Much like the way the internet slowly gained traction among tech-savvy early adopters before suddenly exploding in popularity and adoption in the late 1990’s, there is no stopping the cryptocurrency revolution that is already sweeping the world. Like the proverbial glob of toothpaste that cannot be put back into the tube, new technologies cannot simply be “uninvented.”
That means cryptocurrencies – or more simply, “the internet of money” – will continue to exist in one form or another, and the implications for the economy need to be understood by political leaders at all levels in order to maximize the benefits and avoid any negative aspects of this unstoppable disruption.
If you’ve been asleep at the wheel on Bitcoin (or cryptocurrencies in general), it’s time to sit up and take notice. One of the biggest announcements coming out of this week’s Bitcoin 2022 conference in Miami, for example, is that three major point-of-sale (POS) payment processing companies – Shopify, which handles about 11 percent of all online retail sales; the Blackhawk Network, which specializes in gift card payment processing; and NCR, which makes physical retail cash registers – have all formed a partnership with Strike, a Bitcoin payment processor.
Some may yawn and say, “So what? Nobody uses Bitcoin anyway.”
What those yawners are missing, though, is that this development means people will soon be using Bitcoin without even realizing it. That’s because Strike uses a layer of the Bitcoin network called “Lightning” to transact payments in the background between the customer’s bank and the merchant’s bank, at rates that are much lower than current payment processors charge today.
“You’re gonna be able to walk into a grocery store, to Whole Foods, to a Chipotle…” said Strike CEO Jack Mallers. “Any online merchant that uses Shopify can accept payments without the 1949 boomer [credit card] network, receive it instantly, cash final, no intermediary, no 3% fee.”
While some may bristle at Mallers’ brash description of legacy payment processors as the “1949 boomer network,” he embodies the growing interest and energy among his generation (Mallers is 28 years old) that is driving innovation and mass adoption of cryptocurrencies like Bitcoin, even while most people possess only a superficial level of information about Bitcoin in particular, and cryptocurrency in general.
A recent Pew Research poll found that 86 percent of Americans have heard “at least a little bit” about cryptocurrency technology, and of those, 24% say they have heard a lot about it. But hearing about it, and understanding it, are two very different things.
Many Florida leaders, be they in business or politics, are still playing catch-up on the rapidly expanding technology, including some whose understanding is compromised by basic misconceptions, or overly simplified explanations that have led many to dismiss cryptocurrency technology as a passing fad.
For elected leaders, policy makers, banking and insurance executives, and leaders in most other sectors, it is now a question of how cryptocurrencies are developed, how they are adopted and utilized, and, naturally, how and how much they are regulated.
Already, people around the world have traded in the equivalent of around $2 trillion in cash so that they can own digital financial assets like Bitcoin, Ethereum or some combination of around 18,000 other cryptocurrencies.
That’s a fairly substantial vote of confidence for cryptocurrency and against the future value of government-backed fiat money. And the total market capitalization just keeps growing. As of this weekend, the world’s oldest cryptocurrency, Bitcoin, has a 40 percent share of all cryptocurrency investment valued at about $814 billion.
Despite its obvious dominance, to many people, Bitcoin is indistinguishable from other digital currencies, yet there is a reason for Bitcoin’s dominance, and those reasons have profound political ramifications. Below, we lay out a handful of the political considerations that are likely to shape the future of the world economy.
Disclosure: I own a small amount of Bitcoin (0.071 BTC, to be exact), and an even smaller amount of Ethereum, and plan to buy more Bitcoin in the future. This post is not intended as investment advice, nor is it intended to encourage investment in Bitcoin or any other cryptocurrency. The intent is to help educate Florida opinion leaders on the political ramifications of Bitcoin and cryptocurrency. As with all investments, do your own research and invest accordingly.
Bitcoin basics: Bitcoin is not “digital money”
Many are initially dismissive of the idea of Bitcoin (and cryptocurrency in general) because they understand it as nothing more than “digital money,” which is neither novel nor new. We’ve had digital money for a long time in the form of electronic payments. In fact, Western Union debuted the Electronic Fund Transfer in 1871, so to view Bitcoin as little more than digital money is to grossly misunderstand the underlying technology and what it enables.
Bitcoin is more accurately viewed as a networked, distributed ledger of transactions, exact copies of which are stored on (as of today) at least 15,000 known computers around the world. Those computers, or Bitcoin “nodes,” all operate on the same set of rules, and those rules include instructions for securing, storing and transferring specific units of Bitcoin between individual accounts, also known as “wallets.”
That’s all it really is: a secure, decentralized, networked ledger, tracking the comings and goings of the network’s “currency,” in this case, Bitcoin and fractions of Bitcoins. Yet all of those components, working together, allow the Bitcoin network to secure electronic payments without going through traditional banking networks, and without being subject to the whims of central banks and their monetary policies.
