Whose money Is It anyway?

Thursday 25 September 2014

TL;DR. There are pull factors and push factors governing the adoption of bitcoin. So far it’s mostly been pull, but watch this space.

Next time someone expresses scepticism about bitcoin, try asking them the following question: ‘How much money do you own in your bank account?’

Depending on what country you come from, the response you get will be very different. Americans seem quite happy to discuss salaries and money in a way that would send most Brits away in a fit of coughing and awkward mumbling. You can defuse the tension by suggesting that you already know the answer: it’s none.

It might be a controversial point, but there’s good reason for seeing money – as we traditionally understand it – as something that we are simply granted the use of, under certain conditions, rather than something that is really ours to own and use as we see fit. This argument, often heard on the bitcoin forums, has spawned the following neologism:

Fiat Monkey, n: A person, particularly one active in the cryptocurrency sphere, who recognises with dissatisfaction that they are going out to work for money that devalues every day, that they don't control and barely even own in any meaningful sense, to pay off debts that largely only exist because the economy is organised in that way in the first place.

What is money?
Once upon a time, money meant gold and silver coins: something tangible and rare that you truly owned. Fiat money turned that idea on its head: the sense that pieces of paper, brought into existence and given value by a government, could serve the same purpose of storing and conveying value. The irony is that bitcoin is often described as ‘nothing but computer code’ with nothing to back it. The people who make these arguments appear not to have given too much thought to the paper money in their pockets or the numbers that appear in their online bank accounts.

Recent sociopolitical developments mean that these kinds of criticisms of centrally-controlled fiat money will likely come under increasing scrutiny.

Push and pull

So far, bitcoin adoption has generally been driven by what could be called ‘pull’ factors – the advantages that draw people to use digital currency. These include:

  • Speed. Many bank transfers and credit card payments take up to three working days to show up. Bitcoin is almost instant and takes 30-60 minutes to confirm fully.
  • Cost. International transactions may cost anything from 3 to 10 percent of the full amount. Bitcoin costs around $0.04 (0.0001 BTC), or even less.
  • Irreversibility. For merchants, reversible transactions can be a problem, since they are likely to be a source of fraud. These are impossible with bitcoin, albeit at a potential cost to the customer.
  • Pseudonymity. Bank and credit card transactions can be traced as well as reversed. Bitcoin is not anonymous, but offers a degree of privacy in comparison when used with care.

These factors – and, of course, speculation – have led to bitcoin’s rapid adoption to date. This continues apace, despite the recent downtrend; price does not correlate with adoption at this point.

Now, what are some of the undesirable ‘push’ factors that might drive the future adoption of bitcoin and other cryptocurrencies? It’s impossible to know for sure, but it doesn’t take much to see which way the wind is blowing.

  • Inflation.Quantitative easing has pumped a huge amount of money into the global economy. There is some consensus among business leaders that these hundreds of billions of dollars must have some kind of long-term effect. Whether this means hyperinflation or merely higher inflation is not clear. However, as consumers see the value of their savings eroded, they naturally seek a safe haven such as gold. Bitcoin, with a limited supply, may increasingly serve the same function – especially once it has reached greater stability and resilience from speculatory volatility.
  • Confiscation. The financial crisis is by no means over, in Europe or the States. Politicians are reluctant to take the necessary measures of higher taxes and lower spending. Cyprus has already seen confiscation from the bank accounts of the wealthy, and these ‘bail-ins’ may become the default mechanism for raising money. If this happens, expect a flight to cash, gold and other forms of wealth that cannot be unilaterally lifted from a bank account by a third party.
  • Privacy and autonomy. Already, the way we use our own money is tracked in minute detail. Every phone call, bank transfer or credit card transaction is recorded. Banks prevent customers from making large withdrawals unless they are satisfied about the reasons: we are unable to use our own money as we wish. As one politician said, this ‘infantilises the customer. In a sense your money becomes pocket money and the bank becomes your parent.’

These are convincing arguments that ‘our’ money can’t really be considered ours at all – even in what we might think of as normal times. And although this could be considered scaremongering, it isn’t meant that way; rather, it’s an observation of the way we seemed to be heading, socially and economically. Few people would argue that there are serious issues facing us. Different aspects of cryptocurrency have the potential to address these problems – whether that means reclaiming control over our own money, maintaining its value, or using it freely.

The next chapter of bitcoin’s history is not yet written. But as the world struggles with the various challenges facing it, it seems likely that the next wave of cryptocurrency adoption would be driven not just by the ‘pull’ factors that have interested users and merchants so far, but by the ‘push’ factors that make using fiat less and less attractive. Whether that makes it more or less desirable for the establishment is yet to be seen too.

Brandon Hurst

Brandon Hurst

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