This article was inspired by Max Gagliardi’s thread on Twitter.
Bitcoin’s prolonged stability and global adoption are not only beneficial, but necessary for free societies to thrive…
The Bitcoin community is one of the most passionate, idealistic and driven groups of people on the internet. Besides a love for Bitcoin’s capabilities and ethics, most Bitcoiners are overwhelmingly optimistic that it will eventually bloom to total fruition.
The enthusiasm is hardly unwarranted. Bitcoin’s price has roughly doubled every year since 2013. Major corporations are adding the asset to their balance sheets in droves. Twitter founder Jack Dorsey has seemingly dedicated his life to it, and one country has even made it an official national currency.
Yet Bitcoin doesn’t exist in a vacuum. There are a host of global forces at play that would stand to see the protocol fail.
And while “failure” for Bitcoin can be defined in a range of ways, it’s only because there are a plethora of issues that humanity desperately needs Bitcoin to address. If it doesn’t successfully address the many issues plaguing humanity, there will likely never be a better technology for guaranteeing global rights and freedoms in our lifetime.
The best way to appreciate something is to know what we’d lose without it. In that respect, there are five crises we can expect the world to face in a future without Bitcoin.
WHAT HAPPENS IF BITCOIN DIES?
1. PRIVACY FAILS
Bitcoin is an open and neutral monetary network. Anybody can join, set up a public address and take advantage of its functionality — without permission and free of charge. As such, the network need not know nor store any information about its users. It does not discriminate between good and bad participants on the network. It simply executes.
Compare that to legacy social and financial networks on the internet. From YouTube to Facebook to Twitter, even those networks that are “free to access” require users to create personal profiles linking to various forms of user info. Then, the user effectively “pays” the platforms by providing them more valuable data about their consumer behavior, including every action they take on site. Facebook’s data scandal is a premier example of this.
Financial networks are even worse culprits, as they are legally bound to collect private data from their users due to anti-money-laundering (AML) and know your customer (KYC) data from their users. These companies source sensitive and personally identifiable information from everyone accessing their services, in the name of fighting money laundering and terrorist financing.
The result? According to one study, less than 0.1% of all criminal finances are actually impacted by such laws, which successfully recover fewer funds than the cost of implementing the laws themselves. Meanwhile, users of companies who require AML and KYC data must forfeit all semblance of financial privacy. Prior to Bitcoin, there was no reliable alternative for long-term money transfer in existence.
This doesn’t mean that Bitcoin is a perfect solution. After all, its blockchain is literally a public ledger tracking every transaction that’s ever taken place on the network. Even Bitcoin supporters understand this as a bane for user privacy and sovereignty, not least of whom is Edward Snowden.
The blockchain is at least pseudonymous because addresses do not directly link to individuals or groups. Furthermore, upgrades like Taproot alongside Layer 2 payment solutions like the Lightning Network help make the tracing of funds more difficult.
2. CENSORSHIP WINS
The same social media and financial networks that infringe on users’ privacy are now notorious for violating users’ free speech and financial sovereignty.
Those who espouse views disapproved by the establishment media class can be banned from every social platform in lockstep. Similarly, those that wish to support causes deemed immoral or illegal by governments may find that these governments can simply order payment platforms to block or seize their funds.
Bitcoin fixes this. As a truly peer-to-peer payment network, no third-party intermediary can choose to prevent one’s bitcoin from reaching its destination, nor can they be pressured by governments to do so.
This isn’t just an issue in developing nations. This month, police in Ottawa, Canada, cooperated with popular crowdsourcing platform GoFundMe to block donations from the Freedom Convoy protestors. In a similar fashion, an Ontario Supreme Court justice recently ordered Christian fundraising site GiveSendGo to not distribute funds to the movement either. Across both platforms, that’s over $19 million in donations that governments have attempted to block against the senders’ wishes.
Unlike other sites, Tallycoin is only used to connect donors and causes, but not to intermediate payments. As a peer-to-peer and global network, Bitcoin itself handles that, sending money directly to truckers on the ground without the threat of seizure or censorship.
Whether or not one supports the specific movement is beside the point. Protection of property means protection of property for all, and Bitcoin guarantees it cryptographically in an indiscriminate manner.
3. BIG GOVERNMENT WINS
For those who have been paying attention to the regulatory conversation surrounding Bitcoin, it’s clear that it’s become a partisan issue. While Republican lawmakers like Wendy Rogers and Cynthia Lummis are fanatical about the asset, Democrats fear it for its use in illicit finance and as a threat to the U.S. dollar.
The divide makes sense. Republicans are typically for smaller government and freer markets. Democrats are often for relatively larger government, market restrictions and wealth redistribution. Bitcoin fundamentally enables the Republican vision, and limits the Democratic one, as described.
If adopted as currency, bitcoin’s hard supply cap of 21 million coins firmly restricts government largesse produced by irresponsible money printing. It would force governments to source funds for various programs through taxes only.
In a money-printing paradigm, citizens effectively “pay” for the cost of money printing through inflation. With more money chasing the same products in an economy, prices of those products naturally start to rise.
However, this effect often takes a few months to appear after quantitative easing begins. As such, average citizens are often unable to link the responsibility for inflation costs directly to government and central bank decision-making. Because of this, authorities are then given room to obfuscate, blaming supply chain issues and labor shortages for inflation once it arrives, rather than their own incompetence.
