But we will still explain how bitcoin benefits our society.
You don’t understand how the Blockchain works? Never mind, stop worrying about it. To appreciate what a powerful solution the Blockchain is, we do not need to understand how it works in terms of technical details, but the implications it has for our world.
Presumably, the average internet user does not understand the underlying technology. Does he/she have to? Certainly not – it just works.
So let’s get on with it:
To grasp how bitcoin is actually benefiting our society right now, it is necessary to have an overview of our current money system. In today’s world, your money is controlled by the banks that hold it and the government that oversees it. So when the government goes bankrupt (Greece) or they print insane amounts of money (Zimbabwe), the taxpayer aka the individual citizen aka you is the person that loses the most. For two reasons:
- Savings become worthless.
- The bank that saves your money files for bankruptcy and your funds are lost.
Although these are extreme cases, they do occur. In such scenarios, you inevitably lose your entire savings rapidly.
Although Switzerland itself has always been able to pay back its debts, several banks have filed for bankruptcy. When Swissair went bankrupt, every single employee with money in the internal account lost his/her savings. So this problem is not rare. It is a frequent problem.
Of course, as mentioned above, such scenarios have happened – but they do not happen on a daily basis. Nevertheless, our money is being lost/stolen every single day, although you might not be aware of it. The central authorities have very powerful tools such as money printing. Money printing can be considered a hidden tax. Your savings lose value over time, so the government encourages you to spend money instead of saving it. Consider it in the following way: The more money you print, the higher the supply of money and as a result the value of your money decreases.
To understand how these decreases affect you in your everyday life, consider the following picture:
As there is a vaguely defined limit on how much money a state may print, this trend will continue. So we are not motivated to keep our money in bank accounts because it is gradually losing value. We are not incentivized to think about our future, but to consume everything now.
Besides, banks hold our savings. If we suddenly become political opponents of the banks, they can seize our money . In other words, the banks have total control over our individual savings.
Every person is his/her own bank
In a decentralized system such as bitcoin, every person is his/her own bank. We control our own savings in our own accounts and no one can seize this money. We are free to choose if we want to spend our savings now or continue saving our money. There is a limited supply of bitcoins, namely 21 million. A controlled, steady number of bitcoins created roughly every 10 minutes. The only way to create bitcoins is to mine them. So we have a limited supply, which inherently makes bitcoin a useful of value. Ultimately, this means that people are incentivized to save their bitcoins rather than spending them on “things” that are not absolutely necessary. (Unless the unlikely event occurs, in which all owners dump their bitcoin funds at the same time and trigger hyperinflation).
And banks are not only excluded from printing money but also from managing our transactions. For example, even though banks might not like the fact that we support Greenpeace or WikiLeaks, they are not able to stop us funding them… Bitcoin consequently gives us more control over our money.
Another point that makes bitcoin so valuable is its economic inclusion. Banks are expected to be profit maximizers driven by their shareholders who demand a certain return on their investment each year. So, banks will only open branches where revenue exceeds the operating costs. Additionally, due to regulatory pressure banks require official on housing, employment and identity documents (to name a few).
Those two factors make it practically impossible for banks to serve every single human in the world, which means that approximately 2 billion people are underbanked.
Global economy for everyone
Bitcoin on the other hand includes , regardless of their economic power and their documents. All you need is:
a) The internet which can be accessed by 4 billion people (and growing) and
b) To download the Blockchain code which is free.
Once you have downloaded this, you essentially have the power to exchange value with the entire world. You are accessing an ecosystem of individuals and organizations that all trade the very same currency.
In such a scenario, you are able to engage in the global economy since you have the native currency and do not depend on the stability of your country’s own currency. In the future we will see commerce becoming borderless. Citizens of Zimbabwe will be able to buy products from Japan and vice versa with the same currency, hence an unstable currency in one of the countries will not lead to uncertainty and will eliminate foreign exchange market inefficiency. Moreover, everyone who would like to keep their savings and spend them at a later date will be motivated to do so – since their money will not lose value over time as there is a limited amount of it.
Therefore, the social implications of bitcoin are huge. Contrary to popular belief, bitcoin is not only a digital currency. Bitcoin can be considered an alternative to traditional currencies with advantages and disadvantages. It is ultimately important to understand its upsides and downsides in order to decide whether you want to use it, detailed knowledge of its technology is not necessary. Like the internet… you ultimately have to understand its benefits to in order to decide whether you want to use it.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.