Introduction
The transition from Fiat standards to the bitcoin standard, although highly desirable, is neither inevitable nor necessarily imminent. The timing and occurrence of these changes depend on adoption decisions made by individuals, organizations and public entities. These decisions are influenced not only by rational considerations but also by emotional and irrational factors (greed and fear above all). Collective will, formed by the intentions of a critical mass with sufficient capital and agency, plays a crucial role in displacing entrenched central banks and power structures in favor of a new bitcoin-centric system. Despite bitcoin's obvious technical, economic and ethical superiority over other forms of money, this fight will undoubtedly be formidable and the outcome is far from assured.
However, it is crucial to reflect on the consequences that this potential revolution, if realized (as we all hope), could have on all facets of social existence. These implications range from the nature of States and international relations to the functioning of economic systems, predominant value systems and even the energy market and technological innovation. In this article, without claiming to be exhaustive, we aim to briefly explore some of these aspects and suggest plausible trajectories.
bitcoin and fractional reserve banking
As Hal Finney correctly predicted, a hypothetical bitcoin standard would be incompatible with central banks, but not necessarily with a fractional reserve banking system. Algorithmic limits on the number of transactions per block will certainly prevent Layer 1 from serving as a retail payment system. Over time, fewer transactions will occur on it, and these will be of very high value (in practice, only whales or large public and private institutions, given the high costs, will be able to afford them).
Some form of free banking 2.0 at Layer 2 would be quite inevitable in the medium and long term for a bitcoin-based monetary system. In the absence of a central bank as a lender of last resort and with much easier reserve verifiability than with gold, this Layer 2/Layer 3 FRB (Fractional Reserve Banking) will be much more fragile than the current fractional reserve system backed by legal tender. , central bank and the practical indistinguishability between the monetary base and the money supply. This will only reinforce the importance of Layer 1 as a solid foundation of the monetary system, similar to the role gold played in recent millennia.
Macroeconomic implications
Ceteris Paribus, in the medium term, the adoption of a hypothetical bitcoin standard should significantly dampen economic cycle fluctuations, avoiding excessive indebtedness, bad investments and credit bubbles in the private sector, which would lead to systemic debt crises. Monetary repression would also result in much slower but steady real growth rates in economies in the medium and long term. Without the engine of monetary and credit expansion, that is, the inflationary policies of central banks, the nominal growth of output within a bitcoin standard will be modest, but real growth will remain significant. In other words, any increase in multifactor productivity will result in a decrease in consumer prices measured in satoshis rather than an increase in nominal output. In this context, even in the short term, economic growth will depend on demographic, ecological and economic factors rather than monetary or credit factors.
In this sense, with the bitcoin Standard there will be a gradual shift of wealth from the financial sector, currently voracious, to the real and productive economy. This is a consequence of the significant reduction in the bond and money markets (reduction in the level of debt of the economies) and, therefore, of the entire industry that benefits from them.
Among the companies that will see the biggest reduction are centralized payment and clearing systems, traditional credit institutions, fiduciary agents such as notaries (replaced by smart contracts in layers 2 and 3 of bitcoin) and those involved in finance, real estate and insurance. intermediation.
On the contrary, anything that leverages the potential of the bitcoin (for smart contracts) and DeFi layers will see a real boom.
(geo)political implications
Regarding the immutability of the monetary base, it would force states to maintain strict fiscal discipline by disappearing the option of monetizing deficits or debt as a form of financing public spending. This will profoundly influence the ability of nation-states to provide welfare or wage war. In the absence of a monetary printing press and, therefore, the insidious tax called inflation, fiscal pressure and the allocation of public spending will be the subject of serious negotiations and political disputes, since they will directly affect the pockets of citizens/subjects/taxpayers. .
On the one hand, this could encourage more direct forms of democracy (facilitated by the spread of blockchains and DAOs) to give citizens a greater say in tax and spending decisions. On the other hand, a world based on the bitcoin standard could lead to a much more fragmented and non-polar geopolitical landscape, given the intrinsic unsustainability of maintaining such large and inefficient state apparatuses, more similar to classic medieval feudalism. Instead of the aristocracy of sword, blood and robe, bitcoin whales would become the dominant social class, where non-coiners would be a kind of new serfdom. The first, individuals, families and institutions with huge holdings of bitcoin (created in the early stages of adoption of this technology, that is, in the first two decades of its existence), would be able to provide well-being, work and protection to citizens. . subjects in exchange for loyalty, services and obedience to their “feudal” government. The latter, the vast majority of the population whose ancestors arrived too late to adopt and convert their fiat capital into bitcoin (for various ideological or practical reasons, including economic limitations), would find themselves at the base of the pyramid and would be forced They earn their living by the sweat of their brow or (more likely, given technological advances) through the generosity, more or less interested, of philanthropic whales. This dynamic would also apply internationally: there would be pioneering regions or nations that, having adopted bitcoin as legal tender first, would enjoy a significant relative wealth advantage that would be difficult for newcomers to match.
