The Civilizational Roles Of Bitcoin – Bitcoin Magazine
Tthis is an opinion editorial by Bernardo Filipe, a lifelong thinker, philosopher and author of “The Straight Science.”
“Obviously I hate the bitcoin success and I don’t welcome a currency that is useful for kidnappers and extortionists and so on. I also don’t like just kicking out a few extra billions and billions of dollars to someone who just invented a new financial product out of thin air. So I guess I should modestly say that I think the whole damn development is disgusting and contrary to the interests of civilization. And I will leave the criticism to others.” – Charlie Munger
It’s time we condense some of the ways bitcoin is likely to contribute to civilization into a few bullet points. Because some of his contributions have now become clear. After that, we will analyze Munger’s arguments. So, to begin with, bitcoin:
- Reduce administrative bloat. By making the ledger public, much of the work required to verify and audit wealth transfers is eliminated.
- Transfer large amounts of wealth cheaply all over the world.
- Can potentially work like a Treasury bond, but with higher yield yields. This is because the real return on bonds is always lower than the nominal expectation, due to inflation.
- Will increasingly function as a safe store of wealth or even as a savings account, as its market capitalization grows and its volatility decreases. Both the colossal amount of computing power that already powers Bitcoin, and the manner in which this computing power is distributed across multiple jurisdictions, ensures that Bitcoin’s network and thus ledger is unbreakable.
The contribution to civilization is expected to be so significant that gold and treasury bonds should gradually become obsolete as bitcoin’s adoption rate increases. So Bitcoin is indeed just another financial product, or asset at the moment, but if its adoption continues to grow, it will gradually replace older, less efficient and ultimately more expensive financial products and assets. Bitcoin is real financial engineering that stores work-energy flows from energy production sites into an incorruptible and irreplaceable digital asset. As Michael Saylor explains, bitcoin is thermodynamically sound monetary energy.
Let us now dissect Munger’s arguments:
Munger: “I also don’t like just kicking out a few extra billions and billions of dollars to someone who just invented a new financial product out of thin air.”
This is an interesting point, at least psychologically, but if we consider that every valuable invention started “out of thin air”, as an idea in someone’s brain, we realize that it holds no ground. To give an example, the Wright brothers first had to imagine an airplane in their minds, “out of the air,” as Munger says, before they began to actually build it. Moreover, those billions and billions of dollars are not exactly going to the creator of bitcoin. Whoever buys bitcoin is actually buying a piece of the Bitcoin network, that is, a piece of finite blockchain property, and that piece will belong to the buyer and only the buyer once he acquires it. The earlier adopters become richer as a side effect of a growing adoption of the asset, but the positive civilizational event here is the radical optimization of wealth flow, as summarized above.
If Munger may have meant that one bitcoin can be easily created, or replicated, then this is also not true. By design, it takes a significant amount of energy to mine (ie create) a single bitcoin. The side effect of this mining mechanic is that it encourages us to use a lot of waste energy and also to reuse power infrastructure. This is, of course, another excellent contribution to civilization.
Munger: “I hate the success of bitcoin and I do not welcome a currency that is useful for kidnappers and extortionists.”
The thing with this line of reasoning is that it is tantamount to saying “I hate the success of knives and I don’t welcome a tool that is useful to criminals.” But what if I told you that you could cut food, skin animals and help build an entire civilization with knives? Or like saying, “I hate fire because there are pyromaniacs.” But what if I told you that the “invention” of fire was practically the point at which humans diverged from mere animals?
Not to mention that the moment regulation is tightened, criminals using bitcoin will not be very bright: the ledger is public, and all transactions are tracked. As regulation and AML/KYC rules are enforced (on exchanges, and perhaps even on wallets), criminality driven by blockchain technology should gradually disappear. Good old regular cash ie physical cash is much harder to trace. Why, for example, would a drug dealer accept bitcoin in his regulated, IRS-tracked wallet? Under such a regulatory scenario, in which the anonymity of bitcoin holders does not exist for authorities, criminal activities driven by bitcoin transactions will hardly survive.
Of course, the criminals can create their own black market of wallets and marketplaces, but once a criminal wallet is connected to a regulated, IRS-tracked wallet, it will raise an alarm. The “digital asset black market” will consequently short-circuit itself from the economy – the criminal will not be able to use the wealth in his criminal wallet on anything other than untracked, criminal goods and services. Whereas now the money, ie the physical cash that the criminal makes on the black market, can flow back to supermarkets, bars, restaurants, etc. and the criminal can effectively make a living from crime.
In fact, the smartest anarchists are also opposed to bitcoin’s wide adoption, because they recognize that it could lead to a society where every move is tracked. It therefore follows that criminals must also be against it. If bitcoin is working for them right now, it is because we are still early in its adoption and there is virtually no regulation. After all, we are talking about replacing your physical, untracked wallet with a digital, tracked wallet. How can crime thrive under these conditions? Only through highly organized crime and/or with government help.
When the first airplane the Wright brothers built crashed, there were guys who laughed at the brothers. When the first monkeys burned themselves with fire, there were other monkeys who laughed at them. They must have remained monkeys at the time. As for you… Will you stay single now?
“It’s a good lesson for anyone: the ability to take criticism constructively and learn from it.” – Charlie Munger
This is a guest post by Bernardo Filipe. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