By contrast, when citizens incur taxes, they know the cost came from their government, and they know the exact amount. It is a far more transparent form of payment that they can concretely oppose and hold their politicians accountable for.
Dr. Saifedean Ammous, independent economist and author of “The Bitcoin Standard,” thoroughly explains how government largesse from money printing hurts economic productivity. He argues that capital is regularly misallocated to the industries that the market has no interest in trading with or sustaining. The war industry is offered as a powerful example in the American context.
“As it stands, a large number of firms in all advanced economies specialize in warfare as a business, and are thus reliant on perpetuating war to continue being in business. They live off government spending exclusively, and have their entire existence reliant on there being perpetual wars necessitating ever-larger arms spending.
“This, more than any strategic, cultural, ideological, or security operations, explains why the United States has been involved in so many conflicts in parts of the world that cannot possibly have any bearing on the life of the average American. Only with unsound money can these firms grow to such enormous magnitude that they can influence the press, academia, and think tanks to continuously beat the drums of more war.” – Dr. Saifedean Ammous
To summarize: Political decisions would become far more transparent and consequential on a Bitcoin standard. The market would allocate resources far more efficiently and without big-government interference.
4. CENTRAL BANKS WIN
Central banks have existed since the 17th century as a type of “bank for bankers” and as buyers of government debt. Many even held monopolies on the issuance of their nation’s currency, which they still hold today.
However, it was only in 1913 that the establishment of the Federal Reserve System redefined the mandate for central banks across the world. These authorities are now responsible for not only stabilizing a nation’s currency but also its entire economy. The latter objective theoretically requires a more “elastic” (inflationary) money, and thus comes at the expense of currency stability.
The results haven’t been pretty. Following this transition, the first half of the 20th century featured the greatest two wars humanity has ever known. It also featured an ever-failing commitment to the gold standard, which required that dollars only be printed if redeemable for hard gold.
In fact, when faced with this restriction, the U.S. government has proven that it need not play fair with its own citizens. In 1933, President Franklin D. Roosevelt signed Executive Order 6102, forbidding citizens’ private ownership of gold. He forced them to redeem their holdings at a rate of $20.67 per ounce to the Federal Reserve, only to see their holdings revalued to $35 per ounce with the passage of the Gold Reserve Act in the following year.
In effect, citizens’ wealth was forcibly stolen from them so that their government could fund whichever programs they desired to “stimulate” the economy. Meanwhile, those citizens’ ability to resist inflationary pressures by holding hard gold was stripped from them up until 1974, when Order 6102 was repealed. The same gold worth $20 per ounce, when confiscated from citizens, is now worth over $1,800 per ounce.
Bitcoin solves this problem by not only being non-inflationary but also non-confiscatable. As long as one knows his private key, a government cannot seize it, even by force. In return, Bitcoin “forces” central bank money to compete against a harder form of money on the free market, rather than forcibly subjecting people to its devaluation.
5. THE ENERGY TRANSITION FAILS
Bitcoin is often criticized for being wasteful, planet searing, and abusive to the environment. Its energy-intensive mining process has caused people otherwise enthusiastic about the asset to distance themselves from it over ESG (environmental, social and governance) concerns. These include Tesla CEO Elon Musk and New York City Mayor Eric Adams, among others.
In the long term, the opposite will likely prove to be true. Bitcoin’s proof of work, which now consumes more power annually than Finland, will help transition the world to a greener, more renewable energy standard.
How can this be? As bitcoin’s price appreciates, the demand for newly-minted units grows stronger. With a $700 billion-plus market cap today, mining isn’t just a game, but an entire industry. And with industry comes innovation.
A study conducted collaboratively by Square and Ark Invest last year argued that Bitcoin mining can incentivize renewable energy production. By acting as an energy buyer of first and last resort, it can stabilize electricity grids with varying supply and demand for energy through an all-new, economically productive use case.
This is especially important for renewable power sources. Solar, for example, produces highly excessive demand during the day, while producing nothing at night. Wind power is even less predictable. Mining can absorb the excess energy these technologies produce at certain times, thus making them more profitable.
Ultimately, this will also help address energy shortages around the world. Developers will be willing to build more energy sources in areas of unstable demand, knowing they can subsidize their excess energy through Bitcoin mining when demand is low. That way, they’ll always be there to deliver when demand is high.
Texas Governor Greg Abbott recognizes this. Last year, his state’s grid was overwhelmed with demand, leading to blackouts that left hundreds dead. As such, he is currently inviting Bitcoin mining as fast as he can in a counterintuitive attempt to help stabilize his grid long term. In the short term, Bitcoin miners get paid to cease operations when asked during times of peak demand.
Bitcoin presents a free-market solution to renewable energy development and adoption. It is distinct from coercive government attempts to enforce the use of renewables, tax non-renewables and hurt the economy to achieve cleaner energy. With Bitcoin, a green future can be realized without putting more money and power in government hands.
Bitcoin must not fail. More than just an avenue for making money, the network promises freedom, privacy and property protection like no technology or government before it.
The forces that serve to lose from Bitcoin’s success will undoubtedly try to stop it. However, if the network is so powerful and secure as we believe, then their attempts should prove futile. The network was built to last: durable amid stress, a threat to authoritarian regimes and an economic boon to free societies.