Money has shaped our modern economy. We have gone from using grain and cattle and even salt as currency to using metal tokens (coins) and paper.
However, paper has the habit of sticking and it has been around ever since the Chinese introduced it during the Tang dynasty. We have grown comfortable using paper currency and no one can deny that it has had its usefulness.
Now we are approaching another era in which bits are playing the same role that paper did. Digital currencies are no longer something that will happen way into the future, they are here.
How will the advent of digital currencies like Bitcoin, Monero, Ethereum and etc affect the future shape of the economy?
Is it the end of Capitalism?
Ed Finn wrote an article in the Guardian asking, “Do digital currencies spell the end of Capitalism?” Finn’s article covered the DAO issue and how Ethereum community dealt with the hack. He examines the very nature of digital currency and ponders the questions surrounding ‘programmable money.’
In the end, he succinctly concludes:
“If what counts, and how we count, is measured in processor cycles instead of human exchange, it will change the rules of the economy as surely as driverless vehicles will change transportation. What we value is fundamentally a question of belief, and it’s increasingly unclear what we believe in more: billfolds or bits?”
So what will change if we move to digital currencies, surely these currencies change the nature of money as they are not issued by a central monetary authority or backed by the promise of the sovereign.
These currencies are an organism of their own kind. They open the doors to people issuing their own tokens and creating their own monetary policies. This could radically change the financial system as individuals could potentially fund their own enterprises with their own currencies. They also remove the vagaries of the interest rate cycles associated with government issued money and break the nexus between big businesses and the government.
The era of financial empowerment
Digital currencies have opened doors which were firmly shut. These currencies hold the promise of distribution of wealth like never before.
Not only have they brought in the technology to transfer money in a blink of an eye at minimal costs around the world, they have also brought access to ‘money’ for people who never had it before.
As Dominik Zynis of the WINGS Foundation says:
“Digital currencies will allow anyone, be it person or community, to be included in the economy by self regulated credit expansion enabling trade people who previously lacked access to requisite mediums of exchange.”
Creating trust among people
At the moment people have no choice but to trust the sovereign's money. It is after all a promissory note. Digital currencies put the trust fact squarely among the public.
People who choose to use a particular digital currency, do so because they recognize it as money. Not because they were told to use it as money.
The use of digital money or programmable money opens the doors for applications like smart contracts. Smart contracts within digital money can revolutionize the way ‘deals’ are done. Escrow can be inbuilt so that a transaction is only completed when certain parameters are met.
This removes the need for having intermediaries in financial transactions, property transactions etc.
Capitalism is about to morph
The present economic system that we live in has reached its peak potential. We need a new era of economics if we are to develop further. In an era where the planetary resources are increasingly dwindling, we need a system that places less emphasis on profit and more on developing human resources.
Virtual currencies or digital currencies can usher in an era of entrepreneurship and development. They can also transform how we do business today and remove regulatory bottlenecks out of the system.
While capitalism might not come to an end immediately due to ‘programmable money’, it is certainly about to evolve into something different. No one can deny though that we are at the crossroads.