Crypto Philosophy: Could cryptocurrency be humanity's greatest breakthrough?
4 Sep 2022
It seems like the subject of cryptocurrency is stuck in the love-it-or-hate-it loop of a false dichotomy. For most, the discussion is as simple as being either a die-hard proponent of it, or a decided hater. Is there a middle ground? Can we discuss the concept of cryptocurrency from a first principles and values standpoint, instead of straw-maning it with biased misinterpretations? Can we give it the benefit of the doubt before we condemn it for being commandeered by market manipulators?
Some people claim that Bitcoin (and only Bitcoin) is an investment, for some reason. Traders love cryptos as an object of lucrative speculative trading, which is identical to gambling. Another group of people cross their fingers hoping that cryptos can store value and escape inflation. Many consider all cryptos to be a Ponzi scheme. Others dismiss it as yet another dot-com bubble. And the more discerning sceptics speculate that cryptocurrency is a government ploy to deflate their massively inflated fiat currencies, by binding as much of them in the crypto trading market, outside of the real market. Who knows? Maybe they are all wrong and all somewhat correct at the same time.
I will not delve into why Bitcoin may or may not be the one and only true cryptocurrency, or how some blockchains are indeed scams, or how smart contracts may potentially be used by despotic governments to tighten their control over citizens. My point here is not to explore conspiracy theories about Bitcoin being developed by intelligence agencies, or blockchain being used by central banks to normalize social credit systems. Yes, they are all plausible scenarios, but they are beyond our capability to know.
My point here is to explore the concept of alternative decentralized digital currency as a means of transaction, with all the characteristics of money (and more), from an economics theory perspective… plus a philosophical breakdown of the implications of cryptocurrency.
As defined in economics textbooks, money should be:
durable,
divisible,
storage of value through time,
recognizable and widely accepted,
safe/easy to transport and store,
scarce and limited in supply,
homogeneous, with each unit exactly equal to the other.
There is something else that economics textbooks do not include in this list:
money supply competition, and
decentralization.
Our current model of money supply monopoly constitutes the entire world economy dependent upon one and only means of transaction by decree: fiat currency. You are forbidden by your state’s legislature to transact in precious metals, barter, or to trade in anything that bypasses your local fiat currency, or the US dollar internationally (unless you’re Iran, Turkey or ISIS trading oil amongst each other for gold, commodities and weapons, or Iraq, Libya and Syria before they got axed, but I digress).
When an economy relies on a single convenient means of transaction, the institution that issues and manages this means of transaction gets to own the entire economy, quite literally. See how almost all of world trade is conducted in US dollars (Brenton-Woods, Nixon’s petrodollar), which means that the issuer of US dollars can issue almost infinite amounts of dollars without the resulting inflation hitting their domestic US economy. Essentially, this means that the USA can buy anything from other countries practically for free. And this is not an exaggeration. Why steal resources from other countries when you can force them (by threat of violence) to use your money to trade them? As I am writing this, the paradigm-shifting Russian invasion of Ukraine positions the rubble as a potential rival world reserve currency, introducing competition to the US dollar, with unpredictable developments; but I digress.
Are fiat currencies bad?
The only case for fiat currency was the normalization of all transactions, making it easier, faster and more convenient to make them, especially across countries. And the more the trade, the more the prosperity, right? We assume it was harder to make transactions with different bank notes from different banks that some would recognize as payment and some wouldn’t. We assume it’s easier for only one currency to exist locally, and only one internationally, because there is no room for a disagreement in which type of currency we place value in. Money normalization through fiat currency most probably did accelerate trade, and trade means prosperity and peace, right? Yes it does, but fiat currency comes at a cost, which may negate its benefits, or even make its effects worse than real money.
A centralized monopolistic money supply institution can manipulate, at will, the money supply and the cost of money (interest rates). This means that, those in control of the issuance of fiat currency can create as much “money” as they want for themselves while opportunistically manipulating inflation through interest rates, with the working classes paying the piper every time there is a manufactured (and necessary) economic crisis. For this reason, fiat currency has been a plague on the evolution of human ingenuity, and a hurdle to the realization of our fullest potential as a species of intellect, inter-connectivity and higher thought.
Why? Because prosperity brings progress, and socioeconomical hardship breeds decadence, backwardness and a regression to base instincts of mere survival. The greatest advances in science, art and philosophy occurred during times of socioeconomic prosperity, abundance, and well-being. It is no wonder that cultures faced with inhospitable land, frequent raids, or other misfortunes, didn’t contribute much to civilization. There is little time and energy left for philosophy, morality, ingenuity and invention when most people struggle just to get by. Socioeconomic prosperity is about solving problems so that we find higher challenges. There can’t be a self-actualized civilization when people have no peace of mind knowing that their base needs are satisfied (see Maslow’s hierarchy of needs).
