Cryptocurrencies: are governments prepared for a 15% drop in GDP?

The Young Generation Holds a Different Perspective

The recent report on Millennial Behavior published by Goldman Sachs sheds new light on this generation: they are the largest demographic, expanding further as they advance into their prime working and spending years, and the subsequent environmental impact will be huge.

PEW Research Center

Millennials have developed during pivotal times of technological change, globalization and economic disruption. This period of monumental adjustment has provided millennials with a significantly different set of behaviors and experiences than their predecessors. They are, for example, more reluctant to buy items such as cars, music and luxury goods.

Instead, millennials can be observed in turning to a new set of services providing access to products without burden of ownership, thus stimulating the rise of a “sharing economy.” The affinity of millennials for technology is also reshaping the retail space: with new levels of product information, user reviews and instant price comparisons at their fingertips via smartphone, millennials can now access products offering maximum convenience at the lowest cost.

Facebook 2016

And what about money? A 2016 Facebook study showed that 92% of millennials do not trust banks, with 45% open to switching banks.

Bitcoin is better than real estate for 21% of millennials

The following article was published the 28th of June 2018 in NEWSBTC: UK-based build-to-rent developer Get Living conducted a poll among 3,000 millennials to better understand their position on property investment. It found out that three-quarters said they believe there are more rewarding investments to be made than putting money into real estate.

The study found that 57% of millennials consider property a ‘high risk’ investment decision over the next five years and Bitcoin is seen as a better investment by 21% of them.

An Old Generation that does not Understand

On April 11th 2018, Facebook CEO Mark Zuckerberg was the center of attention at a now-infamous congressional hearing. “You will rightfully have some hard questions for me to answer,” he said during the opening remarks.

Photo: Jim Watson/AFP/Getty Images

As it turned out, Zuckerberg did not have much to worry about. In fact, he was likely over-prepared. It was clear to viewers that many of the congressional lawmakers had crammed ahead of the high-profile hearing with the help of their (presumably younger) staff. They came armed with “gotcha” questions taken from news stories of Facebook’s many alleged misdeeds, of which just as many were unsubstantiated.

For instance, several congresspeople referenced bogus reports of Facebook eavesdropping on conversations through the microphones equipped by smartphones. In a hearing meant to call out Zuckerberg for his company’s lack of transparency on personal data harvesting, it was Zuckerberg who emerged as the sympathetic character.

This was but one example of a hearing rife with examples of generational clashes: the “old” generation running the biggest companies or governments yet not possessing the understanding of the technologies driving the “new” generation, as personified by Zuckerberg.

Cryptocurrencies as Financial Instruments

The internet has already changed the world to a once-unfathomable extent, yet the ongoing onset of cryptocurrencies (referred to for the remainder of this article as Bitcoin) is such that they will be just as significant a revolution. But what it is about them that makes them so important?

It is not the volatility of the currencies, nor how much money one can make from them.

It does not matter if a Bitcoin is worth $1,000 or $1,000,000. It is the technology and what one can do with it.

Bitcoin, and its supporting blockchain are emblematic of Peer-to-Peer (P2P) technology’s newest heights.

No single trustee — human or machine — is required to validate blockchain transactions as was the case with traditional transactions. This immutability means that nobody can change records stored. This resistance against censorship also means that nobody can have an influence (positive or negative) upon or shut down the blockchain.

Indeed, no government can regulate Bitcoin as it is not dictated by geographical borders. Unlike bonds and shares, cryptocurrencies are global and traded 24/7. Due to inclusivity and neutrality, everybody can participate. The driving factor behind these differences is decentralization, which many now (rightly) regard as a new form of governance.

Economic Impact

For many governments, inflation and taxes are two ways to reduce debt, though it is usually the population that must foot the bill. Said governments are able to achieve this only by holding the population with some form of force.

Bitcoin, on the other hand, offers a uniquely powerful set of financial service untied by traditional governmental ownership. It drives economic inclusion, enabling users to be the owners of their own bank and, for the first time in the case of many, opt out of their nation’s traditional monetary system.

Today, only a small portion of the global population makes use of Bitcoin as a viable monetary system, which in turn means no real impact upon the broader economy or middle class. Also, most on/off ramps (exchanges) are centralized and so are not free from adverse governmental influence. This, however, will certainly change.

The average age of global crypto purchasers is currently 34 and it is predicted that, in less than 10 years, 15% of the population will opt for digital currency above traditional money.

Bitcoin’s digital monetary competition is one that governments cannot control. A population shift of 15% is significant, reducing the options of any nation’s government and providing suitable cause for concern.

The options for and freedoms of traditional governance are reducing — preparations must now be put in place. The impact will have worldwide implications, forcing governments to change their behavior for the benefit of their citizens.

This is why it is by no means the price of cryptocurrencies that will have the biggest impact. It is the way that they will be used beyond their base function as a financial instrument, and the many humanitarian applications of their underlying blockchain technology.