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Opinion: Do Digital Currencies Spell the end of Capitalism?

Digital currencies (or cryptocurrencies, as it is more popularly known) has been a hot topic in finance in recent times due to not only the rags-to-riches stories of people who’ve held bitcoin since the early days till its current sky-high market value, but more importantly, due to the decentralized and distributed properties of the technology that it is built on.

Blockchain is that technology. It is the main enabler behind cryptocurrencies and other new technological innovations such as smart contracts and even soon-to-come smart cities.

While all this tech is really cool and everyone wants to get in on this “next big thing”, we need to step back and look at some of the political and social intents that initially sparked the ideas behind blockchain and cryptocurrencies.

This is where this article comes in. The Guardian posted a thought-provoking piece last year on whether the increasing adoption of digital currencies may mean the death of capitalism. 

The article postulated that we may be increasingly living in a world where property (could be email data, could be money and even could be stocks) is valued based on processing cycles (computational value) instead of actual human exchanges (usage value).

The author concluded that this would increasingly lead to a paradigm shift in the meaning we give to money as a form of value exchange, and every form of industry as we know it today would be altered according to computational values and algorithms. Essentially, this meant that capitalism would take on a whole new meaning in and of itself.

The author did not mention how capitalism would transform, or how society would be organized. The fact is, no one knows how societies will change or adapt to this new technological ecosystem that is Blockchain.

However, I believe that we can get some clues just by looking at the original intent that Blockchain (and cryptocurrency) was created for in the first place. 

In 2008, Satoshi Nakamoto invented the Blockchain as a public ledger to built the the world’s first cryptocurrency “app” called Bitcoin on it. His intention was to create a medium of value exchange without any intermediaries or central database that could easily control the whole exchange process. This meant that governments or even corporations had no power to control the movements of Bitcoin, and that power was distributed into people’s hands.

Individuals, not entities, now had the power to collectively regulate and authenticate Bitcoin’s value through demand and supply (mostly demand in this case).

Armed with individual power, markets would be highly efficient and free – resulting in desirably low inflation and an avoidance (or minimization) of economic recessions.

The beauty of Blockchain as a base for Bitcoin is that it is fraud-proof. Transactions are logged onto the public ledger and authenticated by various “server points” (or miners). Once one “block” is completed, the next block is built on top of it, and so on. This means that any modification to previous transactions would be extremely costly and virtually impossible – because one would have to stop all activity on the Blockchain network, and then destroy the blocks built on top of that particular block to be modified, and then recreate those blocks that were destroyed, and…. well you get the point.

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This system creates a level of security, transparency and trust among Bitcoin users, which would be traditionally impossible without an intermediary.

The very notion of decentralization of power is the chief reason that drives the success of Blockchain, among other things. This is why it is favored by Libertarians and Anarcho-Capitalists who dream of societies without governments.

The key question we need to be asking now should be – “Who has more leverage and incentive to make (or break) Blockchain?

On the Governments and Big Businesses side, it can go two ways.

One, they can and have the power to embrace Blockchain in society’s ecosystem by using Blockchain to their advantage. Regulations could be made to force businesses to surrender data onto Governments Blockchain servers and enable them to better govern nation-states. More data means being closer to perfect knowledge, means governments can better provide for their elderly, understand and provide the appropriate level of Universal Basic Income (UBI) for lower-income families and allocate tax monies and resources more efficiently. However, the risk to this is the loss of individual power to make certain decisions (without the approval of the government), the question of “what if the government doesn’t allocate our (tax) money to the goods and services we really need?“, and the stifling of organically-driven innovation and entrepreneurship.

Two, governments could resist Blockchain and stick to traditional forms of conducting affairs. That is what a few countries have been trying to do with stricter regulations and bans on cryptocurrencies. The incentive is not so much stronger than the first option, but rather, they fear the result of NOT resisting Blockchain. For one, the introduction of Blockchain technology will disrupt industries and developing economies will look to their governments for a voice to save their livelihoods and businesses. If politicians do not resist such a threat, the people will lose trust of their governments and go to a libertarian-like state of affairs (best case) or communism (worst case). Such a risk is too large for governments to take, hence the decision to avoid Blockchain and its technologies at the state level.

For individuals, there is only one direction – and that is Satoshi’s original intention of giving autonomy back to the people. With such power, innovation that we would have only dreamed of could potentially be made possible within a few short years. 

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The interplay of risk and reward between governments and collective individuals is not so easily determined, as we can see. There are so many factors, stakeholders and implications for both parties to consider. After all, we are talking about a change in the societal ecosystem – not just a new tech creation.

Coming back to the topic of value, we understand for a fact that the more widely recognized and integrated Blockchain is in our societies, the more the concept of value and money will change.

Irregardless, I posit that our ideas of  ‘value’ will change in not such a drastic manner as we picture it to be. Value would be made to be more “pragmatic” and fundamental, instead of being further from reality. It would be even more closely tied to the intrinsic value of assets – whether it’d be a tangible one like real estate or a digital asset like Bitcoin.

I posit that if and when Blockchain has gained traction, the masses of inferior, unpopular or low-value Blockchain creations and inventions would be wiped out, leaving only the creme-de-la-creme. This event would usher in the official new age of progress, and economies would thus stabilize and Blockchain and its technologies would then become normalized.

In short, the notion of value would not be altered per se, but be EXPANDED to include Blockchain and its technologies. We would finally then have a socially accepted, intrinsically-focused way of valuing Bitcoin or whatever new digital assets that would then have existed.

If this theory proves to be correct, current forms of sophisticated and non-fundamental assets will also be washed out alongside the majority of failed Blockchain-built products. Things such as Mortgage-Backed Securities, Securitized Notes, Derivatives, among others will be less popular and lose their demand in favor of the newer and stable Blockchain assets which have withstood the test of time.

Enter: ImagineCon ’18

That being said, I am not an expert on Blockchain and Cryptocurrencies. Therefore, if you’d like to hear experts weigh in on whether capitalism will survive with the adoption of Blockchain, and the direction society and finance will move toward to, join me at the inaugural Imagine Con 2018 happening August 10 – 11 at the Lifelong Learning Institute, Singapore.

I’ll be moderating a panel discussion with four experts in Blockchain technology and cryptocurrencies on such hot-topic issues as well as pose even more controversial questions to them! 

If you’re interested, use my promo code KHINWAI20 for $20 off your normal ticket. It’s extremely affordable for the amount of new insights you’re gonna get.

I’ll see you there!

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