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Stages of Disruption

Discussions of how Bitcoin will forever alter the financial landscape abound on Internet forums. Newcomers to the world of open source, distributed currency are excited by the prospect of cheaper and more secure e-commerce. Perhaps some recognize a nuanced conflict between Bitcoin and, say, Western Union or credit cards that will play out in an unknown fashion in the distant future. Still others, who have taken the time to study Bitcoin and the lineage of cryptocurrency, will recognize the massively disruptive geopolitical implications of the Blockchain. The longer one spends studying Bitcoin from technological and academic perspectives, the more apt his “disruption horizon” will be. Those completely unaware of the existence or properties of Bitcoin naturally have no such horizon.

I want to suggest all of these horizons are true; that is, Bitcoin will be the secure e-commerce platform for Internet sales across the globe, it will obviate the ossified remittance and payments giants of the world today, and it will eventually undermine and exterminate all national fiat currencies and debt-based financial systems in the world.

The speed and the manner in which Bitcoin performs these vary. For the affluent Westerner, Bitcoin may not generate mass interest beyond its capacity as a vehicle for the sharing and e-commerce worlds. It will allow us to tip prescient Yelp reviewers and friendly team members in Xbox matchmaking. It will emit a certain glossiness and shininess about it – like a Tinder or an Uber, a new toy app, scandalous and controversial, to add to the homepage of one’s Samsung Note – but without becoming household and mainstream. For Westerners, Bitcoin does not present a challenge to any framework at all – it presents no threat to banks, payment processors, governments, credit card institutions, or any other member in the landscape of 20th century payment operations. Techies, gamers, independents, and the “shady” may be the initial Bitcoin targets in western environments where liquidity, banking, access to credit and title, insurance, and trusted government oversight are plentiful.

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Gyft allows consumers to turn bitcoin into gift cards for major retailers.

While everyone would stand to benefit from the transformation into a Bitcoin ecosystem, the existing inertia of public support for government money, regulation, and banking channels neuter the ability for Bitcoin to be seen and widely adopted as a tool to limit power. Instead, in the United States and western Europe, Bitcoin is perceived as a nifty digital idiosyncrasy, to be drowned out in popularity by the new technical gizmo or Killer App a year hence. The disruption horizon for the average consumer is thus very low. Some realize its features will give Bitcoin a competitive advantage over certain industry rivals, but they cannot visualize the scene. The image in the crystal ball ends frustratingly in a cloud of fog.

Those with some familiarity with economics will recognize certain cues. That Bitcoin, as a free technology, can perform similar or identical functions to those pertaining to whole companies, such as Western Union, implies that the more efficient will gain at the expense of the least efficient. In the same manner that Internet communication swallowed the demand for long-distance telephone communication, cross-border transactions in Bitcoin (where specialized firms were required) will come to absorb the demand currently given to the MoneyGrams and Western Unions of the world. This implies a radical shift in the power structures that regulate the flow of money. Remittance firms are, as a matter of practice, engaged in the transfer (or non-transfer) of funds internationally, and this has political implications. The heads of these firms can be subpoenaed, sued, investigated, threatened, imprisoned, banned, and extorted to refuse certain transactions just as they can be cajoled, tempted, convinced, sweetened, encouraged, bribed, and purchased into accepting certain transactions, often hidden by their own closed, internal processes.

For a decentralized technology to replace centralized firms in the determination of how money leaves a country is a loss of power to the State. It is one fewer tool available during the imposition of capital controls, sanctions, and trade barriers. The United States government can threaten Visa and MasterCard if they allow donations to be made to WikiLeaks or to Edward Snowden. PayPal can be made to deny service to citizens of certain countries, such as Iran or North Korea, through the creation of laws and agencies that wield discretionary power in the execution of those laws. Discretionary power, however, is absent in Bitcoin. There is no central power structure that verifies or authorizes transactions – transactions are pure data – and wherever information can travel, so will Bitcoin. With Bitcoin, there is no political entanglement; there is no foreign diplomat who can influence monetary policy between two countries. There is only a push of information: a signed transaction on a global ledger.

Individuals in oppressive or impoverished countries can now connect to global markets and sell their wares to billions of people, rather than mere hundreds or thousands. Connecting the other six billion to Bitcoin, and by extension to the Internet, will immediately lift countless out of poverty and destitution. Their need to escape hyperinflation in Ukraine, capital controls in Argentina, consumer good restrictions in Venezuela, bureaucratic corruption in Egypt, heavy taxation in Russia and countless social problems elsewhere will compel these people to adopt alternatives. That Bitcoin is digital and can operate on extremely cheap feature phones will allow it to piggyback on the development of mobile technology already accelerating in Africa and Southeast Asia. It is these dire, direct, and life-threatening use cases that will push Bitcoin’s place in the global scene far stronger than a new way to buy furniture from Overstock.

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This is the beginning of the end of the relationship between money and the State. A long-term domino effect is occurring; Bitcoin popularity and use is cascading. While it may not grow much beyond a niche in the short-term, Bitcoin’s ability to rescue billions from poverty will drive its global demand. Eventually, even citizens in affluent Western countries will become interested in Bitcoin as its price begins to reflect its demand from all over the world. Government monies will become stale and passé compared to the new digital hero. Intermediaries and institutions that allow laymen to receive Bitcoin as wages or for their product will convert them into willing Bitcoiners. They will depend less and less on the stability of fiat money or the direction it takes; economic calculation would begin to emerge on the basis of Bitcoin prices. As this hyperbitcoinization process occurs, merchants and consumers will be less interested in the fiat value of their trades, and more in the Bitcoin value. They will begin to retain larger and larger cash balances of Bitcoin, and will conduct more and more of their accounting on cryptocurrency ledgers. Tax auditing will become more and more difficult, entire industries that were banned by legislation will be able to operate under cover of cryptography, and typical work schedules will begin to break down as individuals abandon corporate sponsorship and take marginal, surreptitious steps into the Agora.

At the end of the day, the connection individual citizens will have to their stores of fiat money will fade and the responsibilities they will willingly accept from their States will decline. Bitcoin, whether trendy Western techies or south Sudanese farmers know it, is the heated lubricant that slips anarchy irreversibly in the fertile socio-political scene of the early 21st century. Rather than the State ending with a bang, it will end with a whimper as the public financially and ideologically abandons it as an archaic institution. Competitive industries will form to overtake its proper functions, and power in society will radically shift from privileged custodians of the “public good” to everyone. A true social democracy, in which nobody’s voice or business can be blocked or stopped by anyone else, is coming. Before Bitcoin can repeat the French Revolution, however, it must repeat the iPod Revolution. It must be put into the hands of everyone as quickly as possible and create digital disruption so massive that consumers cannot help but sit back and enjoy its benefits.

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