by Liam J Kelly
The onset of the information age has come to a fore in bitcoin. The cryptocurrency forges together the pieces of financial instability with humanity’s inevitable move to the technologically fantastic. Naturally, this comes with more than a handful of shifts in thinking, particularly when it comes to redistribution mechanisms.
A Genuine Response to a Real Problem
The first line of the Bitcoin Blockchain is the title of an article from The Times on January 3, 2009. It reads, “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks” and rings faintly of the revolution that spectators have been crying out since Bitcoin’s inception.
In many ways, they would be right too. Although the technology underpinning the cryptocurrency has several applications, it was inherently a financial instrument. What’s more, this instrument was birthed at a point in history when it could be best received; the information age.
Those unfamiliar with the economic crisis that shattered our faith in economic systems should take the time to read up on the subject. Not only was it preventable, but it was a harsh lesson in finance for citizens and politicians alike. If we take the bailout measures as an example, we stumble upon a fundamental economic principle.
The ways in which government bodies bailed out banks and prevented a more severe collapse is called quantitative easing. In short, this is the process in which a central bank increases the money supply in the market to promote liquidity in the market. By taking bank’s ‘toxic’ assets onto the central bank’s balance sheet, they effectively gifted them a fresh start. The huge injection of liquidity has gone into assets before the money has trickled down into the wider economy; amounting to the largest wealth transfer in human history. In essence, central banks simply created more money and gave it to those defined as in “most need.”
In some cases, it is argued to be necessary and important, but in others, leads to severe inflation, inequality and a misallocation of capital that will take a while for the economy to readjust to. It is along these lines that we begin seeing bifurcation along not just economic lines, but also political ones.
Interestingly, bitcoin provides another solution. This solution is also quite the opposite to our respective government’s responses to the Global Financial Crisis nine years ago. Much like quantitative easing, bitcoin is one big experiment, but instead of diluting the existing money supply, it provides a new form of honest money that is not subject to the whims of a policymaker’s discretion. Bitcoin may also be a significant answer considering the way humanity is being changed via its relationship with technology.
Newly inducted billionaires, futures trading, and shady Initial Coin Offerings have strangely identified digital currencies this year.
In between all this are the stories of people losing swaths of bitcoin from simple operational error. In its current state, a sender could lose a small fortune if they are not careful between an “f” and an “F.”
If someone had only joined the conversation in 2017, they could assume two things. First, there is a lot of money in this space, but perhaps not quite revolutionary or at least not enough to topple the American dollar.
Second, the intellectual barrier seems a bit higher than opening a bank. This barrier is made all the more difficult to overcome when fraud seems to be running rampant.
But these points are just the flavor of 2017. Next year already promises smoother sailing with regulators, politicians, and popular culture finally wrapping their minds around this budding technology. The swindlers will be weeded out, and the eliminating functions of a free market will dispel of agents that do not serve its tenants.
Yet, please do not forget this; bitcoin is still in early days. The final expression of digital currency is still far out on the horizon. However, we can unfurl its potential by first gaining a grip on what makes it tick.
The real substance of the matter comes in how bitcoin is fundamentally upending the way we construct value, as well as empowering individuals. When people question what bitcoin bases its values on, please fire back the same question regarding any fiat currency.
In addressing the second point, perhaps it takes a bit more time and care than opening a bank account, but bitcoin turns individuals into their own bank.
At base, bitcoin hopes to eliminate third parties, and some government bodies have already iterated their genuine fear. The fear comes from the fact that there is now an innovation which empowers individuals to take personal responsibility for their financial security. Insofar as libertarian thinkers have huddled around the idea should prove its liberating effects.
On the other end of fear, there has already been real examples of hope displayed in the most disarrayed of countries. In nations where people weigh their money instead of counting it, the digital store of value is keeping families alive.
In Zimbabwe, where citizens point to a wheelbarrow when asked for their wallet due to the negative effects of quantitative easing, the deflationary cryptocurrency is making massive strides.
The applications even extend to the country’s responsible for the massive bank bailouts. Here we begin marching toward the characteristics of our current financial climate.
Attending to a Generation in Constant Catch-Up
Millennial generations in the US are reporting sentiments of financial instability and not having the tools to patch things up.
The LA Times reported the findings of a study that found members of the millennial generation incapable of replicating their parents’ quality of life. Researchers at Harvard, Stanford, and UC Berkeley found that:
“Children born in 1940 had a 92 percent chance of taking home more income than their parents, the research shows. By contrast, someone born in 1984, who is 32 years old today, has just a 50 percent likelihood of making more than his or her parents. Put another way; only about half of 30-something Americans earn more than their parents.”
It thus comes as no surprise that many are turning to cryptocurrencies in building their wealth. The access to entry is relatively simple, and the massive gains from little input are indeed enticing. More importantly, this form of money caters to a demographic that is hyper-familiar with life online.
Ultimately the rise of cryptocurrencies has answered a fundamental question forged in the heart of modern culture. Our staggering loss of trust in financial institutions was first met with despair as options outside of these systems were limited. But the induction of a form of value that can be transferred digitally, without intermediaries, is philosophically satisfying. The question remains, though, as to how bitcoin plans to turn theory into practice.