Written by Waqas Ahmed
In the early 17th Century, demand for Tulips in the Dutch Republic rose so high, that people of all trades – including aristocrats, carpenters, cobblers, and merchants – were willing to pay the cost of houses in order to buy them – it was known as the Tulipmania. It was a bubble, and like with all bubbles, it eventually burst.
This story was mentioned in passing last month by the CEO of JP Morgan Chase, James Dimon. It was in reference to his view of Bitcoin, where he stated “is a fraud worse than tulip bulbs” and “If you’re stupid enough to buy it, you’ll pay the price for it one day.”
Firstly, I think Mr. Dimon’s comment is unfair.
Bitcoin is a form of money for some people. Money is simply an apparatus to trade with. My employer doesn’t give me my salary in Bitcoins. But he doesn’t give it to me in Japanese Yen either. Having Japanese Yen is worthless for me unless I am in Japan, just as Pounds Sterling is worthless to me if I live in Japan.
And it was only a couple of years ago, where the limited association that I knew of for the crypto-currency was the dark web and for speculative buying. No longer. Most days I take a walk through Whitecross Street Market in central London, each time passing a small stall accepting payments in Bitcoins. Just two weeks ago, I read an article in the Evening Standard that a £17 million house in Notting Hill is for sale and the payments can only – yes “only” – be made in Bitcoin. A quick search on CoinATMRadar plots 69 Bitcoin ATMs in and around London at this moment in time. In the US, Bitpay Visa, a pre-paid top-up card, allows you to purchase anything that accepts Visa payments in Bitcoins (granted you are paying in dollars, but you top-up in Bitcoins).
The adoption rate has been pretty impressive for a currency that has had a life of under 10 years and had to constantly battle on many fronts from drug-trafficking, to calls for banning it, and in the last two months alone from countries such as China, Russia, and South Korea.
But for me, it is the technology that is most attractive for crypto-currencies like Bitcoin. It is an innovative masterpiece; and the key technology underlying it – the blockchain – is one of the hottest areas of IT at the moment, including for huge Investment Banks like Mr. Dimons.
The other key interest is how this plays in the establishment of a free society, and that is something that Mr. Dimon’s remarks overlook.
Bitcoin is a decentralized monetary system
There is no central bank like the Bank of England or the Federal Reserve or a centralized command of control. No one individual or entity has the power to determine how much Bitcoins should be in circulation. This is important both from a moral perspective, as well as an economic one.
It is important morally because historically when governments (or Monarchs back then) wanted to wage wars, they would raise taxes as was the case with King Henry II’s funding of the crusades with the Saladin tithe. In recent centuries, governments have decided to print money instead. This lessens the likelihood of there being civil unrest from the democratically elected population but is still a tax through inflation.
Bitcoin is different. It will only ever have just under 21 million coins in circulation. And because it is decentralized, no supreme leader can come in one day with a grand idea to get the inks wet at the Royal Mint to pay for some bailout, or for some war. At a moral level, it, therefore, cannot decrease the value of your wealth through printing more, and also war becomes seemingly more expensive, and thus less likely. The decentralized system also brings it other advantages on security and privacy.
So yes, like the Tulip craze in the 17th century, Bitcoin potentially could be a fad. But unlike Tulips and sovereign currencies, crypto-currencies have set the wheels in motion in promoting tools for a free society. It is working proof that we do not need a centralized monetary system. The future in what dominates the technology landscape, as of late, is increasingly uncertain – so even if Bitcoin, along with the hundreds of crypto-currencies currently out there collapse, I have faith in the free-market ability to create something just as innovative and that which satisfies the libertarian ideal.
The Writer is a Research Fellow at the Kaula Lumpur based Istanbul Network