Bitcoin, blockchain and crypto: are they a hyped bubble set to burst or a liberating and solidary money system ready to challenge centralised state power and capitalist control?
Only a year after the financial crisis in 2008 the crypto-currency bitcoin was created as an alternative to a questionable financial economy. The founder of Bitcoin, Satoshi Nakamoto, wrote both code and protocol based on new blockchain technology. Only now, ten years later, we sense a possible economic breakthrough for cryptocurrency – crypto for short.
Hype or opportunity?
For many people crypto may create alternative, non-capitalist and more solidary forms of economy. Many feel a need to liberate themselves from capitalism, where it is getting too powerful or oppressive, and by using cryptocurrency they gain hope for more reciprocal relations and autonomous communities. Others see cryptocurrencies as pure sabotage – undermining and stealing from bigger companies, banks and governmental institutions.
It seems fair to ask if the intrusion of cryptocurrencies on the world market changes or even deranges society – being a truly «disruptive technology». And is it really as liberating as «crypto anarchists», free-thinkers and liberalists wants us to believe? Some people regard the new economy to be as important as the appearance of the internet, while others disregard it as hype – an unfounded sensation – «same shit, new wrapping».
Yet the market is enormous: Today there are 4-5 billion people who don’t possess a bank account, and for many of these a cheap smartphone with cryptocurrencies can probably serve as a «digital wallet». People in developing countries who don’t belong to the typical upper middle class, will be able to effectively receive and pay with money that isn’t traceable by the tax collectors of corrupt governments, while also avoiding banking and credit card fees. Governments around the world will probably do their utmost to prevent or regulate the use of such new technologies – at the risk of being confronted with a billion opponents rejecting control measures.
Banking system in a crisis?
Since its humble beginning, the value of a bitcoin has risen from 1 to about 6000 US dollars. Even if the currency dropped this year, its value would remain seven times that of its price one year ago. The fact that trust in bitcoin is on the rise also means that the dollar might be trusted less. Are we at risk of experiencing another financial crisis like the one in 2008? Without a doubt. The debt situation we have now is worse than that of 2008 before the eruption of the crisis.
As an example, let’s have a look at Norway’s financial situation: Differing from a real economy where expenses don’t exceed production or assets, the Norwegian state ran a deficit of 225 billion kroner, subsequently recovered from the Oil Fund, the national fund for long-term investment of Norway’s oil revenues. Private sector markets lost about 300 billion in the same period, and the trade deficit hit approximately 250 billion. Measured in GDP this equals an «overconsumption» of nearly 800 billion.
«We now have bitcoin, ethereum, litecoin, tron, neo, monero, geocoin, wetrust, verge and over 1600 other cryptocurrencies.»
Since the crisis in 2008, Norwegian households have also chosen to double their debts. Debts have increased in accordance with home prices (85 per cent of debt conforms with the real-estate market), and currently the collective debt is about 3000 billion kroner. At the same time, Norwegian municipalities have doubled their debts to about 2000 billion kroner. In other words, a substantial part of Norway’s welfare is built on debt.
How long will the creditors keep faith that their loans will be reimbursed in the future – before the bubble bursts? If housing prices should fall during a crisis and homes are heavily mortgaged, people will be left bankrupt with no chance of settling up. Alas, one fifth of the Norwegian population owns 80 per cent of the assets, so these will be barely touched, neither by the tragedy nor by the protests that will come in its wake.
Will crypto be an alternative to normal monetary value, if for instance the US dollar loses credibility? The US debt has doubled nearly 20 times in a little more than 30 years, to the staggering current sum of 20 trillion dollars. Debts are partly rising as a result of printing «new money» (see below). Adding expected deficits of 750 billion dollars (roughly equalling Norway’s total Oil Fund), the «company» might not be deemed reliable for much longer. Nationally and internationally the trust in the US dollar also diminishes when the USA steps up their military budget instead of investing in products directly related to people’s needs. In this way the dollar might drop in value. The state of the «company» USA is worsened by its senior citizen class: In 1995 for each pensioner 4.9 Americans were working. In 20 years about half the labour force must cover the expenses of the elderly – whose life expectancy is constantly on the rise. Will the average American tolerate sharing a third of their income with strangers in a swelling class of retirees?
China’s currency is getting ready to inherit the role as a global currency, held by the US dollar until now. China has invested substantially in Africa, where many countries consider changing their currency reserve over to yuan. The US dollar is, in other words, not what it used to be, and if other countries pull out, crypto or other currencies are waiting in line to take over.
Many expect an «hour of reckoning» – where the bubble will burst and start a new financial crisis. Loans must be renewed, there is interest and compound interest, and credit doesn’t extend into eternity. Central banks aren’t at liberty to cancel mountains of debt, since this would create a negative state capital and create a quake that would cause the trust-based world economy to crumble.
Today, 17 million bitcoins and 4500 billion dollars are in circulation. Both units work as singular loans based on the expectation that you will get something back when you give them to someone. So long as the trust prevails.
Reduced spending power
Unlike ordinary money (called fiat currency), the number of crypto is inscribed in the protocol itself, so that they can’t simply be stamped or minted. Bitcoin resembles gold, in the way this precious metal worked as a currency for over 5000 years, as a limited value resource. The freewheeling of the finance market was a direct consequence of the 1933 decree making it a criminal offence to own gold, followed by the effective abolition of the gold standard in 1971. George Washington’s signing of the «Mint and Coinage Act» in 1792 is a faded memory, as is the time when a 10 dollar «eagle-coin» contained 16 grams of pure gold.