We often seek movies and TV series and engross ourselves in virtual worlds to escape our undramatic monotonous world, but sometimes the real world pulls a rabbit out of a hat. One of these is the story of Satoshi Nakamoto and the creation of bitcoin, the first decentralized currency.
In modern times, the financial service sector is one of the most lucrative and profitable industries out there (8.5% of the US economy). Yet one may ask how such an industry makes profits that sometimes even outcompete the manufacturing and agricultural sectors, especially since it doesn’t produce any physical product. Well, it’s pretty simple -- there is $35.2 trillion narrow (easily accessible) money circulating, and the financial sector is what allows it to circulate fluidly. It gains profits by acting like a sand bottleneck taking a small amount of sand between transactions.
This makes a decentralized transaction system that bypasses bank fees and surveillance seem very alluring. However, how do you move value peer-to-peer without any trusted central intermediary? This was a question that wasn’t solved until the arrival of Satoshi Nakamoto.
On Friday October 31, 2008, at 14:10:00 EDT, a mysterious person who goes by the name of Satoshi Nakamoto sent an email stating “I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party” and attaching a document on how it works with an abstract. This is now known as the bitcoin white paper and is titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” Presented in an extremely humble way, Satoshi Nakamoto’s papers are considered one of the most ground-breaking works of computer science, which solved the riddle using blockchain technology.
The value of all bitcoins was over $1.03 trillion by Nov. 26, 2021, which is around 2.9% of all narrow money. Now whether this will take over current currencies is highly controversial. Many academics and prominent figures like the billionaire Warren Buffet and Noble laureate Paul Krugman have been skeptical about such technology for several reasons.
Money has to act as a medium of exchange (which is not the case for crypto in most places), store value (which is also not the case in view of volatile prices) and be a unit of account (which is the only criterion it meets). Furthermore, there are other issues with crypto like scalability, extensive energy use and legal and regulatory issues, which debilitate its growth.
On the other hand, billions of dollars are invested in crypto projects, and platforms are built upon it. In addition, many academics and prominent figures like Elon musk and Jack Dorsey believe that crypto, with its ever-evolving applications and services over time, can be the next form of currency. They argue that the current money system has many issues like repeated crises and instability, high fees, and is very centralized.
Historically, currencies and what people use for transactions and tax payment have changed in response to the existing ecological and economic conditions. In modern times most spending and transactions have become digital as barely anyone uses cash due to convenience. As such, a transformation from the current system to crypto is not out of reach. Even the Bank of England is thinking of doing a 'Britcoin' pegged to the British pound.
The real question isn't whether money will be crypto or not, as it doesn't really matter. It is whether money will stay centralized or become decentralized. At the moment, it's too early to make predictions with certainty, and only time will tell.