Bitcoin: The new currency

Cryptocurrency
Cryptocurrency (Photo credit: Rodnae Productions)

In 1871, Irish explorer David O’Keefe was washed to the coast of a small island community known as the Yap Islands. The islanders were kind enough to assist David, but little did they realise that this would ultimately spell doom for their economy. After David’s recovery, he noticed that the Yapese were using a stone currency known as rai. These stones were very difficult to procure and thus they were deemed to have value. So, he hired some of the islanders, sent them to another remote island to procure more rai stones with the help of modern tools such as pickaxes and explosives. David, essentially, inflated the money supplies on the island, pillaged their resources, and left the island’s economy to collapse. As soon as scarcity of the money was lost, the rai stones became worthless.

Throughout history, various commodities such as salt, cattle and precious metals like gold have all been used as forms of money, but the most successful forms of money display some key properties. They are durable, divisible, transferable, and scarce. A cow is not a good form of currency because it will eventually die, so it’s not durable. It is difficult to purchase something with a fraction of a cow because they are not divisible. They are obviously difficult to transport and they’re not scarce since we could always breed more cows.

Civilizations began to value gold as money as early as 700 BC. Gold is one of the most durable elements, it can be divided into smaller fractions, it’s easy to transport, and it is a scarce element. This is why governments back their currencies with gold to prove that their currencies have value. Well, that is up until 1971 when the US dollar ceased to be backed by gold entirely, and is, instead, backed by nothing more than faith in the United States Government. In fact, in today’s paradigm, most of our dollars are already completely virtual, stored as a series of zeros and ones in our banks, never actually being physically created. So, what can happen when a government can freely print its own currency without it needing to be backed by any hard assets? Well, let us look at Venezuela where the money you use to buy a chicken weighs more than the chicken itself. In the past year, their money supply has seen over 80,000 per cent inflation. If you could go back 20 years ago, you would have nearly twice as much purchasing power as you do today. So, if someone worked and saved for 20 years, they would see ten years of those earnings evaporate away just by holding their dollars until today. This is the danger of government issued monies.

Those who hold only stocks, real estate and other investments are resistant to inflation, but those who can’t afford to make these investments, they take the brunt of the blow. Governments may be one of the single largest contributors to wealth inequality in the world.

Bitcoin was quietly released after the 2008 financial crisis by a pseudonymous developer known as Satoshi Nakamoto. Nobody knows who this person, or perhaps group was, but they left the comment encoded within the first Bitcoin transaction that ever took place that reads “the times January 3rd, 2009. Chancellor on the brink of second bailout for banks.” Satoshi then completely disappeared from the Internet in 2010. That’s part of the beauty of bitcoin, it doesn’t matter who created it, anyone can use bitcoin. Bitcoins can be bought or sold in exchange for other international currencies like dollars or euro and they can be conveniently stored on your mobile phone or home computer. Sending bitcoin is as easy as sending an email.

Let’s compare bitcoin to the properties of money (Durability, divisibility, transferability, and scarcity). Each of these properties is embedded in the Bitcoin code. Bitcoin is durable, as they can never degrade, they are even Bitcoin satellites in space in case there is a massive internet disruption. Bitcoin is divisible, each Bitcoin can be divided into 100 million units. Just like a dollar can be divided into 100 pennies, you don’t have to buy or spend an entire bitcoin. Bitcoin is transferable, we can send it to anyone anywhere. Bitcoin is scarce as the supply schedule is pre-determined. Today there are around 18 million Bitcoin with a maximum of 21 million being created by the year 2140. Bitcoin is more democratic, as anyone with an Internet connection can buy or accept Bitcoin, or even contribute to its development. Getting started is as easy as downloading an application, visiting a website, and connecting your credit card or bank account.

Bitcoin is already larger than many global currencies as it already secures hundreds and billions of dollars in wealth today. With bitcoin the poor won’t be taxed by inflation, and perhaps governments will think twice before engaging in costly reckless wars. Today, bitcoin may be viewed as a speculative asset, but tomorrow it will be a store of value and after that a universal currency used to conduct commerce in an increasingly connected and digital global economy.

Micromoments is a technology company to the core, born out of a strong desire to change the narrative about software development in Jamaica.

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