From an originally small, unknown Internet currency, with which initially only a few Internet anarchists were concerned, something much bigger has emerged in recent years: The idea of developing an alternative monetary system. And it looks more and more like the idea might actually become reality one day.
Gone are the days when people wondered whether Bitcoin was just a pure speculative object with no real use. That’s because the cryptocurrency has long since been bought by governments, companies and large investment funds.
Somehow, especially in times of pandemic and high inflation, Bitcoin has managed to suddenly be perceived in a completely different way. It has gone from being an obscure Internet currency that hardly anyone really understands to a possible protection against inflation, portfolio diversification – or even the idea of an alternative monetary system. Former critics are now Bitcoin owners, some skeptics have switched sides, and even the richest man in the world, Elon Musk, now privately owns Bitcoin through several of his companies. And this new view of Bitcoin, which has been established in recent years, will not remain without consequences.
The transaction volume of the Bitcoin network has exceeded that of Visa by billions in 2021. About 90 million Bitcoin wallets exist on the Bitcoin blockchain. The Bitcoin network executes around 225 exahashes – that’s 225 million billion – per second, which also protects it from outside attacks. Anyone who wants to attack or manipulate Bitcoin – whether from inside or outside – will fail. Even if the U.S., China and Russia join forces against the Bitcoin network, they won’t be able to stop it these days. Bitcoin is the fulfillment of every cypherpunk’s dream: an independent monetary system without control by states.
The Bitcoin Standard
The so-called Bitcoin standard is the idea of a monetary system based on the technology and characteristics of Bitcoin: first of all, decentralization, independence, predictability of the money supply and security of the network. Unlike the dependence on central banks in classic currencies, there is no one to decide anything here. The protocol itself sets the rules.
Basing a monetary system on this is an idea that may sound unrealistic at first, but which, on closer inspection, does provide grounds for intellectual debate. After all, if you take a long-term view of Bitcoin’s biggest point of criticism – that of the large price changes – you can see a trend toward decreasing price fluctuations. Away from the extreme price jumps up or down, there is reason to believe that the volatility of the currency will thus become smaller in the long run and the price will thus become more and more stable. Should the Bitcoin price one day develop towards a tolerable level of stability, there is little reason to deny its suitability as money. This can also make the case for a monetary system based on Bitcoin.
First states rely on Bitcoin
Regardless of theoretical considerations, the Bitcoin standard is already a reality in two countries around the world: El Salvador and the Central African Republic have made Bitcoin legal tender in their countries within the last year. This means that it is recognized in everyday life for the payment of goods and services and can also be used for tax payments, for example. Central American El Salvador specifically highlighted the importance of foreign remittances from the U.S. to the Salvadoran economy. Remittances from Salvadorans living in the United States account for 22 percent of the country’s gross domestic product (GDP). Speed and transaction costs make a big difference, and this is where Bitcoin scores over the traditional financial system.
In addition, about 70 percent of El Salvador’s population does not have a bank account and thus does not have access to national and international payments. Instead, the country’s citizens can use their own wallet on devices suitable for this purpose, which have a much higher prevalence locally than bank accounts. However, there is no question that there are still many problems to be solved in this regard, and the high price fluctuations severely limit the efficient use of Bitcoin in everyday life.
The political movement around smart money
In the slipstream of all these developments, something can slowly be discerned: A philosophy and a political mindset are also increasingly emerging around the idea of Bitcoin.
Basically, it is a neutral technology, but it delivers features that go far beyond that. Bitcoin are a philosophical matter. This technology is diametrically opposed to what defines our typical money and banking system: no central office, no company, no administration, no place of business, no employees:inside, no central bank. Instead, a network of computers distributed around the world working together to agree on the common truth around ownership and actions of network participants. No one can hack, cheat, block, manipulate or expropriate. These elements of radical decentralization and self-responsibility create an echo that shapes a political mindset.
At a time of the highest inflation in over four decades, the appeal of alternative ideas, such as those delivered by Bitcoin with its decentralization and limited quantity, is growing.
Two years ago, interest in such ideas would have remained a niche topic. However, the powerlessness in the face of centrally controlled monetary policy and political decisions by those in charge is more palpable today than ever before. This is also what is increasingly being discussed in the circles around the Bitcoin community – be it in social media and at the growing number of meetings, regulars’ tables and meet-ups of an increasingly homogeneous and forming culture around Bitcoin. The idea that one does not necessarily have to live in the current monetary system and that there are real alternatives to it is becoming stronger and stronger.
A movement in the making
Of course, it’s early to talk about a political movement just because people regularly meet and talk about Bitcoin. Of course, it is still a highly speculative investment. Of course, Bitcoin is not yet usable on a large scale for economies today. But in the long term, the technical conditions are in place for a money standard on Bitcoin.
If the payment system is used often enough, it will achieve characteristics that make it good money: price stability, distribution and acceptance. If it is further developed – such as by the lightning network, which bundles transactions off the blockchain before the result is written collectively to the blockchain – waiting times and transaction fees, for example, will be reduced enormously. Signs of a movement slowly forming around this idea are becoming more noticeable.
Bitcoin is the antithesis of current monetary policy: predictable money supply, final number, no room for states and central banks to act. And one day, it could become a credible alternative.