Perhaps
the single most prominent, and telling, feature of bitcoin today is its
massive controversy in the media. Not a single day goes by without an
article or televised mention about its dangers, risks, and dubious
mainstream appeal.
Many in the mainstream seem set in their
beliefs that bitcoin is a fad, or even worse a ponzi scheme, and is
destined to fail. Yet when was the last time a ponzi scheme attracted
global attention and prominent venture capital investment? Since when
has a fad incited the simultaneous and largely hostile reactions of
governments across the globe?
Why did other payment technologies
like PayPal or Western Union apparently fail to meet the requirements to
be discussed in virtually every central bank on the planet, yet
cryptocurrency is being so
thoroughly scrutinised?
Ironically enough, the on-going debate about whether or not bitcoin is
truly a valuable disruptive technology, is all the evidence you need
that it is.
This is because bitcoin as a technology isn’t just
challenging business models, or even an entire industry. Plenty of
innovative outfits do that with much less flare. Bitcoin is challenging
the financial infrastructure of the whole global economy, and even more,
it is challenging entire generations of established political and
economic theory that that infrastructure is built on.
Bitcoin’s
exponential growth flouts all of the traditional monetary theory that is
the mainstream ideology amongst academics and politicians today. Its
very existence and growing success cannot be accounted for within these
old paradigms.
It challenges not only the basis and underlying
assumptions of the modern financial system, but calls into question the
beliefs and even livelihood of so many politicians, economic advisors,
and media pundits. That is why so many are so sceptical of it, and
others even outright hostile.
Bitcoin the currency
As
a currency, bitcoin is in many ways the antithesis of modern fiat
currencies. It has grown exponentially in usage the last year, and all
without being declared by any state or central bank as “legal tender”.
That simple fact astonishes many in academia, who could never have
guessed a currency could spontaneously form and organically grow within
the modern free market.
It was something that was never even
discussed theoretically, and is still taking time to sink in amidst the
denials that bitcoin is here to stay.
Yet this occurrence is
surprisingly not entirely without precedence. Bitcoin is not the only
example of a homogenous “good” being adopted by a population as a
currency, for nothing but its underlying natural value and universal
appeal. We have a much older example of that: gold, more than 5,000
years ago.
Cryptocurrency is following the same path as precious
metals in ancient civilization. Where gold was valued for its color,
easy malleability, purity and its anti-corrosive properties, bitcoin is
valued for it’s speed, decentralization, anonymity and ultra low
transaction costs.
Gold
was discovered by practically every world civilization and became a
good of such universal value it slowly became the de facto means of
exchange (along with silver) across much of the planet, eventually
culminating in the Classical Gold Standard. That is a span of dominance
of thousands of years, compared with the 43 years of the global fiat
system we have today.
History thus clearly shows that the idea of a
currency deriving value primarily from the “backing” of some central
state is nonsense.
For the vast majority of civilization, money
was gold or silver, and both originated not as centrally issued currency
that, as a result, magically had value, but as universally valued
substances.
Bitcoin is fast becoming the first commodity since
gold to become a widely accepted means of exchange without the need of a
central authority backing it.
However unlike gold, Bitcoin is completely
out of the reach of governments
and can’t be regulated, centralized, or ultimately shut down and
replaced with inflationary fiat money. For all its durability and
timeless lustre, gold my pale to the longevity of a cryptocurrency
system.
Reacting to Big Data
However Bitcoin
is not just a currency that promises to eventually end the trend of
patchwork national currencies that exist for the almost sole purpose of
allowing governments to endlessly fund their own deficit spending.
When
the Internet was growing in the 90s it promised a future in which
everyone everywhere had access to all the knowledge in the world, a
future where technology ultimately empowered the individual.
Indeed,
this promise is coming closer and closer everyday as more people in
underdeveloped countries have access to cheaper and cheaper smartphones
and Internet access. However behind this positive outward development,
the big players have long since been behind a much different trend.
“Businesses
will hopefully creatively utilize the open source design of Bitcoin to
provide entirely secure and anonymous end-to-end experiences.”
Google,
Facebook, as well as many others, all keep meticulous track of user
data for advertising and other purposes. On several occasions, the
massive amounts of data collected by Internet service and
telecommunications companies have been utilized by agencies such as the
NSA, under morally questionable motives at best.
The result is a
system that has evolved with the ability to track everything you do,
like, go, and know, and then provide all of that data to one central
authority you may or may not trust, all with little choice for the
consumer. The Internet has recently been more reminiscent of Orwell’s
1984, rather than the future of individual empowerment that was
promised.
Cryptocurrency is the first major technological
advancement that, intentionally or not, is a massive reaction to the
trend of Big Data. It is decentralized and anonymous by design, and it
is these key features within the Bitcoin protocol itself that may be the
key to weakening the hold of massive data collecting service companies
like Google.
Already, all payments with Bitcoin are anonymous, which could allow users to opt out of advertising with anonymous
micropayments. Yet many
other cryptocurrencies such as
Namecoin are attempting to take the protocol that enables this and use it to build other decentralized networks.
Among these can be email, domain names, and other such systems.
Decentralized applications
This
is only the beginning however, businesses will hopefully creatively
utilize the open source design of Bitcoin to provide entirely secure and
anonymous end-to-end experiences. The possibilities for the emerging
wave of
decentralized applications are endless, and only time will tell what it does result in. As David Johnston, the $1m sponsor of the
Austin Bitcoin Hackathon put it:
“[Decentralized
applications] have the potential to become self-sustaining because they
empower their stakeholders to invest in the development of the DA.
Because
of that, it is conceivable that DAs for payments, social networking,
and cloud computing may one day surpass the valuation of multinational
corporations like Western Union, Visa, Facebook, Google, and Amazon that
are are currently active in the space.”
At the very
least, the ever-growing success of bitcoin thus far candidly illustrates
that there is indeed a massive demand for anonymity online, one
companies would be wise to take advantage of.
It’s far too
tempting to compare bitcoin to PCs, the Internet, or even to gold 5,000
years ago. While it does possess similarities with many of these things,
and comparing it to such landmark achievements underscores its
importance, bitcoin is it’s own phenomena.
PCs may have had a huge
amount of industry leaders shrugging it off or denouncing it entirely
like bitcoin does now, but it never had whole governments attempting to
shut down or regulate its use.
Precious metals may have been the
first and last good to become universally adopted as a means of
exchange, but this was a slow process that took centuries if not
millennia, whereas the usage of cryptocurrencies has exploded in just a
few short years.
While bitcoin may have many old conceptual roots,
it is altogether new and powerful. It is ushering in a new paradigm in
various aspects of society, and creating a new benchmark for future
technological achievements to inevitably be compared to.
Bitcoin is changing everything, and if you aren’t on board, then you’re already a dinosaur.