These would not necessarily be the currently dominant nations; in fact, some may not even exist today. The end result would be a much more fragmented international system than the current one, composed of a mix of democratic, socialist or oligarchic city-states, crypto-aristocratic fiefdoms centered on individual families, and large anarchic and chaotic regions. All of these entities would compete/cooperate with each other, forming a completely new and constantly evolving geopolitical-ideological landscape. In a world where old identity affiliations (national, ideological and religious) would overlap and mix with new identities based on the interpretation of the bitcoin revolution. Given the technological assumptions and ideological foundations of bitcoin culture, a “coinist” religion could emerge, linked to certain ritual and religious aspects that can already be seen among its staunch supporters (immaculate conception, decentralization, cult of Satoshi, algorithmic infallibility). In any case, the bitcoin standard would impose on societies that adopt it some economic norms that closely influence public morality. Among them are the sense of limit, the ethics of savings, prudence in investments, long-termism, honesty in commercial transactions, individual responsibility, fiscal discipline and, of course, the independence and incorruptibility of money with respect to state powers.
Nodes, mining and geopolitics
Nodes are the heart of the bitcoin network and would therefore receive significant attention from political powers. Controlling entire nodes (and therefore potential miners) within a specific territory by public authorities would be extremely important to claim sovereignty internally and influence the international scene. Naturally, given other variables, nations capable of producing energy at lower costs or on a larger scale would have an advantage in allocation and therefore control significant portions of the global bitcoin hashrate. An eternal fight for control of the global hashrate will be the new center of geoeconomic disputes. That said, it is by no means guaranteed that most territorial political entities will be able to effectively exercise this control, and it is not clear how they will do so.
While legitimate physical coercion might seem like the obvious choice, given the specific nature of states, it may not necessarily be the most successful approach in a more geopolitically fragmented and competitive landscape than the current one. Thanks to the high mobility of bitcoin and the fiscal restrictions imposed on traditional states by this monetary system, both miners and whales could easily choose to move elsewhere if their property rights and business freedom end up in danger, finding refuge in more libertarian jurisdictions. On the other hand, a different scenario may develop for those new “neo-aristocratic” state entities built around one or more whales; In this case, the monopoly over mining and the necessary energy resources could be more pronounced, given the immense economic power held by its governing bodies.
Implications of the energy market
bitcoin is not a commodity currency but an energy currency. The power it encapsulates is the energy consumed to create and transfer it. Therefore, as a vital element of the new monetary paradigm, energy will be even more at the center of the economic system than today. This will radically contribute to progress in the energy sector, generating a race for technological innovations both on the extraction and energy saving sides. A whole range of energy sources previously considered uneconomical could now become convenient and accessible through their use for mining. Let's think about the sun in African and Asian deserts, about methane and natural gas deposits in remote places, about geothermal energy from volcanoes and geysers, or even about some systems based on the movement of waves and differences in temperature. temperature in the depths of the oceans.
With increasing energy demand, there will be a growing incentive to generate more energy and do so more efficiently in a virtuous cycle that could lead to a major energy revolution, potentially bringing humanity closer to a level 2 civilization in the Kardashev scale. , undoubtedly contributing to electrifying the planet even in the most remote places. Another possible consequence of a bitcoin standard will be the reversal of roles between energy producers and consumers. The largest energy consumers (mining farms) will eventually become the main energy producers in a vertical integration of energy assets and infrastructure that, starting from the bottom, will assimilate the entire energy industry. Whether this will lead to more or less concentration versus decentralization of energy producers remains to be seen, but it will certainly depend on the business dynamics of the mining industry.
This is a guest post by Michele Uberti. The opinions expressed are entirely their own and do not necessarily reflect those of btc Inc or bitcoin Magazine.