No one controls the Bitcoin network
By design, there is no “central authority” controlling Bitcoin. Nobody owns it. Anyone in the world can install the open-source Bitcoin software that has been validated by thousands of independent programmers, and turn a computer into a Bitcoin node or even operate a specialized computer as a mining node. Because the rules that underpin the Bitcoin network cannot be changed without the consent of at least half the active nodes on the network, it is practically impossible for even a relatively large group with malicious intent to alter how it functions. And with $814 billion in market capitalization, a lot of people, companies, banks and other entities have a vested interest in ensuring the network remains secure.
Unlike U.S. Dollars, Bitcoin is finite
One of the most unique and far-reaching characteristics of Bitcoin is that its quantity is limited by design. The cryptocurrency launched in 2008, and as of this weekend, about 19 million Bitcoin are in circulation. What’s more, only 21 million Bitcoin can ever be “mined.” Without diving into the technical reasons behind this intentional limitation, the important thing to note is that it will take roughly another 118 years to “mine” the final 2 million coins on the Bitcoin network. Before anyone starts to think that 21 million Bitcoin will never be enough to become a widely adopted global currency, it should be noted that digital currencies like Bitcoin can be subdivided into ever smaller parts – up to 100 million parts per Bitcoin.
That intentional limitation on Bitcoin quantity is what gives Bitcoin its real value. It means that unlike fiat currencies such as the U.S. Dollar (or even a “digital U.S. dollar“), the value of Bitcoin cannot be diluted beyond its finite issuance of 21 million coins. So even if the United States eventually does move ahead with a U.S. government-backed crypto-dollar, it will be missing one key ingredient inherent to Bitcoin: an inflation-proofing hard cap on quantity. Because of this critical feature, combined with extraordinary security, Bitcoin is, and will remain, one of the rarest mediums of exchange in the world.
Bitcoin and the potential of cryptocurrencies in general appeal to both conservatives and liberals alike, albeit for vastly different reasons. For fiscal conservatives who believe in limited government, Bitcoin harbors significant potential to transform government budgeting and spending. In 2020, in the wake of the coronavirus pandemic, the U.S. price of Bitcoin exploded from less than $5,000 to more than $30,000 over the course of a few months. Here’s why:
…what changed bitcoin’s price trajectory in 2020 was its growing adoption as a hedge against the potential currency debasement that might come from trillions of dollars of coronavirus-related stimulus payments from central banks and governments around the world.
As previously explained, Bitcoin is deflationary, growing in value while inflation erodes confidence in and eats the value of fiat currencies like the dollar. Without diving into the complexities and controversies of Keynesian economics and monetary policy, Bitcoin represents a significant threat to our federal government’s ability to steer the United States (and the world’s) economy through the printing of more dollars. This could mean less deficit spending in the future, a reduction in wasteful government programs, and a more balanced federal budget.
Progressive crypto-payment policy
For progressives, the egalitarian nature of a decentralized monetary system that cannot discriminate against individuals means that people all over the world could soon have the ability to transact in the world economy without requiring a bank account. “Banking the unbanked” means that anyone with an internet connection or mobile phone can engage in low-cost, cross-border remittances or near-instantaneous payments for goods and services.
Already in Miami, cryptocurrency-backed mortgages enable those without access to the U.S. banking system to buy homes and property in Florida.
For billions of people, Bitcoin renders the financial restrictions of international borders and banks obsolete.
One of the growing criticisms against Bitcoin is the energy usage required to secure the network. As part of the Bitcoin system, vast computer arrays are constantly working out complex encryption problems to help secure it, and every single node maintains a copy of the entire Bitcoin ledger. This requires no small amount of electricity, and critics are growing louder about the environmental impact. But as with any emerging technology, proponents point out that new innovations, like the Lightning Network built on top of Bitcoin’s main network, reduces much of the computer workload as Bitcoin grows in popularity.
Proponents also point out that Bitcoin and other financial transaction systems such as Visa or SWIFT, are fundamentally different and cannot be compared apples to apples in terms of energy use.
The bottom line: Bitcoin is already making an impact in Florida
Already, Florida is becoming a major cryptocurrency hub. Miami playing host to the Bitcoin 2022 conference this past week is a testament to its growing reputation as an emergent financial technology (fintech) hub. The city is third in the nation in total investments in cryptocurrency companies, lagging only New York City and Silicon Valley.
Miami is also considered the gateway to Central and South America – making Miami one of the largest points of entry and exit for international remittances – cross border payments to help bolster economies and put food on the table for many of our neighbors to the south.
Two Florida political leaders have been outspoken about the future of cryptocurrency in the Sunshine State. Miami’s mayor Francis Suarez, accepts part of his salary in Bitcoin, as a hedge against inflation. And in Tallahassee, Governor Ron DeSantis has already announced his administration is actively exploring the concept of accepting corporate tax payments in cryptocurrency.
Just as it was initially difficult to see just how disruptive the internet would ultimately prove to be, we are on the verge of a cryptocurrency disruption of the modern financial world, and Florida’s leaders need to be informed so that we are ready to compete and capitalize on the opportunities that lay ahead.