Is Bitcoin important ?
Is the invention of peer to peer money as important as money and assurances ?
Is bitcoin a fad that will pass by? A hype now only in the news because to large flocks of golddiggers seeking their coins of chance ? To answer this question we have to step back and look to the history of money and its impact on society.
Already 3000 years before Christus the shekel was used as commodity money instead of a gift economy. Commodity money basically represents a kind of proxy to something of value stored in central place. Instead of moving around with gold or diamonds, using commodity money was much more practical. Commodity money evolved into a system of representative money. More money could be issued by a central bank and circulate than the actual value of gold bars in a Fort. Both inventions gave an enormous boost to the economy.
Around the 18th century, developments in mathematics and the calculation of chances (think Bayes) gave birth to the system of insurances. Again a major boost was given to the economy. Traders, such as Lloyd, could make financing a fleet of ships that travelled the world profitable. Before insurances, the loss of only one ship was enough to cause bankruptcy dampening possibilities of sea travel. One could argue that the world supremacy of the United Nation of England at that time was partly due to the competitive advantage offered by insurance companies arising in the financial districts of London.
Fast forward to our times, due to the bank crisis and other emerging trends a lot of people and clever guys like Umair Haque, author of the New Capitalist Manifesto, claim that it is time for something new. But what would that be ?
Enter bitcoin, a system of peer to peer money that is designed to function without a central authority. The scarce resource is not gold nor diamond but computing power. Also no trust, the “real” currency of the bank, is needed because everybody with sufficient computing power can make coins. There are no banks too big to fail. If compute power increases dramatically, some parameters in the bitcoin system are altered to enlarge the required compute power accordingly. To get a better understanding of bitcoins read “Bitcoin: Price v hype” or “How the Bitcoin protocol actually works” by Michael Nielsen for a more indepth review. Reading that text prompted me to write this medium post.
Can bitcoin become instrumental to the economy of the future? At least one problem comes to my mind. Suppose we slowly adapt towards a new economy based on bitcoin, how will we regulate the cycles apparently inherent to the economy as explained in How The Economic Machine Works by Ray Dalio without a central regulator?
But whether bitcoin will pass the test of time is not the real question. The question is: “will the invention of the peer to peer money” boost the economy to the next level such as representative money and insurances did in our past ? What other impact will bitcoin systems have on the society. Are business models based on subscriptions targets for disruption? Instead of paying a monthly fee for connectivity to our telecom operator, pay on the spot the provider bidding the best price? Such models become feasible with a true digital currency. What other new things are possible if small money transactions are instant and without fee nor subscription? Or can we make an identity provider/authentication system based on the algorithms that verify bitcoin transactions that does not need a central player such as Google, Twitter or Facebook? Start thinking.
If bitcoin ignite the next economic revolution, they will become very important, irrespectively from their future, but for their role as catalyst.
