When F. A. Hayek wrote his book, Denationalization of Money, few expected that a moment in economic history would have come where transactions would be settled without a government currency. In the aforementioned book, Hayek claims that the state monopoly on money must be eliminated in order to stop the recurring boom/bust cycles. Instead of a state-run currency, there should be free market competition and the consumer should determine the best possible option.
Many experts doubted that Hayek’s vision would ever become reality. With the birth of Bitcoin in 2009, the theoretical aspects of Hayek’s vision became reality. It could be argued that 2017 has been a crucial year for cryptocurrencies, or at least for the most famous of them: the value of Bitcoin has increased by over 700%, from $968.23 at the beginning of 2017 to well over $19,000 at the end of the same year. Even its market capitalization has skyrocketed. However, Bitcoin has evolved from a simple investment opportunity to a promising value reserve.
One of the main points in favor of cryptocurrencies has been the fact that they rendered obsolete traditional barriers to transactions, such as third-party mediation and currency exchanges. And this advantage is exploited to the fullest, especially in countries with economic troubles. Transactions fluidity and the smallness of commissions associated with cryptocurrencies have enabled easier financing and more extensive humanitarian activities. Individuals from all over the world, who otherwise would be excluded from the canonical banking system, are now fascinated by what the future will bring to them thanks to cryptocurrencies.
An excellent example of Bitcoin that supports humanitarian efforts is Sean’s Outpost (a facility in Pensacola, Florida, that provides food, shelter and water for homeless). Its funding comes from random users in over 43 countries and bitcoins are donated to promote the cause of the organization. In Zimbabwe, a loaf of bread costs ten million dollars in local currency, and on a typical market day you would literally have to carry a bag full of money for shopping. For individuals looking for a reserve of value, readily available and immune to the price inflation nightmare, a concrete option is Bitcoin. In fact, Zimbabwe hosts a thriving community interested in cryptocurrencies and local bitcoin exchanges, such as Bitmari and Bitfinance, are currently providing the necessary infrastructure to support this particular ecosystem.
Today, Hayek’s vision has not only made the world a better place, but has also allowed people to understand that currencies can be decentralized and don’t need government regulation. In many developing countries, where central banking harmed people’s wealth, Bitcoin and other cryptocurrencies have become a tool that allows local population to thrive again.
But many times this technology has been misunderstood and various talking heads even cried about a bubble. Currencies, unlike stocks, do not produce income. Price is determined by demand and supply, making long-term price projections almost impossible. This is what makes cryptocurrencies fundamentally different from other investments. When you buy shares in a company, this does not affect the cash flow of the company itself, so the value of the company is the same whether you buy it or not. Instead, the more people accept Bitcoin and cryptocurrencies, the more they acquire value.
For many people the idea of a currency that is not backed by the government is difficult to accept. However, it has not been long since that confidence was not enough and all currencies were backed by gold. But if you are still not convinced, here’s an example to have a better understanding. For years, Blockbuster executives ignored changes in their business model, while Netflix was gaining more market share. Blockbuster had the opportunity to buy Netflix for $50 million in the early 2000s, but refused because the price was too high. Netflix has recently reached a market capitalization of $80 billion.
That is to say, there are opportunities in this world and cryptocurrencies are offering us the chance to get rid of all those mistakes that over time have settled at the base of the economic system. Bitcoin is not a bubble, it is instead the natural evolution of the free market that slowly leaves behind the static nature of the central planning. The latter has committed suicide and this aspect is embodied by the inevitable implosion of pension funds, along with the rest of the pachyderms that for decades have enjoyed privileges of an artificial monopoly. We hope that this rebirth of sound money, controlled by the collective choices of individuals, will open the eyes of those who still cling tenaciously to the illusion of a salvation through the state.