The fiat currencies that we use today have no real intrinsic value. They are not valuable in themselves. No one has ever organically valued them as a means of payment for their products and services. Nobody values a paper note for what it is (except maybe during a toilet paper shortage). And it’s a myth that each unit of currency represents a unit of gold. Yes, historically, that’s how paper notes got started. But since people conveniently traded only paper, they became complacent assuming that their notes always represented real value in gold. Then, they stopped paying attention before note issuers (banks) began creating more paper notes without gold backing. So, nobody noticed the sleight of hand when the gold standard was completely removed by government decree. Nobody seemed to mind, because people forgot the implications of money supply manipulation. Generations of trading paper as value have conditioned us to imagine that paper does indeed have value for what it is, not for what it used to represent. This is why most people today cannot answer the question “what is money?”
So, if paper fiat “money” has no real value, why can we buy groceries with it? Why does it seem to have real value in everyday life? Short answer: the only thing giving fiat currency perceived value is everyone’s coercion to pay taxes with it, and it alone. And all this is done by the threat of violence. Charge your customers or employer with gold, and see what happens. Paper money becomes “valuable” because it is the only means of transaction that our governments allow us to use (actually, we are forced to only use that). People ask why governments need to tax people when those governments can just create “money” out of nothing. Why do governments bother with the cumbersome task of tax regulation and tax audits, when they can simply “create” all the currency they need? The answer is simple: fiat currency would have no value, if it weren’t for the enforced need to pay taxes in that fiat currency. Not only that, but the deflationary effect of taxation (through money velocity deceleration) keeps the inflation from money supply increases in check. The “acceptable” side effects of this deflationary policy are unemployment, poverty and bad working conditions. Why bad working conditions? Because tax-induced unemployment destroys workers’ negotiating power due to an oversupply of labor.
Quantitative easing is a euphemism for money counterfeiting (money supply increase), and it is the sole reason for inflation; and inflation is poverty. If we were not forced to pay taxes in fiat, then nobody would use such a steadily inflating currency. If you could pay taxes in anything, why would you charge your customers or employer with a currency that steadily loses value? You’d rather charge them in gold, silver, Bitcoin, or even coffee beans; anything but fiat currency. This is why governments force people, by threat of violence, to pay taxes in the same currency that those governments get to issue (sort of like racketeering, creating the need for what you sell). Forcing people to transact in that currency instantly gives it enforced “value”. This is why, when a government collapses, the paper money becomes less valuable than actual toiler paper. See Weimar Germany and Venezuela, as recent striking examples.
Fiat currencies are not real money, in the economics sense. Fiat currencies have no organic value, and they are not scarce, since they have almost limitless supply. The only thing limiting their unending increase in supply (through quantitative easing) is the onset of inflation, and inevitably, stagflation. And the last time stagflation imploded an economy like Germany’s, hungry people in despair chose extremist leaders who promised to solve all of their economic woes. And we all know how that went.
With today’s new paradigm of economic suppression strategies (such as taxation, over-regulation, restrictions, lockdowns and state sanctions), central banks can now generate even more (and more rapidly) fiat currency without fear of stagflation. This is because they can deflate their currencies through frequent economic suppression, with the unemployed, the lower paid and those with savings paying the price each time central banks perform such a mini economic cycle. Before 2020, the money issuers’ main deflationary tools were interest rates and money supply manipulation. They used these tools to manufacture economic crises that would “deflate the bubble” they themselves created. However, with each economics cycle, the rich got richer and the poor got poorer in that exact process. Why? Because the rich got their hands first on that newly created “money”, but the poor got to suffer first the consequences of a shrinking economy. This Keynesian model of interventionist economic policy has been the plague of the 20th and 21st centuries, as living expenses today make it harder and harder for young people to secure housing and start families. No wonder we have plummeting birth rates, especially in “developed” countries.
Money supply monopoly stemming from fiat (by decree) currency enables arbitrary fiscal and monetary policies, oppression of the citizenry, and the establishment of a world currency monopoly (such as the petrodollar) that “necessitate” endless wars to enforce said monopoly through constant threats of violence and following up on those threats.
What is real money?
