The Bitcoin has two sights. On one hand it is a new digital currency, on the other hand it is a new protocol for business transactions. In the debate about the Bitcoin, where economists and technologists are diametrically opposed, the economists currently predominate.
With a didactic finger they point out the dangers of the digital currency: It is worse than the tulip mania, it is a new way to launder criminal money, there is no control and there is no guarantee that money just disappears. In short, the Bitcoin is pure evil, as Paul Krugman, former Nobel Prize winner in economics, recently announced.
The unfortunate thing about this debate is that both parties still haven’t reached a consensus, while both perspectives have a good point of view. The Bitcoin currency is the first application built on the Bitcoin-protocol and indeed this application has some design errors. The underlying Bitcoin-protocol is still in its infancy. According to techno-optimists, investors and persons who want to improve the world, it is at the same stage as TCP/IP, SMTP and HTTP at the time of their introduction. Unlike the early days of the internet, when only a few people had a computer, nowadays everyone has a supercomputer. So the Bitcoin has the potential to disrupt the economy and society at a rate that we have never experienced before.
The Network is the Trusted Party
In fact, the Bitcoin-protocol has solved an ancient mathematical problem. Until now it was impossible to know the consensus or majority position in a network without using a trusted central party. In other words, without falling back on a centralized structure. Satoshi Nakamoto, the presumed author of the Bitcoin-protocol, has solved this problem. Electronic money based on Bitcoin will achieve the characteristics of cash money.
Anyone who thinks about foregoing idea, immediately understands the tremendous value of the Bitcoin-protocol. Thanks to the Bitcoin it is possible for the first time in history to transfer property and property rights of digital assets (such as shares, certificates, digital cash, etc.) in a fast, transparent and non-fraud honorable way without the intervention of a central trusted party, such as the government, a notary or bank. In this ecosystem, property flows generously over the Internet just as web pages, email, video and music. No one can deny or defraud whose ownership it is. Fast, transparent and with mathematical safety.
The Future is Decentralized
The Bitcoin-protocol is part of a trend which is much larger, the one where power shifts from large, centralized bureaucratic hierarchies to technology-driven distributed networks made up of individuals and communities. Platforms as Airbnb, Uber, Lyft, Kickstarter, TaskRabbit and Coursera show what it means when digital networks are rolled out in the physical world. The exchange of ideas, media, products, services and technology between consumers is central, without the intervention of a third party. In the creation of the so-called part economy, companies and governments are no longer the most important parties for the economy.
The New Nature of Companies
In a distributed, decentralized world algorithms take over the role of central agencies. Digital information technology poor barriers that companies and governments derive their existence. In his extraordinary article ‘‘The Nature of the Firm’’ (1937) Ronald Coase introduced the concept of transaction costs to explain why companies exist at all. Transaction costs are costs that are incurred because the underlying coordination mechanisms of the market does not work perfectly.
After the democratization of information (the Internet) and the democratization of production (3D printing), the democratization of money and financial services will occur. By definition, the cost of transactions and communication are virtually zero in the digital world. It is a world in which the market regulates itself, as Adam Smith once meant by his ‘’invisible hand”. The existence of companies will suddenly disappear according to Coase. The crowd is the company. It represents a major shift in the way we live, work, play, travel, create, learn, bank and consume. How difficult it is to predict exactly the impact of new technology appears from the following statement by Krugman that he made in 1988 and still haunts him: ‘’By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machines.’’ The Bitcoin currency itself may never come to maturity, but given the fact that the underlying protocol is open source, similar new initiatives will build on and indeed cross the finish line. Virtual money is no longer monopoly-money. It rather means the end of the monopoly of governments and central banks on monetary transactions.
This article is translated from Dutch to English by the Editorial Board of Asset | Accounting & Finance.
