JOIN USThe most profound revolution of our times: Bitcoin
The story so far: In January 2009, a mysterious coder, Satoshi Nakamoto, launched Bitcoin, an open-source financial network -- a decentralised, peer-to-peer system -- with no rulers. On May 22, 2010, a developer named Laszlo Hanyecz paid 10,000 Bitcoin for two Papa John’s pizzas, at an exchange rate of 0.1 cent per Bitcoin. Those 10,000 Bitcoins are today worth more than $500 million.
In March 2020, the Supreme Court set aside a circular by the Reserve Bank of India on virtual currencies, even referencing Satoshi Nakamoto, the mysterious inventor of the Bitcoin, thus demonstrating perspicacity about the future of money. The Government of India is now set to introduce a bill in Parliament to ban cryptocurrencies such as Bitcoin in India.
Imagine an open-source software protocol that is introduced into the world without any fanfare or promotion. Imagine that it is voluntarily adopted by people around the world, growing to 100 million users in a little more than a decade. Imagine that the value stored in this open-source software grows from 0 to $1 billion to $100 billion to $1 trillion. This makes it more valuable than all but a handful of companies in the world and larger than most national economies. If such a thing were to happen, you would think the general reaction would be to marvel at the nature of human ingenuity and study this new software protocol with an open mind and ask lots of questions. And indeed, many consider Bitcoin to be one of the great inventions of the 21st century and Satoshi Nakamoto (whoever he is/they are), deserving of a Nobel Prize.
Unfortunately, a number of the more vocal reactions have been less curious, characterised instead by vitriol, dismissal and vague accusations. Some critics have termed Bitcoin a ‘Ponzi scheme’ for almost as long as it has existed, despite the evidence to the contrary. Curiously, these critics often predict its imminent demise, yet exhorting governments to ban it. If it is destined to fail, why ban it? The truth is that Bitcoin is thriving. The number of users adopting it as a means of monetary empowerment continues to grow. People see value in its stable, and predictable money supply -- there will only ever be 21 million bitcoins. Bitcoin is used in two main ways today: In the developed world, it is a store of value -- the digital gold thesis; in countries with shaky monetary regimes, such as Venezuela, it provides an exit from a hyperinflating currency. We have seen this phenomenon before as countries adopted the dollar standard. Beyond these uses, Bitcoin represents something more important and ambitious: To provide an alternative to the monopoly of government-controlled monetary regimes.
When the internet first emerged, many believed that it was a fad, and would eventually dissipate. Fundamental to both the internet and cryptocurrency is decentralisation. The internet was the first wave of digital decentralisation, and Bitcoin, its second wave. Those who understand the technology understand, unmistakably, that this is the future of money. A caveat would be in order, I use the term cryptocurrency to mean Bitcoin, simply because the other more centralised cryptocurrency systems, like Facebook’s Libra project, are really cryptocurrencies in name only, and would be much easier for governments to control.
Let us examine some unique attributes of Bitcoin and ask ourselves two questions: i) Can it be banned? and ii) If it can be banned, should it be?
First among its attributes, Bitcoin is uniquely global and distributed. Thousands of nodes run the Bitcoin software and help validate new transactions. The network is resilient, in that nodes can join and leave as they please, with no interruptions or impact on performance. The Bitcoin ‘nation’ is 100 million-strong already and represents a diverse base of people in nearly every country in the world.
Second, Bitcoin is ‘anti-fragile’, in the sense used by Nassim Taleb. We all understand fragility. Anti-fragility is something different -- it refers to systems that actually gain from shocks. Bitcoin has survived multiple attacks by hackers, corporations, and governments. Rumors of Bitcoin’s imminent demise have circulated frequently in the last decade. A website even tracks how many obituaries have been written now, and they number well over 300! And yet, Bitcoin is undefeated. Every 10 minutes, a new block of transactions is unfailingly added to its network.
Third, the cost to attack Bitcoin rises every day. The hash power dedicated to Bitcoin mining is already enormous. It would require many billions of dollars to launch an attack, and even if this were to happen, it’s likely that Bitcoin users would find ways to keep transacting. The simplest attacks involve choking the on-ramps and off-ramps and denying citizens the ability to buy Bitcoin. This amounts to blocking access to the internet. Certainly possible, but it puts the nation that follows this path in an unenviable club that includes North Korea, Uzbekistan, China and Russia.
Fourth, Bitcoin is constantly evolving. The codebase itself is constantly being improved by some of the best programmers in the world. One advocate has described the network of Bitcoin miners, users, companies and exchanges as “a swarm of cyber hornets serving the goddess of wisdom, feeding on the fire of truth, exponentially growing ever smarter, faster, and stronger behind a wall of encrypted energy”. Miners flock to locations where they can tap into cheap, renewable energy that cannot be sold or transmitted efficiently. Bitcoin is helping to convert stranded energy into value.
Fifth, every available criticism has been hurled at Bitcoin already and has been refuted. It is not a Ponzi scheme. It is not going to boil the oceans. It is probably misused by some criminals, but in far less quantity than the mighty dollar. The fact that it’s not ‘backed by anything’ does not render it valueless. There are many other criticisms of Bitcoin, some of these so persistent that the US mutual fund company Fidelity has compiled a list and thoroughly debunked each criticism!
What does Bitcoin represent and what might a ban on it mean? Bitcoin represents the conversion of individual effort, value created, and exchanged in the real world, as digital money. Simply put, it is the conversion of an individual’s time into money. Banning Bitcoin would be an affront to the most basic freedoms it is designed to both provide and preserve.
To paraphrase Friedrich Hayek, in context, money is one of the greatest instruments of freedom ever invented by man. Bitcoin represents a step-change in function innovation in the money evolution and opens an astounding range of choice to the poor man -- a range greater than that which not many generations ago was open only to the wealthy. If at this point, you are sceptical about Bitcoin, it is because you probably have not done any real research yet on it. It represents an alternative system that is available to anyone, anywhere and for billions of unfortunate humans, it may represent the life boat they need to escape failing monetary regimes. For this reason alone, Bitcoin deserves our support.
Bitcoin is global, decentralised and without borders. Setting aside the legal issues, it is technologically infeasible to enforce a ban. Quite simply, banning bitcoin is a fool’s errand. Some will try, all will fail. Bitcoin is the most peaceful and profound revolution of our times.
(The writer is Director, Public Affairs Centre, Bengaluru, and a former Secretary to the Government of India)