Imagine a state in which neither the government nor the Central Bank control money. What does it look like? How does it function? What issues does it solve, and what issues does it face? These are certainly not easy questions to answer, but we’ve recently had a chance to hear the thoughts of some of the major figures in the cryptocurrency and blockchain world on this matter.
Cryptonews.com talked to several experts attending this year’s Baltic Honeybadger conference held in September in Riga, Latvia, and these are their visions of a state in which no government agency controls the money.
Watch the interviews or read a quick summary below.
What we might see in a state without a government/central bank control over the money:
Long adjustment period
Moving from the government-agency-controlled money is a massive feat and will require a long time of transition and adjustment. It will not happen immediately, says Alex Petrov, Chief Information Officer at blockchain technology group Bitfury, adding that he is neither a politician nor a forecaster, but that the amount of time required for transition would likely also depend on a country.
“We are talking more about the blockchain like a tool,” says Petrov. “It can solve some of the problems in a more efficient way – optimizing costs, providing additional benefits, providing better security, better speed, better flexibility, but it doesn’t mean that everything will be replaced immediately. It will take time, like all the innovations. Like all tools will slowly be replaced by a more efficient tool.”
Separation of state and money
“That’s exciting! That’s what we came here for with Bitcoin, right?”, says Director of Business Development at Kraken, Dan Held, upon hearing the question. If the central banks were not in the control of the economy, “I think we’d see a really beautiful system where no one should have control over the money. No one man, woman, or committee should have all that power.”
Such a state “would look a lot better,” finds Chief Strategy Officer at the U.S.-based blockchain company Blockstream, Samson Mow. But he also adds that, as we have the separation of church and state, we need the separation of money and state. “The state still controls the money and I think that’s a bad thing. They’re too prone to corruption, too prone to the thinking on a short-time horizon, and people in general are not good at managing things,” despite our opinion of ourselves, says Mow. The better option is “having a money like Bitcoin that’s immutable and […] not majority-driven, but census-driven – opt in participation or opt out if you choose to; that’s a better model – mathematically defined and reliable, and not prone to weaknesses of human spirit.”
Meanwhile, Bitcoin Core developer and entrepreneur, Jimmy Song, answered our question about this hypothetical state with: “What it looked like back before they controlled money,” he said, laughing. “It’s a historical norm […] if you look at the 19th century as the time of enormous prosperity, limited government, lots of people going out to the frontier, making something of themselves – so, a civilization of entrepreneurship, a lots of personal responsibility, and growth.”
Basically, everything comes down to the will of the people – what they believe has value and what they choose to use. Mow says that the existence of this type of state is “a matter of time,” though he can’t predict when exactly. But “it’s really just what people want” – the general population realizing the utility and the benefits of Bitcoin, as well as the brokenness of the current system, and that they can opt out of the current fiat system and opt into Bitcoin. “And if enough people do that,” he explains, “then you have that hyperbitconistion play kicking in which is you don’t need to switch out fiat anymore – you can just stay in Bitcoin and pay in Bitcoin.”
More efficient capital allocation
The new system may be more efficient with capital allocation. That’s what Held believes will likely happen. There’d be a lot less taxes and government-provided inefficient services, but also less wars “’cause wars are expensive, and people vote with their pocket book, and I don’t think people are gonna willingly give up their Bitcoin to fight a war that they find silly.”
“Prices reflect information,” says Held, “and Bitcoin as a money reflects the information of the market.” People’s emotions play into it too – as Bitcoin is largely perceived as a risk-off trade, if people are worried about the economic future, they will buy more Bitcoin as a safety mechanism, and they’ll sell it or invest it when they feel more relaxed. “So I think that fundamentally changes how we price risk.” When we have a real risk-free rate, he finds, “we can then build out risk models much more effectively. That means that we allocate capital super efficiently.”
Improved interaction via new layer of software
This may sound simple at first – build software, improve communication – but it’s far from it. It’s a matter of how the society functions, communication- and payment-wise. Jameson Lopp, Chief Technology Officer of crypto security specialist Casa, looks into some technicals aspects and issues arising there, and explains that what he’d like to see in our hypothetical state is “improved forms of communication” with the “various trusted service providers” that are built into our societal structure, such as banks, healthcare, firefighters, and law enforcement. “The question you have to ask yourself is can those service providers and interactions that you have with them be managed and performed in a way that does not require a trusted third party or an authority like a government actually managing the economic flow and how those providers are getting paid.”
To replace the current system, “a lot of software has to be build,” says Lopp. “You would essentially have to have autonomous agents, aka software running that act on your behalf to manage your relationships with all these other providers,” he says, adding that: “If you’re going to get rid of the central party, then you need to have some software that is replacing it and reducing the friction, time and energy that would be required for you to manage a ton of relationships. […] You might require some artificial intelligence, some machine learning and additional advances in computer science for that, but I think it’s ultimately a coordination problem and I’m optimistic we can solve it with software.”
Governments being more accountable
What the very characteristics of Bitcoin would bring to the government is more accountability on their part. Founder of Bitcoin Advisory, a firm that specializes in Bitcoin’s economics and software engineering, Pierre Rochard (he has also recently joined Kraken, where he’ll focus on education and open source development), explains that everything depends on what will replace the existing system. We’re already seeing examples of states where the government does not control the money, he says, for example in certain countries in South America which use USD, or the countries in the Eurozone that have given up their monetary sovereignty to the European Central Bank – both of which came with issues and consequences of their own, the forms of which depend on the country, the context, the replacement system, as well as the prevailing ideology of a specific country/union.
However, governments and politicians like debt and deficit because “it helps them be unaccountable,” he says; it allows them to buy votes, but without having to put up the cost of buying them, which is to increase taxes. But “if they were under the Bitcoin standard, where they cannot change the monetary policy, and where they don’t have sovereignty, then it’ll cause governments to be more accountable to citizens and voters.” The unnecessary government programs will shut down as issues get solved, essentially creating a small government, which is not a good thing for the proponents of a big government, because it only works if it’s inefficient. If it were to be efficient, it would destroy its own use case, says Rochard. Smaller government is good, he adds, you need only a small number of people to carry out those policies. “That’s something to look forward to when Bitcoin takes over.”
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