Curious about how cryptocurrency would work as a IRL currency?

Published: 2019-01-09

 

Q: Do you think there's a possibility that bitcoin will become the world's reserve currency, essentially digital gold, and that there will be other coins we will use for everyday spending?

A: I don't know. It would actually surprise me if bitcoin could only do, only fit into, the niche of digital gold. Bitcoin has characteristics of divisibility and transportability, that make it much more flexible than digital gold. Gold isn't a good direct medium of exchange because it is difficult to verify and heavy to carry. The more you divide it into smaller amounts, the harder it is to verify those are real gold pieces. The effect is, it is easier to assay and verify gold in larger amounts, that are stamped by reputable third parties, which relies on this entire trust infrastructure.

Then the cost of storing and securing gold is so high that it is better to do it in a custodial manner, where you put it in a vault and have professionals guarding it. You just end up with a paper certificate, which leads to other problems like hypothecation. It is difficult to use directly as a medium of exchange.

Bitcoin doesn't have any of these problems. Yes, there can be a great cost and complexity to securing bitcoin than forms of custodial digital money. Yes, that complexity may cause some pressure towards third-party custodians. But if that pressure is less than what we have in our current traditional system, where almost everything is third-party custodians, it will still be a more decentralized future. The ability to transport bitcoin very quickly, regardless of its amount, especially at the level... of microtransactions with second-layer networks, makes it a very effective medium of exchange.

If it is a medium of exchange and store of value, through use the volume will increase, which reduces volatility.. to the point where you won't see very big fluctuations in price. It will be less speculative in nature. Then it can also become a unit of account. I think all three of those capabilities are within Bitcoin's reach. That doesn't mean there won't be other coins to use for everyday spending. I think there will be. But I don't think bitcoin will just be digital gold. It may become the world's reserve currency, though I think the concept of a world reserve currency is no longer relevant. I think it will be one of many reserve currencies that could be used to underpin value on other things. There doesn't need to be only one anymore. The switching cost between reserve currencies forced us to only use one. I don't think we live in that world anymore. We will see.

Q: Since bitcoin is different, how do you see mainstream adoption occurring? Will it be through Bitcoin or maybe something else which can be censored?

A: Well, I don't think mainstream adoption will be adoption of only one thing. The idea that everybody will suddenly stop using their national currency... and start using only bitcoin in replacement, I think that is the wrong mentality. We will move on from a world of one "choice," backed by a monopoly and often a monopoly a force, and the corruption that comes with that.

We are moving to a world of choice where you can have ability to use any one of perhaps thousands of coins, where you can easily switch from one to the other in a matter of seconds, with very little friction or exchange cost. Why would you commit to one currency? You could use whatever is most convenient for the particular thing you're trying to do today. Arguably, just like your IP packets will use the route that is most efficient in getting to the final destination.

If you set up your internet routing so data always followed a certain path, it wouldn't be very robust. Instead, decisions on the optimal routing path is made a thousand times per second by intermediate routers. You don't even think about it. When money turns into data and becomes routable like that, we start thinking of money differently. The decision of which currency I am committed to right now or for which purpose is made by my digital wallet, as needed, depending on who I'm paying. Maybe my wallet decides the savings rate / store of value capacity of one currency is better now, and invests some there. It would depend on the risk setting I've set. Who knows? These are all exciting areas to explore. The idea that mainstream will pick one currency, is a fiction of the past. The reason most of us only use one currency is because the switching costs are enormous, especially when you have a government monopoly backing it and restrictions on currency exchanges. Otherwise, it is an unnatural state of affairs.

Imagine for the rest of your life, you will only eat apples. Is it still your favourite food? Why would you pick just one? The idea that you can only use one currency is primarily because of artificial restrictions. I want a buffet of currencies, to be able to go back to the buffet and refill my plate with something different. Every day, I want to try something new. I want some variety. Maybe if I'm trading with certain people, I want one currency; maybe another currency for other purposes. Some of those currencies will have censorship.

Today, you have the opportunity to use any website in the world, but you probably have friends who only use Facebook. That is the choice they have made. Is it a good choice? From their perspective, it is. At least they have that choice. They also have the choice to leave. if you have been around the computing environment as long as I have, you learn that nothing lasts forever. I used to think Microsoft would dominate computers forever. Where are they now? They don't get to dictate choices.

We will see a lot of variation. Some people will make poor choices. They will use currencies with surveillance, control, and censorship. You know who those people are. The people who can afford to do that because their government is not corrupt enough yet. If you go to Argentina or Venezuela and ask, "Hey, would you like to use the government's money?" No one wants to use that money. They already know how expensive that choice will be; not just expensive as in losing part of your salary, expensive as in you lose your children's future. That is a choice they will not make, at all.

But if you are an American, a German, or a Pole, and you have a Visa card that works in every store, where it is easy and uncomplicated to use, is anyone censoring you transactions? Right now, not really. Is anyone confiscating your money? If you are Greek, then yes. If you are Polish, not yet. That is a lesson you will learn when it becomes necessary to learn that lesson.

The end result is, you will have systems that are fragile competing against systems that are robust. You will have currencies that can be debased through inflation competing against currencies that are not. You will have systems that can be censored competing against systems that cannot be censored. Some people will make the right choice and some people won't. That is okay. Everyone doesn't need it yet. I know which choice I will make. To me, it is important that I can make that choice. If I can make that choice and I'm the only one making that choice that is okay too. I'm accustomed to being weird.

 

Filed Under: Andreas Antonopoulos