, the USA, the Russian Federation and other oil, gas, and coal producers have to sell their products for bitcoins. It is highly unlikely. There is an alternative, namely, to create energy from renewable sources. Of course, it can’t replace fossil fuels in the nearest future, but there are some perspectives, I can’t argue that.

Cash

The fourth issue is you can’t use Bitcoin as cash. Crypto currencies can’t work without the Internet and power connection. Cash has serious advantages, as you just pull it out of your wallet and pay for anything. You don’t need any electricity or Wi-Fi. Another thing is the inertia of people’s minds. The older generation and even a younger one precept these geek things as really sophisticated. Of course, we can wait for a new generation (25–30 years to pass) to replace the old one. But it is not our method, is it?

The possible solution is to provide mass consumers with a portable autonomous device that can interact peer-to-peer with similar devices, smartphones, computers and payment machines without the Internet connection. So that two people can pull out their devices and directly wire (NFC, Bluetooth, etc.) each other the necessary amount of crypto currency. Such transactions are certain to have a bit pending status until the device connects the Internet and uploads the transaction to the blockchain. Something of this kind is being developed within the Lighting Network project. In addition, it is necessary to consider the people who feel reluctant with all these innovative things. That is why the device should be so simple and accessible that any person could use it. Basically, it must be a “mass destruction” device.

At the moment, the issue of half-offline or offline payments can’t be solved. As a result, crypto currency lacks one very important characteristics that money has — its mobility.

Taxation

State retains its monopoly on financial and fiscal systems. That’s why we have to pay taxes and do it only by money. Hence, if a manufacturer-consumer chain can be arranged, the state will still intervene and ask to pay. There won’t be any locked down chain.

But

However, there is a “but”. It is the culmination of the article.

It can change everything. The thing is if there appears such a solution with a killer feature allowing people to pay in crypto currency as easily as to get a note out of their wallets and they could do that without the Internet at least for a short time and with long energy lifetime, the society is surely going to experience irreversible changes.

Such devices are going to destroy the sovereign’s monopoly on the national currency. People will be able to perform their economic activities without any state control, which means it will be unable to collect taxes. This is where the disintegration of central power bodies and political system can begin. Most probably, some countries like Bangladesh and Ecuador which prohibited Bitcoin, will introduce different bans. But they won’t be of any help. This is the agony of the old dying world and the birth of a new one. What is it going to look like? This is a subject for future contemplations and articles…

At the end of this paper I would like to visualize the idea of offline crypto currency. I invite users to dream a little bit with me and suggest your own ideas in addition to the designs mentioned below.

Oleksii Konashevych

Written by

http://oleksii.konashevych.site/

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