The beauty of Bitcoin is best reflected in the lack of a canonical narrative that everyone must believe and profess. People coming from all sorts of backgrounds can find different uses and meanings for Satoshi’s invention. The concept of money that isn’t issued by a central government (and also cannot be confiscated or censored) is appealing to individuals regardless of their values and ideological beliefs.
Nevertheless, this article aims to make a rather controversial point about Bitcoin: in order for it to exist and prove its virtues, it constantly needs an arch nemesis which has the exact opposite features – and this nemesis is best embodied by inflationary governmental money.
Also, an argument against the dream of living in a cashless society is to be presented. The main criticism of this concept is that its features are Orwellian in terms of removing privacy and eliminating surveillance. Furthermore, if fungibility and privacy are to be removed from all monetary transactions, then we might as well surrender our liberties to the arbitrary chains of Big Brother (or else start a new revolution).
At this point in its development, Bitcoin is neither ready to handle all of the world’s economic activities, and nor is it fungible or private. Also, given its fundamental cypherpunk origins, we should regard BTC as a hedge against abusive governments and a way to protect private property worldwide, rather than as a quick way to settle payments. Early bitcoiners who got in for the low fees and instant transaction insertion into the following blocks may disagree and point out to the title of the whitepaper (a peer to peer electronic cash system), but there is really poor scalability in that model of decentralization is deemed as the fundamental value.
Why Bitcoin needs cash to exist
Right now, the most private and convenient Bitcoin transactions are made via cash exchanges in person. Meeting with someone face to face in order to exchange $3900 (the approximate price of one BTC at press time) for one piece of unconfiscatable and uncensorable digital gold is an ideal scenario where greedy third parties are eliminated. Certainly, this kind of exchange requires trust in the other person and should ideally be made in a public place to avoid inconveniences.
Conversely, this approach removes KYC data-hungry entities and fee-collecting intermediaries from the equation – which is a benefit in itself. If you also use wallets like Samourai or Wasabi, then you also get an increased layer of on-chain privacy that will obfuscate your transaction and make it hard to find out to whom you are sending your coins.
Cash (defined as paper or plastic money that you keep in your wallet) is still more useful in day to day transactions because it’s fungible and private: nobody will care that your $10 bill once belonged to Brad Pitt, and this piece of trivia won’t increase its value on the market; likewise, you can make purchases without letting anyone know what your full name is and where you live (something which online purchases have taken away from us).
Furthermore, there are millions of shops and merchants that still have trouble accepting credit cards and would rather take the folded bills in your pocket. If you go shopping in the countryside, lesser developed regions, or even small farmer’s markets, you shouldn’t expect to find quick internet connections and people who are aware of the qualities of sound money. This is where cash comes in handy, and this is something that most likely won’t change in our lifetime.
Now let’s scrutinize the arch nemesis argument (that deals more with the “fiat” side of the debate, which also includes cash): in order for Bitcoin to prove its usefulness and advantages over government-issued money, then fiat needs to continue to exist and be managed by short-sighted man-made law.
At this point, Satoshi’s invention is still young and has yet to demonstrate its capability to withstand attacks (both social and hash-related) while providing a predictable and stable monetary policy. The fact that various actors in the Bitcoin space demand for an increase of the supply, removal of the halving moments, or even a radical change of the game theory via block size reduction is proof that we aren’t witnessing full maturity and people have yet to agree on the long-term model.
Inevitably, we will constantly compare Bitcoin with a relevant fiat currency (such as the US dollar and the euro) in order to determine performance over time and the extent to which the king of cryptocurrencies lives up to the expectations. Since Satoshi launched his invention as a response to the global financial crisis of 2008 and 2009, it’s going to be interesting to see if BTC truly flourishes in the economic environment that it was created to counter. The next recession (or even depression) is the true global test for Bitcoin, as both the technology and its advocates become scrutinized by the financial decisions of billions of disillusioned people.
Even outside a disastrous scenario for the world finances, Bitcoin still needs fiat to shine. And it’s unlikely that governments will surrender their right to issue a currency they can control in order to embrace a system that doesn’t react to their policies. As presented by Thomas Hobbes in “The Leviathan”, governments are nothing more than power-hungry behemoths that we accept due to their ability to tame our beastly urges.
They won’t go away from managing inflationary currencies just because a better alternative exists – they will most likely try to sweeten their policies in order to prevent a complete transition to sound money. And as long as people will ask for increased state intervention in economic affairs, the position of politicians and financial institutions is secure, unquestioned and unaccounted by most.
Bitcoin developer and educator Jimmy Song has also expressed an argument in favor of cash, which has more to do with economic reasons: it’s better to spend the money that depreciates in value over time due to inflation while holding your BTC (which is expected to get more valuable as scarcity and demand increase). He also argued that credit card companies offer some financial advantages that make it more rational to use fiat in everyday purchases and hold onto your bitcoins.
Why Bitcoin isn’t a byproduct of the cashless society
The idea of a cashless society, where people only make financial transactions with digital money, is an invention of the banks, for the banks, and by the banks. Many forms of virtual currencies precede the existence of Bitcoin, but none of them have the censorship resistance and the kind of decentralization which makes any amount impossible to arbitrarily confiscate.
Furthermore, there are many ideas regarding the cashless society that involve cryptocurrencies – but none of them concerns Satoshi’s invention. For instance, tokenizing assets by putting them on the blockchain and allowing remote access is a regulated process that does use some of Bitcoin’s technology without directly involving its protocol. Such a concept involves KYC registration and is bound to the laws of various jurisdictions (including that of the participant and that of the asset’s issuer).
Like the lovechild of the cypherpunk movement, Bitcoin is much more like a rare collectible that cannot be confiscated. The only reason why it is virtual is given by the nature of our all-encompassing Orwellian governments that will legislate against anything that looks like competition. Had a new form of non-governmental currency been invented in this day and age, then the mighty politicians in power would do their best to outlaw and confiscate this kind of economic competition.
Bitcoin, as a successor of Ecash, b-money, Hashcash, and Bit Gold, maintains a degree of cypherpunk-ness which makes it friendly to privacy (as opposed to compliance, as Tim May described it). Therefore, it should also be friendly to other private means of exchanging value – and trades for cash or gold are part of this category. Satoshi’s invention isn’t digital and cashless just for the sake of helping our society take the leap, but because it had to be in order to remain unfonciscatable and uncensorable.
Cryptography is the best defense system that we have against enthusiastic collectors of big data – and whenever we benefit from extra layers of encryption, it’s a battle that we win. If we invent the kind of physical matter which fulfills alchemist Satoshi’s dream of being gold while held by the rightful owner, and turning into coal whenever stolen, then Bitcoin will become useless. Until then, we must make use of it as a hedge against both the corrupt financial system and the government’s excessive surveillance apparatus.
Make no mistake: there are cryptocurrencies that do promote the Keynesian approach to spending, and therefore to facilitate the transition to a cashless society. However, Bitcoin is first and foremost decentralized so that anyone can join the network by running a node, free to the extent that nobody can censor it, and secure to the extent that it cannot be confiscated. Comparisons to Visa can wait.