The Future of Bitcoin and Why?
What makes Bitcoin unique? Will Bitcoin be used as money in the future? Can Bitcoin simply be "banned" by governments? How legitimate is Bitcoin as an asset or currency?
Choosing your own narrative
This section will be structured a little differently - By providing the answers and solutions first, it will hopefully raise some deeper questions in your head.
More resources are then provided for deeper reading and exploration of the themes discussed
This section will likely be the lengthiest, most debatable and contentious section of all the four pillars.
The truth is, there are things that Bitcoin can potentially bring a solution to, some of which resonate differently to different people. For example, you may see the benefits of Bitcoin as an all-inclusive global monetary system, but be less convinced towards the need for monetary privacy - that is perfectly fine and is precisely the beauty of Bitcoin, because doing so does not diminish the effectiveness of your greater narrative.
The use-cases and solutions that Bitcoin bring to the world are numerous and far reaching. And therefore, it is up to you as an individual, to decide on the narratives that resonate the greatest with you.
Money In the Bank is Not Your Money
Here's something to consider - do you really think the money sitting in your bank account is truly your money?
Technically, the minute you deposit your money into the bank, it ceases being your money. Instead, the money now belongs to the bank, who now has all the power in the world to do whatever they please with the funds (be it loan it to another individual for 5%-10% interest, reinvest in a investment portfolio etc, while rewarding you with a measly 0.5% interest at best). The legal term here is that the bank is only "ANSWERABLE" for your money, and must return the desired amount to the lender (you), whenever demanded upon. However, as we all know, banks can (and have) run out of money.
These are extreme cases, you may think. However, these situations - known as "Bank Runs", are more common than you think. They happen during a liquidity crisis, when in the face of an impending financial crisis, a large amount of creditors (you and your friends) simultaneously withdraw money from the bank at the same time. As banks do not just leave your deposit lying around (they reinvest it or loan it elsewhere), they now face a liquidity crisis and are unable to cough out the money owed to you. What happens next, thousands of people learn the painful lesson that what they thought was "their money", really wasn't.
During a liquidity crisis like in Iceland and Greece in the late 2000s, entire bank accounts and withdrawals were frozen, shutting off accesses to money when it was needed most. If anything is to be learnt from the past, banks have a horrible track record in safe-keeping our money. Learning from past lessons, an intelligent alternative would be to have a portion of your cash / net value in a digital, un-seizable asset that is wholly owned by you. Your Bitcoin is 100% your Bitcoin, and no liquidity crisis or bank can ever take ownership of your money.
An Unlimited Supply of Money - Just Not For You
Bitcoin is increasingly being seen as a hedge against inflation
Imagine working your entire career and finally saving a sum of 1 million dollars. Suddenly, due to a global economic crisis, your nation's central bank announces that an additional 1 trillion dollars will be created and introduced to the economy in the form of additional stimulus (*hear the money printers go brrrrrrrr!!*). With this new influx of a trillion dollars now swimming in the financial system, is the value of your million dollars still the same?
The answer is no. As more money is introduced into the monetary system, the value of each dollar decreases. However, the value of goods in the market does not decrease (a house is still a house, a carton of milk is still a carton of milk). What has changed is - the amount of dollars needed to buy the same house or that carton of milk). This is inflation, caused by increasing the supply of money. In the not too distant past, we have observed countries like Zimbabwe and Venezuela undergo hyper-inflation, with the values of their national currency dropping like a stone.
One of the hallmarks that preserve the value of money is it's scarcity. Due to the dynamics of supply and demand, generally, the more you increase the supply of an object, the less valuable it becomes. Of course, the same principle applies to money as well. Bitcoin has a finite supply - there will never be more than 21,000,000 bitcoin ever created, thus making a scarce resource. Additionally, the supply of new Bitcoin in the market reduces with time (read about Bitcoin halving), hence, Bitcoin is a disinflationary asset.
It is for the same reason that many investors highly regard gold as a hedge against inflation - gold similarly is a rather scarce resource (although not as scarce as Bitcoin) and is an important part of many diversified portfolios. Bitcoin is now in the same mold, and increasingly recognized as an effective store of value. The main difference here - The current market capitalization of Gold is about $9 trillion, while Bitcoin stands at $220 billion. Investors in Bitcoin today are early investors to the world's potential future store of value.
