Saturday, June 4, 2011
Three weeks ago I discovered bitcoin. It sounded interesting enough that I decided to devote an entire Saturday to it—that was my “day of bitcoin.” My day of bitcoin evolved into my three weeks of bitcoin. In that time, I have been obsessively reading about it, writing about it, buying it, and creating businesses for it. As far as I can recall, I have never been so obsessed about anything. But the reason I am obsessed with bitcoin is simple: it is the most incredible thing to ever happen in the world. I am not exaggerating. We are presently witnessing the most disruptive change to ever happen to collective human behavior. Although there have been other disruptive changes to human behavior in the past, bitcoin is happening much faster than those. Consider, for instance, computing.
Charles Babbage invented the mechanical Analytical Engine in the 1830s. It took on the order of a century or more before those seeds of an idea blossomed into something that actually started being used on a large scale. Or consider, say, the internet, which was invented in the 1960s, but took on the order of decades before it saturated the world. That was faster than computing, but still long compared to bitcoin. Bitcoin was only invented about 2.5 years ago. And already, I have been able to ask random people about it, and they know what I’m talking about. If the growth of bitcoin continues exponentially like most widely useful technologies, it will only be on the order of years—not centuries, not even decades, but individual years—before virtually everyone is using it.
The standard term for such a rapid change is a “singularity.” Robin Hanson predicted an economic singularity. Bitcoin, as I will argue, is that singularity. (Hat tip to noagendamarket on the bitcoin forum for reminding me of Robin Hanson’s article.)
What is bitcoin?
Why is it gaining traction?
Bitcoin is useful for all the same reasons that any currency is useful: it is a medium of exchange. The advantage of being decentralized is that you do not have to rely on a third party for security. Thus, bitcoin is more useful than digital dollars for the same reason that digital dollars are more useful than paper dollars, or paper dollars are more useful than gold: it is just easier to pay people with them. No banks means less headaches, in the same way that no gold means there is a lot less weight you have to lug around. Bitcoin is thus a better answer to a problem humanity has been slowly solving for millenia: how do we remove barriers to payment?
There are other advantages to bitcoin too, besides being more convenient. The fact that no central party party controls the supply means no central party can inflate it to redistribute wealth in their favor. No one can debase bitcoin to pay for a war. Also, since it is deflationary (in the sense that prices reliably go down), it encourages savings, because everyone gets richer that way.
What will happen?
Bitcoin will also take over any fiat currencies that inflate too rapidly (think Zimbabwe, Argentina, or any other country that presently has or will have a rapidly inflating currency). Central banks will be under enormous pressure to stabilize their currencies or become obsolete. Many banks will collapse. Many fiat currencies will become worthless. Probably, all fiat currencies will become worthless eventually, because it is only a matter of time before the central banks fall into the temptation of inflating their currencies just a bit too fast.
How to proceed
Stop wasting money on excessively expensive meals, televisions, cars, and anything else that loses value quickly or instantly. Instead, put your money into bitcoin. You will be much richer that way. You may think having less stuff is less fun, but actually the pleasure of financial freedom far, far outweighs any losses.
During the singularity phase, you should also take out loans to buy bitcoin, since bitcoin appreciates far more rapidly than interest on any fiat currency loan. When bitcoin gets near saturation, which is the end of the singularity, you should pay off the loans, because at that point the rate of appreciation will probably be a lot closer to the interest on the loans, and you may not be able to reliably earn money that way anymore.
You may also be tempted to convert other assets to bitcoin. If you are invested in anything that is likely to be bitcoin-unfriendly, like a bank, it would be wise to convert those assets into bitcoin. However, if you are invested in companies that actually produce value, those companies will thrive after the singularity, so it is not necessarily a good idea to convert those assets to bitcoin.
If you own assets where the ownership of those assets is certified by a country that is likely to collapse after the singularity, such as if you owned land in a country where the currency is rapidly inflating, you should consider converting those assets to bitcoin, or risk losing it when your country’s government collapses.
If you own a business, you should start accepting bitcoin as quickly as possible to maximize your ownership of the bitcoin economy. If you don’t own a business, consider starting a bitcoin business. See my previous post to learn more about bitcoin startups.
The economy is going to change very dramatically in a matter of three or so years. You are likely to be doing a significant amount, if not all, of your economic activity in bitcoin very soon. The change will be as dramatic as, say, computing or the internet, except that it will happen much faster. The change will be for the better, since it is more convenient to use bitcoin than fiat currencies for digital payments. Fiat currencies may stick around if they do not hyperinflate; they will probably still be useful for buying coffee. The most interesting change is that we will all become more motivated and productive, since we will see very clearly how our work ethic affects how rich we are. And the world as a whole will be significantly more efficient, since it will be extremely difficult to finance huge wastes of money, like wars.
Personally, I have invested most of my savings into bitcoin, and am in the process of figuring out precisely how much more it is wise to invest. I have not yet taken out any loans to buy bitcoin, because that decision is too hard to swallow (I may yet do it if I can stomach it—Falkvinge did.) I have also begun producing bitcoin businesses which I am hoping will support me after I graduate. (My bitcoin savings alone will actually probably be enough to support me, but I will be richer if I work too.) Most of the other ideas I had about what to do with my life after graduation have gone into the toilet—I will probably do something with bitcoin.
In the future, books that summarize the history of money will have a line that says, “and then came bitcoin.” It is the economic singularity. And we are living in it now.
Reprinted with permission. Donations to Astrohacker appreciated: 1CU8KRSTcrYKyjfeGRTjpJ1S57jViwqrnh
For further reading:
"New Decentralized Currency Stimulating Underground Barter Economy", Eric Blair, June 3, 2011
"An Emerging Free Market Currency", Joel Bowman, June 3, 2011
"On the Potential Adoption and Price Appreciation of Bitcoin in the Long Run", cs702, May 29, 2011
"Bitcoin: More Important Than You Realize", Kevin Carson, May 20, 2011
"Bitcoin, Ven and the End of Currency", Stan Stalnaker, May 20, 2011
"What Happens When Anonymous Gets a Bank?", Dominic Basulto, May 18, 2011
"Is Bitcoin the Wikileaks of Monetary Policy?", Robert Tercek, May 17, 2011