Digital Currency for a Digital Age
"Can Bitcoin Become a Major Currency?" - A working paper by economists Lawrence H. White and William J. Luther
Money is a medium of exchange, unit of account, and store of value that helps people trade for goods and services.
Throughout history, governments have claimed a monopoly on money through exclusive rights to print currency and through central banks.
New digital "cryptocurrencies" meet all the standards of money, but are decentralized, taking money out of the realm of public policy and central planning and placing it in the hands of the people actually using it.
Digital cryptocurrencies allow for quick monetary exhange between any two people anywhere on the planet, regardless of whether they have a bank account or credit card.
When currencies are allowed to compete, individuals are no longer locked into saving their earnings in a single government-run currency whose value can be diminished through inflation.
Many sellers currently accept digital cryptocurrencies, such as bitcoin, for all manner of products and services, including food, clothing, and software.
Alternative currencies like bitcoin have shown us that money can be improved by the application of the same human energy, creativity, and crowdsourced, real-time information that has made everything else better. This is an epic insight, one that fundamentally shakes up monetary economics, payment systems, and even the involvement of all peoples of the world in the global division of labor.
In the last 100 years, nearly everything in our economic lives has improved in ways no one imagined possible. Mass distribution of books, medicine, indoor heating, food, cars, flight, refrigeration, clothing—and that digital technology put progress on fast forward is by now a cliché.
But there is one good that has not improved but rather has gotten worse and worse: money itself. It used to be defined by something real—gold—but governments gradually redefined money as paper, precisely so they could fund wars and welfare and run up debt without limit. Collaborating with an industrial cartel called the banking industry, money’s value fell for a hundred years to carry only 5 percent of the purchasing power it once had.
Also in the course of time, the central management of money has become ever less transparent, less stable, and riskier. Vast resources today are expended (and extracted from the people) just to make sense of the system and keep it from breaking down. This is the underlying reason for the trillions in bailouts, the manipulations and corruptions, and the political depredations of the government-financial complex. When the money goes bad, nothing else in economic life really works the way it should.
It’s true that payment systems today have adapted brilliantly, given that the unit of account is of such poor quality. But even so, the credit card system built on top of the government paper-money system is a patch in the age of the Internet. Every digital transaction with government money opens up dangers of identity theft, fraud, and resource misallocation. The costs are egregious and anti-competitive.
Alternative currencies like bitcoin takes dramatic steps in two directions. On the one hand, they restore money as a form of property with the assignment of ownership titles. What’s being traded is not a trust relationship but an owned resource. In this respect, alternative currencies recall the honesty and integrity of the gold-coin standard.
On the other hand, they hurl us forward in time by making geographically non-contingent monetary exchange possible between any two individuals on the planet, irrespective of whether they have a bank account or credit card. This is the feature that makes a crypto-standard much improved over any proposed gold standard.
The emerging cryptographic monetary standard entirely bypasses the age of fiat money and the age of central banking. It takes money out of the realm of public policy and central planning and places it in the hands of the people actually using it. Of all the features of Bitcoin, this one is perhaps the most beautiful. It has emerged from within the social order and was not imposed from above.
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