Perhaps the single most prominent, and telling, feature of bitcoin today is its massive controversy in the media. Not a single day goes by without an article or televised mention about its dangers, risks, and dubious mainstream appeal.
Many in the mainstream seem set in their beliefs that bitcoin is a fad, or even worse a ponzi scheme, and is destined to fail. Yet when was the last time a ponzi scheme attracted global attention and prominent venture capital investment? Since when has a fad incited the simultaneous and largely hostile reactions of governments across the globe?
Why did other payment technologies like PayPal or Western Union apparently fail to meet the requirements to be discussed in virtually every central bank on the planet, yet cryptocurrency is being so thoroughly scrutinised? Ironically enough, the on-going debate about whether or not bitcoin is truly a valuable disruptive technology, is all the evidence you need that it is.
This is because bitcoin as a technology isn’t just challenging business models, or even an entire industry. Plenty of innovative outfits do that with much less flare. Bitcoin is challenging the financial infrastructure of the whole global economy, and even more, it is challenging entire generations of established political and economic theory that that infrastructure is built on.
Bitcoin’s exponential growth flouts all of the traditional monetary theory that is the mainstream ideology amongst academics and politicians today. Its very existence and growing success cannot be accounted for within these old paradigms.
It challenges not only the basis and underlying assumptions of the modern financial system, but calls into question the beliefs and even livelihood of so many politicians, economic advisors, and media pundits. That is why so many are so sceptical of it, and others even outright hostile.
Bitcoin the currency
As a currency, bitcoin is in many ways the antithesis of modern fiat currencies. It has grown exponentially in usage the last year, and all without being declared by any state or central bank as “legal tender”. That simple fact astonishes many in academia, who could never have guessed a currency could spontaneously form and organically grow within the modern free market.
It was something that was never even discussed theoretically, and is still taking time to sink in amidst the denials that bitcoin is here to stay.
Yet this occurrence is surprisingly not entirely without precedence. Bitcoin is not the only example of a homogenous “good” being adopted by a population as a currency, for nothing but its underlying natural value and universal appeal. We have a much older example of that: gold, more than 5,000 years ago.
Cryptocurrency is following the same path as precious metals in ancient civilization. Where gold was valued for its color, easy malleability, purity and its anti-corrosive properties, bitcoin is valued for it’s speed, decentralization, anonymity and ultra low transaction costs.
Gold was discovered by practically every world civilization and became a good of such universal value it slowly became the de facto means of exchange (along with silver) across much of the planet, eventually culminating in the Classical Gold Standard. That is a span of dominance of thousands of years, compared with the 43 years of the global fiat system we have today.
History thus clearly shows that the idea of a currency deriving value primarily from the “backing” of some central state is nonsense.
For the vast majority of civilization, money was gold or silver, and both originated not as centrally issued currency that, as a result, magically had value, but as universally valued substances.
Bitcoin is fast becoming the first commodity since gold to become a widely accepted means of exchange without the need of a central authority backing it.
However unlike gold, Bitcoin is completely out of the reach of governments and can’t be regulated, centralized, or ultimately shut down and replaced with inflationary fiat money. For all its durability and timeless lustre, gold my pale to the longevity of a cryptocurrency system.
Reacting to Big Data
However Bitcoin is not just a currency that promises to eventually end the trend of patchwork national currencies that exist for the almost sole purpose of allowing governments to endlessly fund their own deficit spending.
When the Internet was growing in the 90s it promised a future in which everyone everywhere had access to all the knowledge in the world, a future where technology ultimately empowered the individual.
Indeed, this promise is coming closer and closer everyday as more people in underdeveloped countries have access to cheaper and cheaper smartphones and Internet access. However behind this positive outward development, the big players have long since been behind a much different trend.
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Google, Facebook, as well as many others, all keep meticulous track of user data for advertising and other purposes. On several occasions, the massive amounts of data collected by Internet service and telecommunications companies have been utilized by agencies such as the NSA, under morally questionable motives at best.
The result is a system that has evolved with the ability to track everything you do, like, go, and know, and then provide all of that data to one central authority you may or may not trust, all with little choice for the consumer. The Internet has recently been more reminiscent of Orwell’s 1984, rather than the future of individual empowerment that was promised.
Cryptocurrency is the first major technological advancement that, intentionally or not, is a massive reaction to the trend of Big Data. It is decentralized and anonymous by design, and it is these key features within the Bitcoin protocol itself that may be the key to weakening the hold of massive data collecting service companies like Google.
Already, all payments with Bitcoin are anonymous, which could allow users to opt out of advertising with anonymous micropayments. Yet many other cryptocurrencies such as Namecoin are attempting to take the protocol that enables this and use it to build other decentralized networks.
Among these can be email, domain names, and other such systems.
Decentralized applications
This is only the beginning however, businesses will hopefully creatively utilize the open source design of Bitcoin to provide entirely secure and anonymous end-to-end experiences. The possibilities for the emerging wave of decentralized applications are endless, and only time will tell what it does result in. As David Johnston, the $1m sponsor of the Austin Bitcoin Hackathon put it:
“[Decentralized applications] have the potential to become self-sustaining because they empower their stakeholders to invest in the development of the DA.
Because of that, it is conceivable that DAs for payments, social networking, and cloud computing may one day surpass the valuation of multinational corporations like Western Union, Visa, Facebook, Google, and Amazon that are are currently active in the space.”
At the very least, the ever-growing success of bitcoin thus far candidly illustrates that there is indeed a massive demand for anonymity online, one companies would be wise to take advantage of.
It’s far too tempting to compare bitcoin to PCs, the Internet, or even to gold 5,000 years ago. While it does possess similarities with many of these things, and comparing it to such landmark achievements underscores its importance, bitcoin is it’s own phenomena.
PCs may have had a huge amount of industry leaders shrugging it off or denouncing it entirely like bitcoin does now, but it never had whole governments attempting to shut down or regulate its use.
Precious metals may have been the first and last good to become universally adopted as a means of exchange, but this was a slow process that took centuries if not millennia, whereas the usage of cryptocurrencies has exploded in just a few short years.
While bitcoin may have many old conceptual roots, it is altogether new and powerful. It is ushering in a new paradigm in various aspects of society, and creating a new benchmark for future technological achievements to inevitably be compared to.
Bitcoin is changing everything, and if you aren’t on board, then you’re already a dinosaur.