Bitcoin Increases Economic Freedom
Most people understand Bitcoin as a speculative investment or a way to transact online. But this increasingly popular method of transaction was specifically developed as a form of currency that could not be censored, confiscated, or inflated. I believe these unique aspects make Bitcoin a superior form of currency, one that can increase people’s economic freedom.
Imagine living in a place where you did not have control over the money that you earn, or you were unable to access or use it. This situation is the reality in many parts of the world, in autocratic countries and in countries experiencing economic turmoil, government instability, or war.
Consider what is happening in Venezuela. Carlos, a civil engineer, holds a job with an employer who seldom has enough money to pay his earned wages. He keeps working because there are no better options — at least if he’s working there’s a possibility that he’ll get paid. Before Venezuela’s inflation rate went berserk, Carlos was making the equivalent of $500 USD per month and his family was living comfortably. Now, a year later, due to rampant inflation, his salary is worth only $100 USD per month, which is barely enough to feed is family twice a day and cover his transportation costs.
Six months ago, Carlos started looking for work online but the only job he could find was simple data entry work paying $4 USD an hour. He made $80 from his online gig last month, but it cost him roughly half of that pay to transfer and convert the online transaction into Bolivars on the black market due to the government blocking all money transactions into the country.
If you live in a developed country like the US, it is difficult to imagine getting caught in a scenario like Carlos’. But the reality is that over 55 percent of the world’s population lives without the freedom that we often take for granted. In these places, governments use the nation’s economy as a way to control the population and punish dissidents. Their citizens have legitimate fears that their money could be taken away, that their money will become worthless through inflation, or that they will not be able to spend it because their government won’t let them.
Issues with traditional currency
Carlos’ story is a prime example of the lethal flaws that are attached to traditional currency. Because money is issued and controlled by a central government, it is vulnerable to restrictions on its use (censorship), being taken away (confiscation), and being devalued (inflation).
Let’s evaluate each of these potential issues carefully.
Censorship: If you try to wire your money to an unfamiliar destination, the bank will ask questions and hold the transfer until they are satisfied with the answers. They may ultimately refuse to release the money and report it to the government. Additionally, banks regularly block legal but unpopular businesses from finalizing transactions on sensitive items, such as marijuana and guns.
Confiscation: Asset forfeiture laws are ripe with examples of unjust confiscation of assets belonging to individuals. People lose money, cars, and other property because it was determined to be “suspicious,” even though there was no tangible proof of criminal activity. Unsurprisingly, the organization that gets to keep these seized assets is the same body that determines what constitutes “suspicious” to justify the seizure.
Inflation: The US dollar has lost 96 percent of its purchasing power in the last 100 years. Can you believe that one dollar today buys what 4 cents did in 1918? One dollar today buys what $0.04 did in 1918.
These potential threats exist, even in a democracy like the US, so long as government’s ability to restrict and confiscate money is still socially acceptable. In comparison, since its creation in 2008, bitcoin has never been censored, confiscated, or devalued.
Bitcoin can’t be confiscated
Bitcoin is controlled by a private key (a complex password) and only someone with that password can access the coins. As long as a bitcoin owner doesn’t reveal their private keys, there is no risk of the bitcoins ever being taken from them. People wouldn’t even know someone owns bitcoin until the owner sells them.
For the 55 percent of the world population that lives in turbulent countries, there is a real concern that their government or other corrupt institutions may confiscate their savings. For these people confiscation is a real risk, and owning a currency or asset that cannot be seized would provide an extremely valuable measure of economic freedom and security.
Bitcoin is resistant to censorship
Bitcoin is highly censorship resistant. This means that it is extremely difficult, if not practically impossible, to stop someone from sending bitcoin within the bitcoin network. The bitcoin network is extremely decentralized and permission-less, making it very difficult for a third party to stop any transaction from happening. In the case of Carlos, he wouldn’t need government or bank approval to receive his pay from overseas. In fact, no one could stop him from sending or receiving bitcoin as long as he had access to the internet.
Bitcoin provides absolute and unconditional ownership
No one can stop a bitcoin transaction, regardless of whether it is being executed to fund a political prisoner’s escape or a terror operation. No one can seize your bitcoin wealth, whether it was gained through a lifetime of honest work or illegally overnight. The technology makes no moral distinctions of this kind, it simply ensures an individual retains full rights and freedom to transact with the property they control (with their private key).
