Bitcoin - A Nest Teeming with Digital Ants
A Little Bit of Money
Thought Experiments on Cross-Border Payments - Of Couriers, Bankers, and Bitcoiners
Series 13: Bitcoin - A Nest Teeming with Digital Ants
Marco Polo Got Laughed at When He Suggested Paper Money
During the Renaissance, when Marco Polo introduced the Chinese concept of paper money in his hometown of Venice, he got laughed at. Back then, transferring funds internationally was taken care of by traveling merchants on horses furnished with royal seals, and carrying heavy metal coins in their pockets, consequently taking months and even years for payments to be completed. The Doges of the Venetian Republic were still skeptical of paper money at first and feared it was easily damageable because paper can so easily be set on fire.
Pride and Prejudice
Bitcoin faces prejudice much like those against paper money during the Renaissance. Central bankers and consumer law organizations emphatically warn us today that Bitcoin is not safe for various reasons, including the vulnerability of hard disks. There is much pride that goes into defending legal currencies. Why change money when it works just fine the way it is? This matter is a question that arises among those who are served well by the current financial system, and can't imagine that financial exclusion exists on Earth. Good to know there are sufficient YUPIDs out there who know better and who will shape our monetary future. It took a few hundred years until paper notes and ledger money became established. By comparison, Bitcoin adoption is happening at the speed of light.
A Network Effect Never Seen Before
The value of Bitcoin is solely determined by the market and users’ trust of the technology, which represents a network effect unheard of in the history of money. Thanks to the Internet, Bitcoin is spreading across the planet much faster than any other means of payment in history. By accepting Bitcoin, vendors support the open-source-minded Bitcoin community that promotes the free movement of digital capital while opposing overly restrictive capital controls.
Bitcoin is a Complementary Currency
Essentially, joining the Bitcoin economy is comparable to supporting one of the thousands of complementary currencies – whether denominated in legal tender or not. To name a few of these niche forms of money functioning as parallel currencies: the Bristol Pound in the UK, Chiemgauer in Germany, the Arizona Dollar or the Disneydollar in the U.S., or WIR in Switzerland, among many other good examples. The most long-standing complementary currency is the Swiss WIR franc, which has existed for over 80 years with approximately 1.6 billion Swiss francs’ worth of currency (US$1.5 billion) in circulation as of 2013. WIR money is created from actual assets such as property.
Bitcoin is a Digital Monetary System
Trading Bitcoin is required to maintain the venture’s liquidity. But Bitcoin is not only a digital asset used as an object of speculation. Fundamentally, it is a digital experiment with hybrid qualities. Bitcoin is a medium of exchange, and in this regard, a payment option for a new economic ecosystem. It works as a unit of account supporting the purchase of goods and services within the real economy, and as a store of value enabling commodity trading with a new digital asset class. In a nutshell, Bitcoin`s technological features represent a new monetary system that can not only work within the context of the current regime but also redefine it.
To be continued. Further Reading:
- WIR Bank Geschäftsbericht 2014. http://www.wir.ch/
- B. Lietaer and Jacqui Dunne. Rethinking Money: How New Currencies Turn Scarcity Into Prosperity. 2013. Page 100.
- T. Jiříček. “Bitcoin Exchange system.” Research paper, 2012.
- M. Babaioff, S. Dobzinski, S. Oren, and A. Zohar. “On Bitcoin and Red Balloons.” In ACM Conference on Electronic Commerce, pages 56–73, 2012.
- J. Stodder. “Reciprocal Exchange Networks: Implications for Macroeconomic Stability.” In Proceedings of the International Electronic and Electrical Engineering (IEEE) Engineering Management Society Conference, Albuquerque, New Mexico, August 2000.
- S. Haw. Marco Polo's China: a Venetian in the realm of Khubilai Khan. Routledge: New York, New York, 2006.
- Y. Hirota. “Practices of social and complementary currencies in Europe and the world
- with regard to the promotion of social enterprises.” University of Valencia: Valencia, Spain. 2012.