Bitcoin As a Hedge Against Economic Uncertainty (Op-Ed)

Even though we may make the argument bitcoin is a poor store of wealth, as some have recently contested, could it simultaneously be a valid hedge against economic uncertainty?

Whether bitcoin makes a poor store of wealth or not (I will argue later bitcoin makes a considerable store of wealth), what if we could see investing in bitcoin as taking stake in a new, emerging digital economy? Perhaps this type of economic model is in itself a hedge against economic uncertainty precisely because it is a different form of law, which governs its use.

I see it now, the bitcoin spaceship hovering nearside the slowly but surely, sinking pirate-ship of the national economy. Have you purchased your ticket to the moon? Or perhaps the picture is not yet that optimistic ...

Denationalization of Money

The Executive Board of the International Monetary Fund, Washington, D.C. (April 19, 1999)

-- The Executive Board of the International Monetary Fund, Washington, D.C. (April 19, 1999)

Characterizing this shift in the form of law governing money is what Friedrich Hayek would describe as the 'denationalization' of money, more specifically 'the normal provision of money would be entirely a function of private enterprise, the chief danger to its smooth working would still be interference by the state' in his Analysis of the Theory and Practice of Concurrent Currencies.

With bitcoin, this denationalization of provision over money has never been more apparent.

Friedrich Hayek

-- Friedrich Hayek, born May, 1899, Vienna, Austria-Hungary

"The chief danger, however, would threaten from renewed attempts by governments to control the international movements of currency and capital. It is a power which at present is the most serious threat not only to a working international economy but also to personal freedom; and it will remain a threat so long as governments have the physical power to enforce such controls."

And I will argue those 'physical powers to enforce' have now been lifted. Instead, we have in their place, enforcement powers which are defined by the laws of digital cyberspace. Geographical boundaries no longer exist, and therefore analog-money is a non-player, as are analog-actors who would attempt to control this “movement of currency and capital.”

If the function of managing money, and creating new currency is now denationalized, does that mean it then becomes a private function? I will argue still, no.

With a money system such as bitcoin, it cannot be claimed that either the management of the network nor the creation of new money comes strictly from private enterprise. Because the mining process involves the entire network in determining difficulty of the mining algorithm, and therefore, the effectiveness of mining-players to create new money, they are at the whim of every other player who is involved with that system.

In regard to the management of the system, security is a factor determined by every mining-player as well, with no determinism on the part of individual private enterprise.

Bitcoin as a Store of Wealth

Competition among a small pool of largely-used, competing currencies will bring about never-pr