Opinion: Blockchain and the changing face of money

Photo credit: rdaniluk / 123RF Stock Photo.

Sometime toward the end of 2013, the FBI shut down Silk Road, an enterprise run by the very interestingly named Dread Pirate Roberts. It was in this context that a majority heard about a currency called bitcoin. And though it was a beautiful invention, it got bad press.

The Dread Pirate’s efforts to create a marketplace free from authority resulted in exactly the opposite. What Silk Road managed to do was give agencies like the FBI unrestrained rights to snoop under the guise of preventing cybercrime.

Journalist Nathaniel Popper wrote in his book, Digital Gold, that “the unmistakable irony of these wild days was that a technology that had been designed, in no small part, to circumvent government power was now becoming largely driven by and dependent on the attitudes of government officials.”

So how did an internet drug peddler lead us to these discussions on ideal money and freedom?

The idea of money

Many believe that the idea of compensation is an invention as significant as the wheel. Alongside language, it enabled us to solve issues of cooperation that other animals could not.

Money carved out for itself four primary functions: as medium, measure, standard, and store.

For it to perform all these functions, it needed value. So, man came up with coins, where the metal itself was the value. In 1717, Sir Isaac Newton, the then master of the royal mint, put Britain on the gold standard. The gold standard continued in various forms till 1971 when President Nixon nixed it. Since then, the US has been operating on a system of fiat money.

What used to be good, solid, and reassuring metal is now just electrons open to loss, theft, and misappropriation at every stage. In this day and age, shouldn’t there be a more secure, more reliable way to transact business? This is why people have started talking about ideal money—to salvage the idea of money.

The concept of ideal money

Ideal money is a theoretical notion proposed by the mathematician John Nash to stabilize international currencies and evolved as a solution to the Triffin Dilemma. This is the paradox between short-term domestic and long-term international objectives for nations whose currencies served as global reserve currencies.

The nations that owned the global reserve currencies would have to supply the world with an extra supply of currency to meet global demand, thus creating friction between national and global monetary policies.

This led Nash to propose the concept of ideal money that was “intrinsically free of ‘inflationary decadence,’ a true ‘gold standard.’”

This began with the idea of value stabilization in relation to a domestic price index and an international exchange rate that fixed each currency to a standardized basket of commodities (the industrial consumption price index). Ideal money focused on the fluctuations and long-term perceived value of money, with an ideal inflation rate as close to zero as possible.

When you look at it, this accurately describes bitcoin’s disinflationary design: decreasing its inflationary nature by halving new currency issuance at regular intervals.

Which brings us to the bitcoin

The bitcoin revolution

The true hero of this story: the blockchain

The blockchain outside bitcoin

The brave new world ahead