Real money is voluntary and organic. It doesn’t need enforcing, because real money has such organic value that merchants and consumers voluntarily use it for transactions without the need for enforcement. It also has alternatives in case its perceived value as a means of transaction shifts. If people lose their confidence in a certain type of money, they can simply and organically choose to use an alternative instead. Even if we all used gold to transact, we’d have to be flexible enough to use something else in case, for example, a goldmine discovery tripled its supply and slashed its value, since value is mainly determined by the law of scarcity. Also, we’d need a gold alternative in case impure gold coins flooded the market. The existence of competing currencies, and more choices to transact, serves to disincentivize the abuse of all forms of money. This is because the free market has every incentive to want to use alternative, more reliable currencies, if the market loses its confidence in one of them. Economic history, especially that of pre-Peloponnesian-war Athens, makes it clear that an abuse of a currency, and the lack of alternatives, will destroy an economy, and soon after, trust in state institutions. Societal degradation and collapse ensues.
Why is the concept of cryptocurrency good?
I don’t know if an ideal cryptocurrency exists today. Probably, it doesn’t, because they all have their pros and cons. But imagine a reliable means of digital proof of work, with decentralized transaction validation, with security, with transparency and privacy, with unmistakable wide recognition, and with scarcity that allows no counterfeiting. Imagine not one, but many such competing currencies being widely used. Merchants and workers freely choose which currencies they trust, and they price their products and services according to their currencies of choice. This allows people to put their eggs in as many baskets as they prefer, and place their confidence in the currencies that consistently prove themselves worthy of trust. If they worry about fluctuating prices, they can always price their products and services according to the gold equivalent, or something else that is more-or-less stable, and apply the crypto equivalent exchange rate every time they make a transaction.
Wouldn’t that make people empowered? Wouldn’t that keep us safe from overstepping governments? Wouldn’t the freedom of money keep dictatorships from rising? If people living under fascistic regimes had the option to limit their government by boycotting its currency, would those regimes survive long? Wouldn’t freedom of transaction put a stop to corruption and money laundering that hinder economic prosperity, and thus cause the entirety of poverty, which the state was supposed to solve?
As I am writing this, the ideal cryptocurrency probably doesn’t exist (yet!). Even some of my favorites (Bitcoin, DASH, Monero, Zcash, DigiByte) have their limitations, weaknesses, and trust issues. But the concept of a digital currency that is truly decentralized, supply-limited, proof-of-work, efficient, secure, private, transparent, and non-monopolistic, is something to think about. Since we already use centralized monopolistic digital currency for most of our transactions, we understand that digital is the way to go, if we want prosperity in a vibrant international economy filled with fast, convenient and easy transactions with high money velocity that generates wealth. However, any currency, digital or physical, works against prosperity when it’s monopolistic, enforced, unlimited in supply, and without it being backed by real value.
The concept of free, decentralized and competing means of transaction has all the benefits of fiat currency as well as free organic money. The problem of recognizability is a non-problem, since the post-crypto market has proven that merchants and workers can choose to recognize the currencies that manage to gain market confidence, organically and automatically, without state enforcement. The free market always self-corrects and adapts, because we are all driven by incentive. Besides, with many free competing means of transaction, consumers have a wide variety of currency options to choose from to satisfy every vendor’s pricing preferences. And if they don’t have the currencies that most vendors ask for, they are incentivized to charge their own goods and services in those currencies, which have proven to be more popular. This is how markets tend to always move towards equilibrium. The market’s self-balancing tendency is a safeguard against money supply abuse. It takes state intervention to mess with that balance.
Decentralized cryptocurrency may in fact be the definition of human freedom. There is no freedom without economic freedom. Slaves have no right to property nor money. Free voluntary non-coercive transactions for all are what constitute free societies made of free-thinking people with free will. With freedom of transaction, we may be able to realize our potential, free from counterproductive and wasteful socioeconomic hindrance and corrupt interference. Prosperity stemming from freedom has the potential to free us to achieve self-determination, as individuals first, and then, as a society.
The vision of decentralized cryptocurrency, with no owners or manipulators, has the potential to grant us the freedom and peace of mind to connect with each other on a deeper level, a level that no fiat-suppressed society could ever reach. On such a level of individual self-determination and societal advancement, we define our own destinies as actualized individuals, and as a vibrant interconnected society.
For this reason, the idea of decentralized, competing, and free proof-of-work cryptocurrencies may open our minds to the possibility of alternative money and competing means of transaction. If anything, the concept of cryptocurrency may at least open our eyes to their necessity. Yes, blockchain technology may be used to solidify fiat currency, but this doesn’t mean that the concept of cryptocurrency doesn’t hold potential for good. Just like any breakthrough, it is neutral. Just like a knife, cryptos can be used for bad and for good. It is up to us…