In many people's eyes, Bitcoin is still a book of seven seals. Although Bitcoin has been discarded as nonsensical magic money, the crypto asset can be seen as the dawn of a new era, the digital era. While Bitcoin is usually understood as money, it goes beyond this as it can be interpreted as a new financial order that is going to operate as an alternative to today's traditional financial system.
Buzzwords like digitization or digital transformation are on everyone's lips today. What is largely misunderstood, however, is that with the beginning of the digital era we have actually entered a new epoch. It's a fact hardly understood yet: The "laws" of the industrial age have long become obsolete; new exponential developments, of which the internet was the first, have already begun. Of course, in the digital age, there is still an objective world whose laws are still valid. Nevertheless, our intuition in regards to what counts as "real" is likely to increasingly let us down. The distinction between "real" and "virtual" will become ever more blurred. Old beliefs will be revised, constants will have to be recalibrated. Production and capital structures will change, marginal costs will be redefined, companies and states will be pulverized. "Chaos", "disorder" and "complexity" are likely to increase, but this could ultimately prove to be an advantage for the individual.
This new world is still in its beginnings. First tendencies and developments are flickering. However, the "digital" world today seems to show centralization, concentration of power and rigidity to such an extent that is hardly to be found anywhere in our traditional industrial world. In our everyday life, be it in social media, e-commerce or handling digital money and investment apps, we are exposed to market-dominating tech giants. The situation is particularly precarious in the financial and monetary system. There currently exists a public-private "partnership" of commercial banks, central banks and the state, which together maintain an institutionalized way of creating money, i.e. credit.
This institutionalized money creation has fostered the grand "capitalist" rise that began with the Industrial Revolution in the industrial age. Achievements such as the welfare state, but also developments such as the financialization of our economy, can be traced back to precisely this institutionalization of money creation. Set back by the world wars (or even more so, stimulated by them in the aftermath), the economies of scale of the industrial and financial age seemed to reach infinity in nominal figures. At the end of the millennium, observes in many fields of science believed to be at the end of history and living in the best of all worlds. But then came the global financial crisis in 2008 and with it, a new thing was born: Bitcoin. From the beginning, Bitcoin was positioned as an alternative, a bet on a new world. The timing, however, could not have been better.
More than ten years after Bitcoin has been created, its relevance is now indispensable. Politicians, economists, business leaders, but also companies, financial analysts, climate activists and interested laypeople are debating it. The numerous debates show that there is still a lot of misinformation and misunderstanding. A sober view of the issue, however, helps to clarify things. Wanting to understand Bitcoin is a lifelong task. What is occasionally called rat poison or silly magic internet money, combines computer science, cryptography, mathematics, economics, monetary theory, philosophy, psychology, history and much more. Ultimately, Bitcoin is not here to be debated or understood but to be studied. As a research project, Bitcoin is inexhaustible, because Bitcoin is so much all at once.
Fundamentally, Bitcoin is information (like everything else on earth). It is information that exists as a programming code and thus as a protocol, more precisely as an internet protocol. Technologically speaking, Bitcoin is ultimately the result of countless research breakthroughs and discoveries in mathematics and cryptography: -Concatenation (or hashing) of data: Block chain or time chain -Digital signatures of asymmetric public/private key cryptography -Database distributed on a large number of computers: Distributed Ledger -Incentive for miners by means of the so-called proof-of-work mechanism -Full transparency thanks to open-source software However, the whole is more than the sum of its parts. Bitcoin is an economic system based on incentive structures in which users, miners, developers, companies, full nodes keep each other in check.
Bitcoin is also an economic system with its own unit of account and value. At the interface of technology and economics, many people make a crucial mistake when assessing Bitcoin: they regard Bitcoin more as technology than as money. In fact, however, Bitcoin's essence is more likely to be found in money than in technology. Therefore the assumption: Bitcoin is first a monetary revolution and only ranked after a technological one. The moneyness of Bitcoin comes from the fact that the cryptoasset in its characteristics and functions is very close to those of gold, i.e. money. What seems to be happening currently is the monetization of a thing, as more and more people are discovering these properties and functions of Bitcoin. In the style and course of a social phenomenon, the cryptoasset is emerging and growing organically.
Bitcoin is often criticized for not being suitable as a medium of exchange due to high transaction fees, which make it hard to get treated as a generally accepted medium of exchange. This criticism is countered with the statement that Bitcoin is digital gold rather than digital cash. Criticism and counter-criticism are both correct but both miss the big picture. Bitcoin is scaling according to what is called modular scaling. Anyone who speaks of Bitcoin today is speaking of the base layer, which carries an on-chain bitcoin unit as base money for a potential new financial order. As development progresses, Bitcoin is likely to grow into a multi-layered financial structure. Several different layers will one day balance out the unavoidable tradeoffs against each other and make Bitcoin functional in different areas. We are still at the very beginning: Today, Bitcoin is a globally established piggy bank for everyone. That alone is a huge achievement. With increasing development, it can only get better and do more.
Whether a technological revolution, an ideal money for a digital world or anew financial system, the intentions, aspirations and goals Bitcoin is chasing are seemingly limitless. The fascinating thing is: Bitcoin is more of an idea than a product. This idea is contagious and has led to the development of a global Bitcoin community over the past years. This community is by no means homogeneous. Nevertheless, it is the social layer on which Bitcoin thrives as an enticing idea. Bitcoin's revolutionary effect therefore also lies in the metaphysical-spirituality of questioning hardened dogmas in order to offer an alternative to the establishment.
From a financial point of view, Bitcoin is a promising attempt to offer a financial world that is as uncorrelated as possible, based on other basic premises, for better diversification in a world of insurmountable uncertainty. From a human-philosophical perspective, Bitcoin represents the attempt to decouple the highly complex field of human interaction as far as possible from human intervention and planning. It is a rejection of the human hubris of controlling and organizing complex systems like the economy and society top-down.
How should other cryptoassets be assessed? Bitcoin is currently unrivaled in terms of network effect, censorship resistance decentralization, adoption, familiarity and consistency. The unique situation in which Bitcoin was born and the purpose for which it was created can hardly be copied a second time. Cryptoassets that want to function as a means of payment today are unlikely to take the scaling problem seriously enough. They are also subject to fundamental tradeoffs that are likely to become more obvious as time goes on and they gain any serious traction. Cryptoassets that offer functionalities that are not (yet) possible on Bitcoin must be observed. Ultimately, the question arises as to whether these can survive independently in the long term or whether they are more likely to function as test environments that are incorporated into the Bitcoin layers alongside its scaling progresses.
Again and again the statement can be heard: What this new world will one day look like, we do not know today. This is true, but this new world is unlikely to ever reach an endpoint anytime, precisely because we are dealing with a dynamic rather than a static world. While innovation is likely to continue at the margins, there will be protocols that ossify, that is, they will not change any longer. It is unknown today which protocols these are, but as the example of TCP/IP shows, they do not have to be the most efficient ones. Certainly, the ideological warfare between different projects is enormous precisely because of competition in the crypto world. More and more, however, non- and decentralized cryptonetworks will become a serious alternative to the institutions of the traditional world. And Bitcoin is more likely to compete with the traditional world than with any other cryptoassets within its realm.
Many people long for a crystal ball to predict the future. But there is no crystal ball needed. In order to get a glimpse of the future, one only needs to look at what is already today happening at the fringes of societal and economic life. While the fiat world is ever more in decline and fiat money becomes ever more worthless, new money-like assets and economic networks are emerging creating a private competition among different monetary concepts.