It’s all about incentives.
** Sitting in my drafts for almost a year, and not sure why**
Bitcoin is a contentious subject, at the best of times.
Its very existence challenges the status quo we’ve had regarding money for the last 5 centuries, and in particular the world we, our parents & grandparents have grown up in.
We’ve become accustomed to the idea that central banks and governments are the sole proprietors of money and the economic system that form the fabric of the societies we live in, despite the fact that this centrally planned methodology has consistently failed.
Bitcoin stands alone as the first time we’ve had an immutable digital network, with an associated scarce digital unit. Together these form an economic network that is sound, verifiable, autonomous, and now 10yrs in, almost impossible to shut down.
It takes the concept of money, reinvents it inline with what money actually represents (value/work /input into society), and as a result removes it from the hands of the few, and places it into the ownership of the many. Bitcoin is a money and a monetary system owned by the participants of the network.
So what does a future economic system look like on a network that is a public good, that is open, transparent, and verifiable by all participants at all times?
Well, first of all, it re-aligns the incentives of the constituents of that society (people, businesses, governments). Our current money is designed to inflate and thus depreciate over time. This along with the constant tampering of monetary policy causes the wealth we generate to disintegrate and therefore means the incentive is to spend like crazy (blind consumerism), and invest like crazy in the search for yield, just so you can “beat inflation.”
It causes society to sacrifice and discount the future for the present.
A future built on an open monetary system, with a fixed supply is one where wealth can be stored because your attribution to the whole is both known & verifiable at the same time. The incentives transform into consuming what you actually need, saving for the future, and adding value through work that matters to you along with real innovation & production.
Concentration of wealth & rent-seeking are made extraordinarily difficult because unlike the current system where wealth can be transformed into political power — and political power can be used to protect wealth, the ONLY way to earn more, have more & be more in an open, fixed supply economic system is to either do more work, add more value or innovate more (apart from stealing — which we’ll likely as a species never move away from, and won’t get you very far most of the time anyway).
Nic Carter, partner at Castle Island ventures said it perfectly:
“wealth concentration is something to worry about if wealth can be transformed into political power, because you kick off a feedback loop of wealth -> power -> discretion over system features -> more wealth — luckily, bitcoin manifestly does NOT care if you are wealthy”
Whilst an economic system built on bitcoin changes the core incentives that drive society, it also impacts the speed, efficiency, and delivery of services on top, ie; the “finance” aspect of the economy.
You can do things on Bitcoin and the abstracted layers being built atop it (such as Lightning, Liquid, etc) that you fundamentally cannot do with the existing financial infrastructure. By turning money into information, you make it something that’s transferable anywhere in the world, instantly, 24/7.
I recently sent a tenth of a cent to a friend in the middle of Asia. All he had was a lightning wallet & some crappy internet signal.
By transforming information & communication into data, the internet ushered in a new era of connectivity, innovation, and invention, unlike anything we could’ve imagined.
By transforming money (the unit through which society measures work, energy & the input of its constituents) and the economic system into data, Bitcoin will usher in an era of collaboration, innovation, and productivity, unlike anything we’ve ever seen.
Will it be used by everyone?
Maybe not. But it does & will exist — and those who value production, innovation, transparency, the soundness of a monetary system and saving for the future will finally have a system they can be a part of, without being penalised for having a lower time preference.
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What does a future economic system look like on bitcoin? was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.
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