Here’s an example of hundreds of millions in bitcoins in an unstoppable transaction from one entity to another: LINK.
This philosophy of total ownership will create some minor but solvable problems for first world democracies, but it represents a revolutionary level of freedom for people living under authoritarian regimes, significantly weakening a key weapon these governments use against their own people. Absolute autonomy over your own money is the primary value proposition of bitcoin.
Bitcoin is limited in supply
The third important property of bitcoin is that it has a limited supply. There will only ever be 21 million bitcoin in existence, and any bitcoin lost or destroyed can never be recovered or recreated. Why is this important? Let’s take a look at gold and the US dollar.
Historically, one of the major attractions of gold has been its very limited supply. All the gold that has been mined in the world could fit into three Olympic swimming pools — an extremely minuscule amount for something that the whole world wants. The amount available each year only grows by a few percent, which makes gold a very scarce and desirable asset. This has been true for thousands of years. If you buy gold today you know you can sell it tomorrow or a hundred years from now. You know it will continue to be in demand. Due to its naturally limited supply, it carries immense value.
The same cannot be said about most traditional currencies. It might be a safe assumption that the US dollar will still be in demand one hundred years from now, but it is also reasonable to assume that the total supply will have increased dramatically. Large increases in supply can drive up inflation. In the last hundred years, the money supply has increased over 50 times and the US dollar has lost 96 percent of its value. There is every reason to assume that the next one hundred years will follow a similar pattern. The dollar an individual has today will likely suffer the same inflation, and eventually be worth only pennies. The sad fact is that most currencies performed much worse than the US dollar over similar time periods.
But bitcoin, with its fixed supply of 21 million coins, is very different. That’s not many, but fortunately you can own as small a fraction as 0.00000001 of one coin. The supply can’t be inflated for any reason, so the value won’t automatically decrease over time. But will bitcoin still be worth anything in one hundred years? Given that the supply is fixed, the key to answer that question is whether there will still be demand. After all, if demand for a fixed-supply money remains the same or increases, the purchasing power of it will remain the same or increase. Conversely, if demand goes down, the purchasing power will go down as well.
Demand for bitcoin will never go to zero because of the financial freedom it presents. It meets a core human need. And because the supply is fixed, this creates a virtuous cycle where adoption increases the users’ freedoms, and increased adoption of bitcoin, in turn, increases the price of bitcoin because of the fixed supply. Price increases drive awareness to the network and the freedom it brings to bitcoin users, creating a positive feedback loop effect as the cycle continues.
Critics can argue that bitcoin is a poor choice to store value, due to its volatility. After all, Bitcoin has dropped 25% in one record day and often sees double-digit swings in a single day. But this volatility needs to be seen in the context of the freedom and security inherent to the bitcoin network: if you are at risk of censorship or confiscation of the traditional currency you use, you stand to lose all of your wealth very suddenly. A short term volatility of 10 or even 25 percent, by comparison, is a far less severe concern. Furthermore, bitcoin has a history of price appreciation precisely due to its positive network effect. Keep in mind that it was only seven years ago in 2011 that it was $1 versus $6,300 today.
So what does store of value provide?
If you know your money will have value in the future, you have the ability to plan for the future. You can put off spending today with the expectation that you can spend later on. This may seem trivial to people living in first world democracies, but this degree of financial stability is certainly not universal. A person living in Venezuela today, making earnings in Bolivars, must use that currency almost immediately or else risk losing their purchasing power within days. In over 80 countries the current inflation rate more than halves people’s wealth every 10 years. In an environment like that, you may be able to plan for the next week or even the next year, but you can’t financially plan for your children’s future — there’s just too much uncertainty. Any savings you collect for them could be destroyed if the value of that savings is stored in a local currency under an unstable regime.
To sum it all up, bitcoin transactions can’t be censored and bitcoins can never be confiscated. This is unique among currencies and can bring increased freedom to those who live in countries with authoritarian governments. Bitcoin allows people to save and spend more freely with less interference from third parties and the currency’s limited supply ensures that its value can’t be inflated away, allowing individuals to plan for the long-term. This improves the lives of the individual and society as a whole because bitcoin improves the ability of each individual to be optimally productive within their society.
