Bitcoin: Hope for a New Era
How an evolution in value is reshaping society.
It is 2015, and money as we know it is on the dawn of a transformative change.
This is no pure coincidence, either. The financial and payments industries, both notoriously stagnant innovators, are now experiencing ripple effects of other technological changes that have been remodeling our social fabric - smart phones, the Internet, and television have altered the ways we interact, socialize, and connect. In 2015, innovation in other industries is forcing the payments industry to refocus.
Perhaps the story here goes deeper. For millennials in America, a number of key events have influenced our relationship with money:
- The tech bubble of the late 90's and early 2000's
- The attacks of September 11th, 2001
- The 2008 financial crisis
- Occupy Wall Street
- We grew frustrated with having to physically go to ATMs, and paying people while out at a group dinner has reached peak-annoyance
Each of these helped to define money in their own ways:
- The tech bubble imposed great hope and charged fear in high-risk stock-market investing.
- The September 11th Attacks reshaped our national sense of identity, and subsequently the imperative to fight Terrorism strengthened Anti-Money-Laundering, communications, and financial crimes enforcement.
- The Financial Crisis of 2008 reshaped our sense of job security, confidence in global markets, forced us to question our trust in banks, put forth an imperative for a legal and collective examination of lending, trading, and oversight processes used.
- The Occupy Wall Street movement raised awareness to the growing income inequality issues in America, and furthered the discussion for banking reform.
- Companies like PayPal and Venmo have reshaped how we use money digitally, how we pay our friends, and how we make purchases online.
Collectively, these events over the past 20 years have undeniably reshaped the way that we relate to money. As a result, we now send money through Chase Quick Pay, file our bills online, utilize online banking, deposit checks through our phones, and often-times now do not carry cash on us.
As a millennial, I too felt the collective effect of the aforementioned trends and events, and they began to change the ways I thought about and used money. During my junior year of college in the winter of 2012, I found myself to be generally befuddled by current affairs. With tensions heightening and political turmoil in the Middle East and Far East, political environments becoming increasingly complex and uncertain, and the global economy struggling and income inequality often widening, I began to question the world more. Discussions about economics, politics, technology, education, opportunity, and personal freedom always circled back to a common and core underlying theme: money.
I increasingly realized that money is a tool that literally modifies the way that millions of people live their lives, a system created by humans with very specific rules for the creation, circulation, and processing of monetary transactions. I thought that, if money itself could be somehow changed, the world as a whole could be better; economies can function more effectively, people could pursue work they are more passionate about, and the world could live with less of an imperative for consumption. One day in particular, I found this amazing video which echoed these sentiments:
Sacred Economics traces the history of money from ancient gift economies to modern capitalism, revealing how the money…sacred-economics.com
In it, Charles Eisenstein, author of Sacred Economics, discusses his vision for how money can evolve to help improve the world:
“The task before us then is to align money with the true expression of our gifts. It requires a very different mechanism for the creation of our money, and the circulation of our money.” -Charles Eisenstein
By realizing that money is a social agreement, I began to relate to money differently. I, and others, saw and felt a need for something better and new, something that would enable more people to feel truly happy, fulfilled, and free.
Shortly after seeing the Sacred Economics video above, innocently, on a mid-week afternoon, I was discussing the potential of a LETS System with a friend. Off-handedly, he mentioned Bitcoin, the internet money that had undergone price a wild price swing in the summer of 2011, its first instance of signifiant media attention. Over the next year, as I learned more and more about Bitcoin, I became hooked.
To me, Bitcoin, the peer-to-peer internet currency, represents the largest opportunity to positively impact the world through changing money itself. A fledging, difficult to grasp form of money, Bitcoin often invokes mystery. The underlying platform, the Blockchain, has serious potential, some even calling it a second-coming of the internet.
First released in January 2009, Bitcoin is the result of over 40 years of research into Cryptography, Distributed Computing Systems, and Computer Science. Because Bitcoin is run on a distributed computer network, it is able to function independently of global affairs.
More importantly, Bitcoin changes how book-keeping functions, and subsequently the need for trust in a third-party to intermediate and process lists of who-has-how-much-money is altered. Bitcoin, the first peer-to-peer digital currency, stands separate from the traditional system of banking.
A common initial question I heard around Bitcoin was a misunderstanding of how a Bitcoin can have value if it is not backed by a government. Many are surprised to learn that currencies are often times not backed by anything. A currency’s value is derived because people collectively agree it has value, and that others will recognize that same assumption of value when the money is used. As Graeber states:
In this sense, the value of a unit of currency is not the measure of the value of an object, but the measure of one’s trust in other human beings.
Because of recent technological breakthroughs, we have discovered the most important data keeping innovation since the printing press.
Bitcoin is distributed, secure, global, and trustworthy, it has immense inherent value. It matters. It represents a new possibility for how value is determined and shared in local and global communities.
When the imperative for trust in intermediating monetary transactions is bestowed solely upon financial processes and infrastructure provided by centralized institutions, there are inherently problems that arise. As is stated in the Bitcoin White Paper:
Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model.
Completely non-reversible transactions are not really possible, since financial institutions cannot avoid mediating disputes. The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions, and there is a broader cost in the loss of ability to make non-reversible payments for nonreversible services.
