Could Bitcoin be the First Worldwide Currency?
— November 14, 2018
Many will scoff at the very notion of bitcoin as a worldwide currency. “It doesn’t scale,” “it’s not backed by anything,” or “it’s an elaborate Ponzi scheme” are common critiques of the financial and technological innovation. Such sentiments show a clear lack of insight into the concept of value, the ability for software to evolve, and a free market’s innate gravitation towards the best.
The Soundest of Money
Bitcoin possesses a unique palette of features that make it an excellent form of money. The most important is its true scarcity. Money needs to be difficult to create. If it’s not, it’s worthless. For example, banknotes (which incidentally are easy to create by those that hold the right keys) make use of elaborate security methods to make forgery as hard as possible.
Creating gold, meanwhile, requires a nuclear reactor, a lot of mercury, and a decontamination unit. Since gold cannot be produced by a central banker, it is clearly the sounder money than a bank note or onscreen visualisation of a dollar in your bank account.
That said, there are no accurate estimates as to how many tons of gold are left to mine on earth. There is known to be masses of the stuff at levels deeper than current excavation techniques will allow extraction of. With no real knowledge of the quantity down there, there is no telling the rate at which gold will be mined when mining technology improves.
On the contrary, both the total supply and its release rate are hardcoded into the bitcoin network’s ruleset. These rules are reinforced by the largest pool of processing power the planet has ever known. There is no way that more bitcoin can be created to inflate this supply.
In terms of sound money, neither fiat currency or gold can come close to bitcoin. It’s a completely open network that anyone can participate in across the globe, whilst allowing for the transfer or billions of dollars’ worth of value across the globe in minutes and in an incredibly secure way.
Bitcoin outperforms the former most sound money the world had every known in just about every respect. It has a known supply, is highly divisible, can be transferred and stored for very little expense, and requires no permission to participate in.
What is Value?
Fans of shiny metals will often retort that bitcoin is not backed by anything and therefore cannot be valuable even if it does do what gold does and better. They will say that gold has historic precedence as a store of value and medium of exchange. However, people have used many things as money prior to banknotes. Gold emerged from millennia of experiments as the global reserve currency precisely because it is difficult to extract, and impossible to profitably create.
Gold wasn’t adopted as a store of value because of its nominal use in creating electrical components, nor was it thanks to the fact that it can be delicately shaped into elaborate shapes to adorn the bodies of the affluent. It has been used a store of value for many years owing to it being the soundest unit of account we had at our disposal. Bitcoin, of course, changes that.
Fiat currency is a very new invention in human history. National currencies were removed from the gold standard during the middle of the twentieth century. No longer were the notes in your pocket redeemable for bullion. This allowed central banks to print money. The creation of money makes all the money in the system lose value. The consumerist society which ensues from using a deprecating monetary value is neither healthy for us people or the planet we live on.
When a national currency devalues, people search for a sounder alternative. Gold is still used by many as a hedge against the instability of the system of central banking that controls different nation’s monetary supply.
During the recent Zimbabwean currency crisis, people gave up entirely on the domestic currency and would use a myriad of other, sounder currencies to trade with instead. Sounder money replaced volatile more volatile cash, as it always will do. Many Zimbabweans also realised that Bitcoin represented a better quality of money than the hyperinflated local currency. In November of last year, the bitcoin price listed at domestic exchanges was twice that of the rest of the world due to the sudden surge in demand.
Second Layer Solutions
Many will argue that bitcoin is ill-suited for use as a global currency since it struggles to scale. However, they misunderstand the potential of the coming revolution. The most important characteristics of Bitcoin all relate to its security. This makes it the perfect base for a future monetary system capable of eliminating high-priced middlemen and speculative money monetary policy, whilst providing a single global language for merchants and their customers to communicate value.
For bitcoin to replace all global currencies, it must offer sounder money at its base layer. This means it must be almost impossibly secure. Bitcoin’s security comes from its decentralisation. Therefore, attempts to scale the base layer to meet greater demand must not come at the expense of decentralisation. Without such an entirely censorship resistant base, the system fails to provide anything truly ground-breaking. Scalability to allow for the day to day transactions needed to serve an entire global society’s worth of commerce will be added on additional layers to preserve the security of the base layer protocol.
In the scheme of things, the bitcoin story is only just beginning. Vast teams of the smartest computer scientists on the planet are working on additional layer scaling solutions such as the Lightning and Liquid networks. By adding such improvements as layers via soft fork, it is up to the user to decide their desired uses for bitcoin before choosing whether to transact over the Lightning Network, the base layer, or some soon-to-be-created layer. Do they really need the robust security of the main chain to buy a cup of coffee? Probably not.
Bitcoin could well become the first truly global money. Its very design makes it incredibly difficult to stop. Since the barrier to entry is so low (all you need is an internet connection and a device to browse with), there is no one point of failure, and it possesses the attributes necessary for a truly sound money, we may be on the verge of a complete upheaval of the way money is viewed and used around the world. How long that will take is anyone’s guess.