Note: Originally published on March 17, 2023 on Mirror.
Countless articles discuss why blockchains embody freedom technology, but I want to offer my distinct perspective. Our story starts with the first financial crisis in 2008, as we might be navigating a second one now. When depositing money in a bank, your banking app displays your balance, but did you know the entire sum isn't physically in the bank? Before 2008, large banks needed to hold only 10% of these funds. However, since the COVID pandemic, this requirement has dropped to 0%. Theoretically, if everyone requested their money back, the bank couldn't provide it.
Satoshi Nakamoto believed there must be a better way. The first block of Bitcoin includes the message, "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks." For the first time in the digital age, you can genuinely own something online without a third party – Bitcoin and this asset is available to anyone.
Before exploring the blockchain world, I didn't realize the numerous restrictions on asset ownership for Americans and people globally. In the US, individuals earning less than $200k cannot invest in private companies, hedge funds, venture capital funds, and some real estate investments. Internationally, the list expands. While Americans enjoy the US dollar's stability, not everyone can access it. Some countries enforce currency controls, limiting foreign currency purchases or investments in US stocks, bonds, or mutual funds. Others necessitate regulatory approval or impose higher taxes on foreign investments. Bitcoin provides a universally accessible asset without ownership disputes. Issues like disagreements over country recognition, such as Israel and Palestine, don't apply to the Bitcoin network. Anyone can run a Bitcoin node, view the blockchain, and verify ownership, ensuring a truly fair and unrestricted system.
This asset, Bitcoin, can never be subject to hyperinflation. It’s written in it’s code that there will only ever be 21 million in existence. Inflation is wreaking havoc across the globe, eroding people's purchasing power, exacerbating economic inequality, and causing the cost of living to soar. This makes it difficult for individuals and families to afford basic necessities, pushing them into poverty and hindering their ability to achieve financial stability. Countries like Zimbabwe and Venezuela have experienced hyperinflation, while G20 nations such as Turkey and Argentina have seen their currencies inflate over 80% annually. Bitcoin offers an alternative that cannot be inflated away, providing a potential safeguard against such economic turmoil.
Another aspect worth considering is international payments. Traditional methods, like Western Union, require fees of $20-30 and take weeks to process. Bitcoin doesn't differentiate between sending to a nearby computer or a company across the globe. For a small fee, transactions complete within 30 minutes to an hour without a third party.
The US government, through an entity called OFAC, prohibits interaction with countries like Iran. If you attempt to send money to support female protesters there, your payment will be blocked. However, this limitation does not apply to Bitcoin, as it enables transactions that cannot be censored or blocked by any government authority. We rely on Venmo, Cash App, and PayPal, which can become problematic. The Canadian trucker protest demonstrated that governments can seize one's freedom to transact. This sets a precedent where individuals can lose their transactional freedom without due process. On the Bitcoin network, such scenarios are impossible, preserving our freedom to transact – a liberty we surrendered when transitioning online.
However, Bitcoin consumes significant energy to maintain the network and is limited in programmability, only allowing sending and receiving. Bitcoin paved the way for Ethereum, a more versatile and energy-efficient option.
Ethereum provides all the benefits of Bitcoin, along with several additional features. First, let's discuss the energy consumption and security of Ethereum compared to Bitcoin. Proof of Stake (the consensus algorithm the network uses for coordination) consumes 99.988% less energy than Proof of Work (used by Bitcoin). Gold mining uses 240 annual TWh, Bitcoin 130, YouTube 244, while Ethereum consumes only 0.0026. As of March 16, 2023, Ethereum is also more resistant to 51% attacks (an attack where someone could hijack the network). To carry out such an attack on Ethereum, you'd need to spend $103 billion, while attacking Bitcoin would cost around $53 billion, almost half the price.
The most significant innovation Ethereum introduced is programmable money. For the first time, you have all the benefits of Bitcoin, plus the ability to create apps that use your funds. Anyone can develop a decentralized app (dApp) and deploy it to the Ethereum network for users to interact with. These dApps enable the exchange of digital assets (money or NFTs) based on specified conditions. Just as we've programmed apps to perform tasks when buttons are clicked, the same can be done with money without the use of a third party.
So far, people have created tokens (custom currencies for various purposes), borrowing/lending platforms (decentralized protocols allowing users to earn interest on deposits and borrow assets), decentralized exchanges (DEXes, which enable direct wallet-based token trading), and non-fungible tokens (NFTs, unique digital assets) among others. It might seem unnecessary for those with access to traditional financial services, but 1.7 billion people worldwide lack banking access. For them, the ability to securely access USD via USDC and earn interest through platforms like Aave and Compound represents a revolutionary shift in financial opportunities.
Even for people in developed countries like the United States, using dApps can be a more straightforward and efficient alternative to traditional financial services. Opening a high-yield savings account can be complicated and time-consuming, with unclear terms and conditions. On the other hand, using a dApp to earn yield is as simple as connecting your wallet, depositing funds in a borrowing/lending protocol, and withdrawing your assets whenever you want.
As the world becomes increasingly digital, there are three potential outcomes in terms of currency: company-specific tokens (e.g., Amazon or Meta bucks), Central Bank Digital Currencies (CBDCs), or cryptocurrencies. The first two options can result in individuals being "debanked" for various reasons, whereas the latter provides more freedom. Which option do you think offers the most liberty?
The world is becoming more centralized, and people can be banned with just the click of a button. Consider the taxi industry a decade ago – a decentralized sector with little knowledge about its customers. You just paid some cash and hopped in the yellow cab. While Uber and Lyft revolutionized transportation, a future dictator could easily ban people from these platforms, but not from traditional taxis. This principle also applies to Facebook, Apple, Amazon, and Microsoft. While these businesses have created trillions of dollars in value, they are vulnerable to being hijacked by those with malicious intent. For instance, upon the request of the Chinese government, Apple restricted the ability of Chinese protesters opposing COVID lockdowns to use the AirDrop feature for sharing information about the protests.
Before concluding, let's touch on NFTs. Society often struggles to adequately compensate creative professionals, despite the joy and value they bring to our lives. NFTs offer artists a new way to generate additional income. They can create digital collectibles or exclusive content, fostering a direct connection with their fans and supporters. By offering limited editions and personalized experiences, artists can build loyalty and encourage long-term patronage. Additionally, when an NFT is resold on a secondary market, creators can receive royalties, ensuring continued income from their work.
Cryptocurrencies and NFTs have introduced unprecedented levels of freedom into society. These innovations enable individuals worldwide to utilize programmable money as they deem appropriate, regardless of their location. Just as there is no CEO governing email usage due to the immense power it would concentrate, the same principle should apply to digital currency. Nevertheless, this future is not a foregone conclusion, and I am committed to contributing my efforts to make it a reality.
