Opinion: Bitcoin is a New Model for Money

The Invention of Money

In the simplest sense, money is an invention. Some even call it a technology. It is thus no surprise that just like our other inventions, even though money has a definite purpose, it can also be abused and misused. Likewise, cryptocurrency is also an innovative idea; a technological invention, that has the potential to be a boon as well as a bane—depending on the intentions. Therefore, often when people talk about investing in Bitcoin, they are essentially talking about investing in the idea that it represents. Like every other investment in technology, the returns depend on how effectively an idea takes off and becomes a part of the real world. Depending on an idea’s adoption and integration, such investments either turn out to be utter failures or tremendously profitable.

When it comes to the debate around cryptocurrency, this is what it ultimately boils down to. Its proponents are generally investing in its prospects for actualizing profitable outcomes in the ‘real’ world. Naturally, a few are also interested in it for selfish and vested interests. In addition to their relevance to economics, the desired and unintended outcomes have deep social, political, and environmental implications in the real world.

How Real is Money?

However, strictly speaking, what we call as the ‘real’ world is actually just an abstract notion. When we are talking about the world out there, we are in fact referring to our ‘model’ of the real world. It is how our brains and minds make sense of complex phenomena. We construct models that help us to simplify this complexity. The mercurial reality of an ever-changing world is too complex to for us to process directly. A model therefore provides us with a tangible conceptualization that represents (or simulates) this complexity and allows us to process it more effectively.

Nevertheless, when our models of reality are rigid and inflexible, we run the risk of developing cognitive dissonance. In other words, a calcified world-view can make one fall prey to their own biases and prejudices, leading them to become boxed in. Most people who are interested in their own evolution and dream of participating in making a better world, generally strive to check their prejudices and think outside the box. Having said that, being too open-minded without regard for reason and rationality is just as counterproductive if not worse.

It is therefore crucial to appreciate that the debates surrounding cryptocurrencies often revolve around changing our ‘model’ of money and the way it brings forth our economic — and consequently, material — reality. Any such critical analysis is certainly aided by taking into account the short, but intriguing, history that led to the emergence and evolution of the ‘idea’ of digital money.

Bitcoin is the Model

Even though there are many types of cryptocurrencies in the world today, Bitcoin represents the prototypical idea that laid down the foundational premise for this novel concept. And its history is as interesting as it is complex. The fact that Bitcoin has been around for only over a decade now, makes it quite nascent in comparison to the much broader concept of money, which is as old as the oldest human civilizations. As a result, critics as well as advocates of cryptocurrency agree that as a concept, cryptocurrency is still in some sort of an incubation phase as it seeks more acceptance and wider integration.

The now-famous Satoshi Nakamoto, whose identity is deliberately shrouded by his pseudonymous handle, represents a person (or group of persons) who developed the Bitcoin software and engineered the very first blockchain database circa in 2008. This initial journey was documented in the key white paper that described an open-source, peer-to-peer network that informed and inspired a completely new definition of money.

The Incorruptible Financial System

This novel idea was anchored in mathematical, proof-of-work based validation of value, thereby making it independent of human prejudices and vulnerabilities — a desirable feature when it comes to modelling incorruptible financial systems. The fact that the genesis of cryptocurrency coincided with a major financial crises, and a rising lack of faith in traditional financial systems, certainly kindled its popularity in the area of computationally driven economics. Quite appropriately, the first bitcoin mined by Satoshi was timestamped with the Times headline for the date of 3 January 2009, which alluded to the dwindling economy, marking the genesis of bitcoin.

Since then, cryptocurrency (and to some extent the blockchain technology) have been dismissed hundreds of times. But as the latest news indicates, these concepts just refuse to die. The pandemic-induced disruption of global economies in 2020 has only piqued deeper interest in this area, stimulating curiosity and provoking intrigue in the minds of critics and novices alike.

Given that the upcoming future of global societies is becoming exponentially ensconced in online technologies, many pundits are projecting a rise in the owning and transaction of digital assets. For instance, online, work-from-home jobs and education, have clearly begun to generate novel ecosystems in the rapidly changing world of the twenty-first century. It is for such reasons that cryptocurrency’s potential to overthrow authoritarian centralized control makes it impressively threatening and disruptive in nature.

The New Operating System of the Economy

Returning to the idea that blockchain and bitcoin, in at least the most rudimentary sense, are intriguing technological concepts, lends credence to the notion that they represent a solution in search of a problem. But perhaps recent events in this domain might dare to suggest something even more.

Perhaps it is obvious what problem cryptocurrency is here to solve — it is a potential software upgrade for running the new version of the economic machine that was forged in the kilns of the industrial revolution. And this new cybernetic machine is based in the ever-advancing world of computer hardware.

The Old Model is Obsolete

I am reminded of Buckminster Fuller who said, “You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” It appears that in the context of the vicissitudes of human history, cryptocurrency has inadvertently positioned itself to do exactly this. The most exciting thing is that we live in a time when we have the opportunity to find out whether this idea succeeds or not. In the process, we are probably discovering something important about our own selves.