Bitcoin and Digital Currencies Changing Our Concept of Money

January 12, 2021 – Seven years ago when the digital cryptocurrency, Bitcoin, which was invented in 2009, reached the value of $600 USD. At that time Bitcoin ATMs started appearing in some cities around the world. People could use local currency to buy Bitcoins and then do speculative trades, or purchases of goods and services as the currency gained acceptance.

Overthe following seven years Bitcoin has grown in value, and from time to time has seen sharp declines. But the trend has always been upward. In 2020, Bitcoin grew in value by over 400% exceeding a value of $42,000 USD.

A few days later Bloomberg reported a Bitcoin value decline of 26%, and asked the question, “has the cryptocurrency bubble finally burst?” Bloomberg noted in its prognostications that Bitcoin would probably see declines “anywhere from 30-60%….more than once.”

Back in 2013, I had written that “currency doesn’t seem to have the same meaning anymore.” At the time I was referring to Bitcoin. I couldn’t imagine legitimizing a currency governed by no central authority or government.

I remember a cousin of mine living in California asking me if she should invest in Bitcoin when it topped $10,000 USD. I advised that the currency was not a safe investment, more like placing a bet on the horses. In the past three years, however, Bitcoin has become accepted as a form of payment by hundreds of thousands of stores and companies around the globe. Institutional investors are now seeing it as a legitimate hedge against the weakness in international currencies, particularly the U.S. dollar. They are also treating it a little like gold, a place of refuge from global uncertainties from pandemic to climate change.

But as an investment, I still see Bitcoin as highly speculative. It certainly has had greater staying power than I would have ever predicted. And it has been joined by other cryptocurrencies like Etherium.

Peter Diamandis of XPrize fame recently wrote about the success of Bitcoin stating it “eliminates the need for banks, gets rid of credit card fees, currency exchange fees, money transfer fees, and reduces the need for lawyers in transactions….it is an exponential currency that will change the way we think about money, much the same way email changed the way we thought of mail.”

He makes an interesting point. Could Bitcoin become a universal standard, much like gold was in the past? Could Bitcoin be the means of exchange in a future society like those fantasized by Gene Rodenberry in Star Trek? In Star Trek currency seems to have vanished entirely with the exception of the Ferengi who valued a metal called Latinum. The Federation in Star Trek appeared to exchange value in goods and services seamlessly without money. Maybe that was a hole in the plotline or a vision that Bitcoin and other invented currencies of the future could fill.

Diamandis in one of his recent email blasts describes Bitcoin and its impact as an exponential technology. That is it represents 6Ds: it is digitized, deceptive, disruptive, dematerializing, demonetizing, and democratizing. How so?

1. Bitcoin is digitized money. Every Bitcoin can be traded, earned, sold, exchanged, and purchased in cyberspace.
2. Bitcoin is deceptive because of the way it arose, an asset that has creepingly grown in value over the years and become more accessible.
3. Bitcoin is today becoming disruptive as its acceptance and value continues to rise and fall. Diamandis notes that the three largest cryptocurrency exchanges in the world (Binance, Huobi, and Coinbase) have tens of millions of users trading hundreds of billions of dollars of the cryptocurrency today.
4. Bitcoin is dematerializing money and credit cards as well as the need for currency exchanges, central banks, and lawyers.
5. Bitcoin is demonetizing by eliminating the cost of transactions performed through banks, lawyers, and exchanges.
6. Bitcoin makes access to capital available to everyone, where there are no banks, no ATMs and no credit card suppliers. Hence it is a democratizing currency available to more than 5 billion currently (8 billion in the near future) connected to the Internet through digital platforms like smartphones, tablets, and laptops.

In 2020, Bitcoin recorded more than 11.9 million fractional transactions, that is, each worth less than $1,000 up from 9.1 million in 2017.  I suspect that number will continue to grow in 2021 and beyond. So maybe we are heading for a universal medium of exchange that is no longer defined by nations and institutions? Let’s see what the next decade brings.