Are you satisfied with how your personal finances are going? The discrepancy between what was promised with the euro and the actual buying power of your earnings is all right? Do you retain that Italy’s economy is going in the right direction? Since the financial crisis in 2008, do you think that international banks have made the right adjustments? If you responded no to some or all of these questions then this is the post for you.
I will not be revealing a get rich quick plan. I do not have recipes to save the national economy or the stability of global finance. But I will describe a distributedmathematical and technological system that can, if employed in an innovative and widespread way, contribute to a re-thinking of all of this in adherence with the technological advancements of the 21st century. If, after reading this post, you would like to know more there will be just the occasion on February 20th at 5PM at Talent Garden Milano, where, under the aegis of Frontiers of Interaction and within the context of Social Media Week, the Internet Of Money meeting will be held to discuss the topic of Bitcoin.
If you have already heard talk about modern digital currencies and of Bitcoin, it has probably been in a sensationalistic way or about the more exotic parts about its birth or use. Here, I’d like to offer a more detached and long-term interpretation of the premises and promises of how a new international currency based on the mathematics of distributed consensus could potentially revolutionize electronic commerce, international payments, the layout of intelligent legal agreements, and much more. The failure in attempts to block P2P exchange systems, or rather their evolution towards solutions that are increasingly sophisticated, has possibly created a benefit: teaching everyone that in the future bitcoins will be no harder to copy than they are today. Computers, mobile phones, and Internet are made for copying bitcoins! The paradox of digital money is that you don’t want it to be copied. You don’t want someone to spend digital money more than once, just as you can’t use the same banknote for two simultaneous payments. The fundamental innovation of Bitcoin is that it resolves this paradox, through the formulation of algorithms that are produced with the distributed calculation on millions of computers: the Blockchain, is a public global record of bitcoin transactions ordered chronologically. This record is based on particularly difficult cryptographed calculations, made this way in order to render it impossible to falsify a transaction. Given that the calculation is distributed, without a central authority, and the software used by Bitcoin is open source, whoever wants to can analyze it, use it, and participate on the global network that is fast spreading.
The Bitcoin project incorporates many innovative and unorthodox mathematical and economic ideas. Contrary to national monetary systems whose production is under control of their respective central banks – for the euro it is the European Central Bank – Bitcoin is created by a mathematical algorithm that is controlled by no one. After its initial preparation within parameters it is then coordinated with all of the computers that make up the distribution network. The total production, which today has reached about half, will reach ninety percent by 2030, and its limit in 2140, with 21 million bitcoins, in turn made up of 2.1 quadrillion smaller units called satoshi.
From a macroeconomic point of view this is truly a sin because it induces a deflation effect, feared by economists even more so than inflation. While inflation, always present with national money systems, negatively affects the future value of your savings, deflation renders it more precious, thus creating a spending and investment crisis set off by those who want to hold on to their money instead of spending it. Concrete examples of deflation are the American Great Depression and the Lost Decade in Japan that derived from a lack of demand. The fact remains that, even if money increases in value there will always be a point at which – because one must still eat, or because one wants to take the risk of investing in order to realize a dream – something is spent and so the economy is not blocked. That which the algorithm of generating bitcoins entails is the total elimination of a central authority, theoretically independent but politically influenced, which historically has eroded the value of national currencies. Bitcoin allows, without the oscillations of exchange rate factors (which are today notable), a complete knowledge of future conditions, which is the premise for solid and consistent investments.
With the absence of central authorities, individual transactions take place between two different locations and the network does not give significance to the value: it can be just a few bitcoins or the equivalent of millions of euros. In any case, it occurs rapidly and free of charge. They cannot be repudiated, that is once they have gone into effect they cannot be blocked or reversed. And, because it is public, it can always be demonstrated that the transaction occurred.
Each of these calculations are mathematical calculations and renders Bitcoin unique: anyone can do business with anyone else in the world without forcing a promised trust between the two, but rather earned through the value of continuous transactions. The capacity to transport bitcoins rapidly, safely and cheaply at a global level will have an enormous effect on returns for emigrants towards their families. Today, a flow of hundreds of billions of dollars per year pays taxes that are proportional to the poverty level of a country, reaching even 20-30%, which Bitcoin can annul or at least drastically reduce. In high per capita earning countries we are used to widespread banking and financial services. But there are 5 billion people worldwide who have no access to bank accounts or credit cards and who live in an economy based solely on hard cash with all of the limitations and risks that this entails. With Bitcoin, on the other hand, anybody who has access to electricity, internet and a computer or mobile phone can send and receive payments.
The financial emancipation generated by Bitcoin benefits everyone, from all over the world. The efficiency of the financial system is a lubricant for the economy and the adoption of Bitcoin will happen in a progressive but widespread way, without regard to borders, or attempts to block it.
