Blockchain have some great advantages in some specific areas concerning secure validated communication and contracts. It is a fantastic technology, a paradigm shift, a revolution, but as a carrier of money there are some question marks, some valid scepticism may be in place. I am talking about Anonymous Money, not government/state/central controlled, regulated and issued digital money. I am talking about, for example, the application called Bitcoin (and other crypto currencies like that).
Prologue: Anonymous Money, like Bitcoin, of course makes it easier for criminal activities to distribute illegally collected wealth, money laundering, terrorist funding, blackmail, drug trade, etc, but that is not anything new. This kind of shadow economy has been around since long before crypto currency; number bank accounts on exotic islands, shell companies, big plastic wrapped bundles of US dollars, crocked exchanges, hawala, corrupted international banks (very common), etc. Yes, crypto currency makes everything vastly much easier and faster for the black economy, but it is not a unique feature.
The criticism regarding energy consumption is valid for “Prof of Work” (mining) coins like Bitcoin, but not when we talk about “Proof of Stake” coins.
To use megawatts of electricity to create value without any value beside the coin itself, is of course an absurd project, it is decadence at a crazy level.
Even IF we mine coins totally green, we should ask if we actually instead need all that electricity to charge the electric revolution that is coming (and have started). Soon the world needs enormous, almost unfathomed, amounts of electricity for the paradigm shift in transportation, steel production and other activities (today all oil driven). It is, of course, totally insane to use a big chunk of all electricity, green or not, to create code with no other value than the code itself (besides the value we mentally load it with). Imagine if we today used 10% of all oil to print our paper-money.
But let us disregard this issue considering that Crypto Money can be, and will be, produced and handled with “Proof of Stake” or other blockchain technologies that demands little or very little electricity. So let us focus on other questions that a sceptic might ask.
First: Since dawn of civilisation there have always been a central power, a king, a democratic government and parliament, a warlord, an authoritarian political party, a dictatorship, an aristocracy, etc; let us just call it a State, who controls value, knows where the value is (who has it, how much) and by that tax can be collected. Grain, cattle, gold, money… does not matter; there has always been a central power who have the information about the value assets around the Realm. Since centuries this value has been money, in later time fiat money.
One might even say that a State controlling money is what a civilisation is, at least it is one of the fundaments under the big cluster of humans in a cultural cooperation, what we call Civilisation.
This is how it has always been. I do not say it is impossible to run a State using Anonymous Money, but it is hard to see how the State could collect tax reasonable fair and effective when the money is anonymous. There have to be a completely new idea about how to collect tax, a completely new system. I can not imagine that today, I have never heard about something like that. So, without tax there is no State, no Nation.
Second: This is connected to my first point, the State; Trust. We humans have built civilisation around trust. A central authority with rules. We can not cooperate without rules and the expectation that the rules will be implemented and activated. Even small hunter and gather groups 30 000 years ago had rules, common rules, and an authority who made a final statement when there was a conflict or hard question about group members interactions or anything else; The elder, the chief, the priest, the shaman or whatever. Day to day life was underpinned by the trust of those rules and that if something happened there would be a solution and a consequence, a final say, a decision, so that the day to day life could continue. Today we have laws, formalised rules in books and databases.
This trust, wether it is rational or an illusion, is the foundation of money. Citizens trust the money and all the rules around this money. Of course it is just a story, money has no intrinsic value, you can not eat it, but most is just a stories, all social contracts´ are just stories, culture itself is just a cluster of stories the majority gather around and accept. So, in that sense, money is not unique.
So, money has no real value, it is just paper, but most in our life and our day to day culture have no intrinsic value, we give it value with thoughts and feelings and it is the most rational and beneficial solution for the majority.
Can Anonymous Money, digital code that 0,001% of the population understand, that almost no one can explain how it works, be trusted? Sure, most of todays modern digital and technical world is understood by very, very few, and we trust that. But now we are talking about peoples money. Money! The thing that can change their lives to the better, buy food and shelter, realise dreams, save their children’s lives, etc. This is not the ordinary story, this is not just a fun game for ordinary people with limited assets, this is serious, very serious. Only rich born people do not understand this. Ordinary people, the vast majority of people, need trust regarding their money, it can be about life and death.
With this in mind, note that crypto currency can not be recovered if sent to the wrong person (wrong digital address). Crypto currency is money that is gone forever if you forget or lose your twelve secret seed words, it is money that can disappear because of a hack or a bug (maybe not in the encrypted ledger, but there is a network). Crypto currency can not be recovered, there is no insurances, no refunds. It is gone, forever, in a second, your life savings. Gone.
Will people accept this? Can people live with this? Will they trust the system? Will they trust the code?
And; if there is 9576 different crypto currencies, a couple of new ones every day, how are ordinary citizens going to interact with that? Choosing a few to care about? Checking the rates every day (every hour)? Trust it?
Third: Bitcoin shows extreme centralisation of wealth. Put together the thousand dollar-richest people in the world and they have all together maybe 0,1% of all US dollars. The thousand biggest whales (bitcoin horders) have almost half of all bitcoins, around 40–50%!
The wealth concentration is chocking. Will the rest of the worlds billions of people accept that a few people owns half of all the money? And this just because they gambled hard in the early years (or just stumbled over 10 000 bitcoins for a pizza, some years later worth millions of US dollars)? They did not produce anything, create anything, invest or invent anything; they just gambled hard, that is all.
Even if we disregard envy and irrational feelings around others enormous luck (and nerve), the question is what kind of money it is when very few owns half of it? What kind of enormous power those people have over the market? The society?
Also; when this kind of astronomical wealth pops up, like a trick from a wizards bag, in very short time, one wonders what kind of impact it has on shared culture and psyche. Imagine that all the wealthiest people in the world were lottery winners from a lottery five years ago. Or poker players.
I do not know, maybe memory fades fast, maybe it will be accepted. Maybe the rest of the world just deals with the other half of the money and hope that the whales do not do anything sudden and strange with their money, because that may cause money to lose half the value in one day, or thirty minutes. Can civilisation have this kind of volatile money system? Compared to this our flawed fiat money system seems quite balanced.
Well, this is unknown territory, something like this have never existed before in history, this kind of extreme wealth concentration is unheard of in the annuals, at least not since millennia. And let us forget “the people” for a while; what about the State? I can not see that the State has any, or at least very little, power left in this scenario. Can we have democracy, and peace in the streets, if a few persons own half the money in a country?
(Regulation? Well, then we are not talking about Anonymous Money anymore, then we are just talking about ordinary digital money, but on a blockchain. see intro above).
Last: Bitcoin, the original crypto currency with a final coin limit, may stay as a value, as digital gold (it will never be a payment method because of technicalities). Why? It may keep value just because it was first, a value loaded with all the megawatts of electricity that was wasted into the code and also a historically emotional value. A value maybe best compared to the value we give art, like a Picasso painting, or the first books printed by Gutenberg that still exist.
This value may always be the base for all other modern fast and effective payment crypto currencies. Bitcoin may be like a ”gold standard” for other crypto currencies (remember the gold standard for US dollars fifty years ago).
This would only be possible if Bitcoins’ great security record holds, but one day quantum computers might change that. I am convinced quantum computers can crack the crypto keys. Though, the quantum computers can also be used to enhance the crypto security of course, but a war between good quantum computers and evil quantum computers may be ugly, whatever outcome it will damage ordinary peoples trust in cryptology. If that happens I guess it is all over and we are back to square one.