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Cryptocurrency: How Bitcoin and Digital Money are Challenging the Global Economic Order

By Paul Vigna, Michael J. Casey

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New business models are extensions of a process that began far earlier with the advent of the Internet. While no self-respecting bitcoiner would ever describe Google or Facebook as decentralized institutions, GoogleAds allowed small businesses to bypass big media organizations and to market more directly to prospective customers; Facebook allowed people to organically form groups, communities, and associations that weren’t tied down by geography or social and national structures; Twitter meant people could design their own news feeds.

Is a clash building between these two movements, the corporate world’s concentration of wealth and power, and Silicon Valley’s reempowerment of the individual?

Perhaps these trends can continue to coexist if the decentralizing movement remains limited to areas of the economy that don’t bleed into the larger sectors that Big Business dominates. But that’s not what the proponents of this technology foresee—especially those in the cryptocurrency sector. They believe that decentralization is just getting started and that the centralized economic and political establishments—even governments and nation-states, those ultimate centralized loci of power—will be disrupted by it.

A phrase from Mastercoin’s David Johnston that some in the cryptocurrency community call Johnston’s law could come true: “Everything that can be decentralized will be decentralized.”

We may well be on the verge of a profound societal upheaval, perhaps the most significant since the sixteenth century, when, in the second half of the Renaissance, banking and the nation-state established themselves as the central forces of power around which the world’s monetary and economic systems would revolve.

When faced with these kinds of disruptive challenges from new technology and new ways of organizing society, businesses and institutions that occupy the center—those that represent the economic and political establishment—have three choices. One is to just ignore the new idea, to dismiss the new idea and carry on as normal. A second is to fight it, perhaps through political lobbying, or by using advertising campaigns or smear campaigns to destroy the nascent threat through negative associations in the public eye. A third is to try to adapt to it, to incorporate, co-opt, or otherwise work with the new technology or concept.

What of the nation-state itself? How will it respond? Ignore, fight, or co-opt? The sovereign-money system, and especially the fiat money that gives the state unchecked power to print currency as it sees fit, has arguably been the most powerful weapon in the nation-state’s arsenal. More than just generating seigniorage—the seductive idea that every dollar printed is an interest-free loan flowing from the people to the state—controlling the nation’s money has allowed governments to control the apparatus of power. With paper money they can purchase arms, launch wars, raise debt to finance those conflicts, and then demand tax payments in that same currency to repay those debts. A functioning democracy should, in theory, put limits on all that. But in reality this monetary system permits the extension of power. It funds bureaucracies and agencies whose employees put their own survival above all else. In the worst nation-states (think North Korea), it finances the instruments of terror and repression that destroy people’s dignity.

If that system were to go away, the nation-state, whose interests lie like all of ours in survival, would have to figure out how to respond. For the first time in centuries these questions must now at least be asked.

From Silicon Valley, the impression is that human society is now ready to throw out the centralized system altogether and embrace a decentralized model run by “the crowd.”

Cutting welfare might have been in vogue in the era of small government that emerged with Reagan, but as the ranks of unemployed and underemployed grow, their political clout will, too. No matter what cryptocurrency technology can do to bypass governments, it’s the interests of people like these that will determine the laws and policies of the future.

Whereas cryptocurrency enthusiasts tend to think now of Google, Facebook, Twitter, Apple, Microsoft, etc., as the centralized establishment—the enemy—it’s worth remembering that they, too, once only existed as radical, disruptive ideas from unheard-of start-ups.

Because the legal system was structured such that those start-ups were allowed to flourish and seek profits, the world has changed.

One day the new crypto start-ups that currently hold the baton in society’s ongoing fight for liberty will become part of the establishment themselves, much as Google and Facebook now are.

The kind of payment products that Apple and others are toying with are built upon the old bank-centric system and so are fraught with the same underlying costs and inefficiencies, whereas bitcoin is free of them. But the question is, what do people want? That brings us to the ultimate measure of whether cryptocurrency can succeed: whether, when it is weighed against the competition, people can be convinced of cryptocurrency’s benefits, dissuaded from fearing its pitfalls, and made willing to abandon the government-issued currencies with which they were raised. That’s no simple task.

Cryptocurrencies promise to dispel much of the enormous cost that a bank-centric model of payments imposes on our global economy; they could bring billions of people excluded from that system into the global economy; and via multiple blockchain-based applications, they promise to hold whole classes of middlemen, centralized institutions, and government agencies accountable as never before.

Nobody knows which direction cryptocurrencies will travel, but smart people, smarter people than us, make it their business to try to figure out which path these things will take.

We have stressed all along that the underlying technology presented by bitcoin’s blockchain matters far more than the specific currency that bears its name.

Cryptocurrency’s future has a binary aspect: if it fails, nothing happens; if it succeeds, it’s a game-changer. If and when the game changes, so much else about the structure of the world changes as well.

The decentralized bitcoin network and its public ledger, the blockchain, are at their essence a radical new way of dealing with information. In this case, it takes information about monetary transactions and economic exchanges out of the hands of monopolist institutions and creates a decentralized mechanism for society to judge the validity of that information. Thus cryptocurrency can claim to be the latest in a long line of technological developments that have shifted power out of the hands of centralized elites and handed it over to the people.