Hello steemit - may I introduce myself?
I am a writer based in London (UK), who has been researching the relationship between bitcoin and fiat currency, trying to make the daunting language surrounding cryptocurrencies accessible to a wider audience. By way of introducing myself to the steemit community, here's a digestible - but not simplified - introduction to the 'bitcoin v fiat currency' debate.
In 1999, shortly after the birth of the internet, Nobel prize winning Economist Milton Friedman reflected, ‘I think the internet is going to be one of the major forces for reducing the role of government. The one thing that’s missing but that will soon be developed, is a reliable e-cash.’
A decade and a half later, Friedman’s prediction seems unerringly accurate: bitcoin, the first ‘e-cash’, is mounting an existential threat to money as we know it.
Bitcoin is doing for money what the Internet did for information. Just as centralized institutions and vested interests no longer control the flow of information, bitcoin now threatens the supremacy of a handful of powerful financial institutions and governments. In a sense, Bitcoin finishes the work begun by the internet. Imagine you’re a farm labourer in Andhra Pradesh. Thanks to the internet you can now connect with family members in Delhi, London or New York, instantly. You can learn how to speak English or fix a generator - you can even walk around the streets of Paris. But what if you invented a labour-saving device that could potentially change agriculture forever? What if you wanted to receive investment and apply for patents? What if you just needed to send or receive money to relatives over the internet? You’d need a passport, social security information, birth certificate. In short, you’d need credentials: paypal account, bank account, whatever it is. For many people living in the global south, this is impossible. Simply digitizing conventional currency, which is what paypal, western union and online banking have done, excludes vast swathes of the world’s population from storing or exchanging value outside of cold, hard cash.
That’s where bitcoin comes in.
Bitcoin Explained
But what is bitcoin? And why is it being heralded as a revolutionary alternative to conventional forms of money - also known as ‘fiat currency’? First off, strictly speaking, bitcoin isn’t a currency at all, but a ‘unit of account’. Whilst it represents a store of value, and can be used to determine the values of other goods and exchanges, it is not itself indexed to anything else to determine its value, like normal currencies are.
The value of, say, Pound Sterling (GBP), is greatly affected by a network of social, political and economic factors. Just look at the consequences that Brexit had for the value of sterling, from the price of the new iphone 7 to the continued uncertainty darkening the future of the world’s fifth-largest economy.
Bitcoin is not subject to political instability or economic mismanagement in the same way conventional fiat currency is, because bitcoins are accrued through a peer-to-peer process of ‘mining’ in which users are awarded bitcoins for solving complex mathematical problems and verifying the exchange of bitcoins - there is no central government printing money, setting interest rates or regulating value. All bitcoin transactions are recorded in a peer-to-peer verified public ledger, and real anonymity is made possible through encryption – basically a type of coding which scrambling information which could identify senders and receivers into an unreadable, undecipherable gibberish.
But the most important point is this: bitcoin allows the instantaneous transfer of value from any sender to any receiver, anywhere in the world – and its completely free. With bitcoin, there is no bank, no middleman, no transaction fee. Fiat currency can’t compete.
How bitcoin is changing the world
Let’s say you’re a writer with a blog and you want to monetize your output. Realistically, readers only want to pay for the information they access, without a costly subscription. If a reader only needs access to one page of your blog, that might be worth a few pence. If you’re dealing in conventional currency, you’re going to have to pay exorbitant handling and processing fees to paypal, your bank or another third-party, to receive a tiny amount of money – it just isn’t viable. The banks stay in control, the individual remains powerless.
Bitcoin is turning that world upside down.
Bitcoin makes these ‘micropayments’ possible, unlike fiat currency, bitcoins are divisible into far smaller denominations – up to eight decimal places. Cutting out the middleman, anyone creating or consuming content, providing or buying services can accept micropayments, free of charge. Consumers get to access and pay for the content or services they actually use, whilst content creators get rewarded for all their output. Bitcoin liberates the production, creation and exchange of content and services in a way fiat currency never could.
But what about economics on a massive scale?
Bitcoin lets us think big, too. As well as making micropayments possible, Bitcoin has been hailed as the saviour of ailing Latin American economies, outperforming the Venezuelan Bolivar by 400%, the Brazilian Real by 92%, the Mexican Peso by 65% and the Argentine Peso by 41%. Why are people increasingly turning to bitcoin as an alternative to conventional fiat currency?
As Bitstocks CEO Michael Hudson says, ‘[bitcoin has the] commodity-like quality of scarcity built into its design. This is a stark contrast to fiat currency, which is subject to inflation and eroding value over time’.
Unlike fiat currency, bitcoin makes hyper-inflation is impossible.
When inflation, stringent capital controls and plunging confidence in traditional fiat currency has resulted in soaring living costs, lower wages and social, political and economic instability, bitcoin has allowed citizens across the continent to store, send and receive value in a stable unit of account unaffected by the increasingly desperate monetary policies of failing governments.
The Future of Money
Bitcoin is cheaper, quicker and, most importantly, far more democratic than conventional fiat currencies could ever be. In liberating value by returning economic power to the people, bitcoin threatens to overturn the global financial inequality maintained by institutions of fiat currency in the interests of a geo-political status quo. Cutting out centralized governments and banks means that a farm labourer in India, a fisherman in Somalia, a coffee shop owner in New York or a boutique shopper in London can take back control.
Bitcoin is just getting started – it is less than a decade old. Yet, the number of people using bitcoins doubled in the last year alone.
Five years ago, there were roughly 8,000 bitcoins transactions per day. In March of this year, bitcoin transactions peaked at more than a quarter of a million in a single day.
Bitcoin is changing the world of money, from the smallest micropayments to the financial destinies of whole continents.
Whilst world financial markets that rely on fiat currency are still reeling from the latest political shocks, Bitcoin has gone from strength to strength.
The future of money is here to stay.
By Josh Mcloughlin