With the possibility of reversal, the need for trust spreads. Merchants must be wary of their customers, hassling them for more information than they would otherwise need. A certain percentage of fraud is accepted as unavoidable. These costs and payment uncertainties can be avoided in person by using physical currency, but no mechanism exists to make payments over a communications channel without a trusted party.
While Bitcoin is not the solution to all of these issues, it is an amazing start. Bitcoin is community owned, community build, and community maintained; a computer network with communal oversight. It enables for trust between any two people, anywhere in the world, in a digital environment, whether they know each other or not, independent of what language they speak. By providing a distributed, trust-less peer-to-peer computer network, two humans can now trade scarce goods (including scarce numbers themselves, a.k.a. “money”) over the internet, without knowing the other person.
For the first time in human history, any two people with an internet connection can trade “property” (Bitcoins, contracts, representations of physical things) within a digital environment without the need for oversight or verification from centralized institutions.
Therefore, Bitcoin and its underlying Blockchain, represent a historic technological breakthrough. By solving the Byzantine Generals Problem, the Bitcoin network now presents an opportunity to re-invent the way money, contracts, stocks, and property are traded.
Most importantly, the responsibility over the functions of accounting are given to a time ordered, permanently writable, non-centrally controlled database.
Bitcoin, by providing a platform for secure transacting of any digital-asset on a consistent, secure, and global system will change the way we view and interact with those in developing regions of the world. Today, roughly only 3 billion people worldwide have access to the internet. This means that there are 4 billion people worldwide without access to modern, reliable banking that is accessed through the internet. These un-banked and under-banked people are effectively economically shut out from todays globally focused world.
With Bitcoin, anyone with reliable internet access can obtain a wallet, and subsequently become a member of the an exponentially larger network for occupational, social, emotional, and informational opportunity. Any Bitcoin user can send Bitcoin to anywhere else in the world, and it arrives within 10 minutes for a fee of under $0.05 cents (though there are caveats here).
Without reliable banking infrastructure, millions of those without internet and reliable banking are forced to live on under $2 of income per day. To survive, developing nations have formed economic marketplaces of barter locally, a phenomenon referred to as System D. Because of the non-digital nature of these local transactions, they often go unaccounted for globally.
For example, Netflix is only provided in 78 countries globally, Amazon only in 10. Digital currency presents an opportunity for billions of people to break out of System D and into an entirely new global-economic paradigm. Often times, due to high fees, lack of reliable banking infrastructure, and poor channels for reaching consumers and businesses, big-business from the developed world has been unable to provide services to areas where payments simply cannot be processed or collected efficiently.
Bitcoin, due to its global and low-cost nature, has to potential to open up significant business opportunities where they have never before been, unleashing billions of potential customers, businessmen, and employees onto the global economic community overnight. In this sense, Bitcoin solves a distribution or ‘supply chain’ problem.
The Blockchain can even be used to track things other than money. Because Bitcoin is just a list of how much money each account has and the transactions between these accounts, the same concept can be applied to tracking other lists. For example, rather than centrally or manually processing transactions of stocks, Blockchains can be used to trade securities, thereby providing a reliable, time-saving, and cost-saving tool for exchanges like NASDAQ.
Blockchains can enable us to change the way we vote, through casting votes over the Bitcoin network. It can run programs that function to run large organizations, potentially alleviating work traditionally done tracking overhead for managerial practices, such as accounting, inventory tracking, and scheduling. Blockchains can be used to track who-owns-what-property, such as is being developed in Honduras. Blockchains have immense other potential uses — anything that has been traditionally tracked on centralized databases can now be tracked on a distributed Blockchain, which, like Bitcoin, is community built, managed, and governed.
Additionally, because money is a social agreement, Bitcoin will change the way we interact online. Micro-transactions, typically those transactions of $5 or less, will become more economically feasible (previously, they weren’t because credit card companies and payment processors charged high fees which discouraged micro-transactions). Compensation for an intelligent answer to a question, or for posting a worthwhile or funny content to social media, may become commonplace all around the world.
On ZapChain, you can already receive real money for posting intelligent answers!
It is hard to imagine the types of social norms and practices that will arise if the number of digital transactions increases 100-fold, where financial transactions buzz around as quickly and normally as words.
As we face increasingly severe global challenges, human rights issues, war, poverty, over population, environmental degradation, and so-forth, the underlying culture, processes, and systems which rule our society will be pushed to their limits. Money itself, an incredibly impactful and powerful tool, can and is being programmed to empower every human to be their own bank, to determine what value flow and transactions should mean to them, to write their own rules and create their own digital-coins. To create the economic reality and world and era that they want to live in.
Though Bitcoin has experienced its share of struggles and problems over the years, it evolves and persists. Issues over the semi-anonymous nature of digital currency transactions will have to be reconciled in the legal community, as new technology inherently challenges existing regulatory frameworks.
With investments into the Bitcoin economy increasing, companies learning best-practices for secure management, credibility-around/understanding of/trust-in digital currency increasing, Bitcoin is primed to continue its development and growth, and money itself is primed to continue its historically ceaseless evolution.
The persistence of Bitcoin, then, represents a collective shift, a re-negotiation of the social agreement of money. In 2015, the challenges ahead are immense, but the opportunity in front of us is one of the biggest imaginable. The potential for money itself to reshape society for the better, the potential for a new era.