To understand more about what gives our money the value it has - it is important to first understand the value of money. The opening chapters of the "Bullish Case for Bitcoin" by Vijay Boyapati is a good place to start, but do not just stop there. Learn more about the recent quantitative easings, and how investors are beginning to recognize bitcoin has a hedge against inflation in my recent blog post on the arrival of smart money into Bitcoin.
An All-Inclusive Monetary System
A sound monetary ecosystem thrives on economic inclusion, rather than limiting market participants
Money was originally invented to facilitate trade as a medium of exchange between two parties without the need for barter, and since the beginning of mankind, trade has always been vital in connecting humans and civilizations, thus collectively resulting in economic growth and prosperity.
In a open an healthy financial system - the more participants that have access to banking and to money, the greater the collective wealth generation. This works only in an open and free market, where all individuals can participate in the market at free will. The current banking and monetary system achieves the opposite of that.
In a global population of more than 6 billion people, between 2-4 billion (39%) people around the world still have limited to non-existent access to banking. Only about 1.5 billion people have the full access we know of in most developed nations. Why do so many people in undeveloped nations not have bank accounts and access to finance?
When creating a bank account, as part of processes known as "KYC" to and in the interest of "AML", a whole host of documents like proof of address, income statements and credit scores are required to even open a account. Not a problem for someone in a developed nation, but for the 39% of the globe, they will fail at the first step.
Many people do not have bank accounts - but they do have a mobile phone. Mobile phone penetration rate globally is surprisingly high. There are more mobile phones than humans in the world today, even in remote Sub-Sahara, mobile penetration rate in 2020 is 73%.
With Bitcoin, anyone with a mobile phone (doesn't even need to be a smart phone) can send and receive payments independently without a bank account, using a bitcoin wallet - effectively turning their mobile phones into a bank account. In this positive light, African nations collectively, have become one of the global leaders in bitcoin purchases and daily transactions. These nations are also experiencing some of the fastest economic growth rates in the world today, a mere coincidence? The benefits of an open, all inclusive monetary system is plain to see, and it is time we had an open and all inclusive monetary system again, and we can start by "Banking the Unbanked"
To read more on this topic, I would suggest Marcell's article expanding greatly on the concept of unbanking the unbanked as well as the works of Andreas Antonopoulous in the Internet of Money - Volume One.
Money as a System-of-Control
Governments can use your spending as a form of financial surveillance, tracking your habits and whereabouts, or completely seize your assets.
Here's one of the more radical and anarchical use-cases of Bitcoin, but one that I feel is increasingly important in the world that we live in today.
Through the past decades; traditional finance has gradually evolved in-tandem with improvements in technology. Firsthand, we have witnessed the rapid transition from obsolete processes like cheques, bank booklets, onto credit cards and eventually today, mobile / contactless payments. While progress has been made in providing convenience to the end-user, beneath the surface, this convenience has practically destroyed and eroded into your privacy and freedom.
We are seeing numerous draconian governments globally implementing "National Security Laws" that enable the government to confiscate or freeze the assets of individuals who are suspected of wrong doing. A recent example is a law implemented in Hong Kong by the Chinese government, which authorizes the government to crackdown on any individual it deems as guilty of political crimes - including protesting against the government. This is a blatant violation of Human Rights and Freedom of Speech. Guilty individuals can see the money in their bank "frozen", leaving them with nothing and completely in the mercy of the government. If you allow the banks and government complete control over your assets, there is a real risk they can be seized from you.
Furthermore, every transaction that you make with your phone or credit card pinpoints you to an exact location on the map, allowing complete visibility of your transactions (amount, payee and
location) to the government. This can further be used as evidence against you or provide more information about you. For example - the Chinese government was able to identify protesters by drilling down and searching for the names of Octopus Card / EZ Link Cardholders in the vicinity of protest locations.
Your bank can also block you from sending or receiving money, freezing your account and effectively isolating you from the financial system at will. Most individuals will be powerless to stop this.
With Bitcoin, we have a way of exiting the heavily censored financial system. Bitcoin offers a way of censor-less payments, where the network knows no boundaries, identities and has no authority. In short, it functions exactly the way money should - but without any of the surveillance dangers and privacy breaches. Bitcoin simply does not, and can not, care, making it the purest and most unadulterated form of money.