Digital Transactions Authoritative, insightful and timely information for payments professionals
On Jan. 10, 2024, the Securities and Exchange Commission enabled the public to trade Bitcoin without resorting to its cryptographic attributes. This action opens the maverick currency to a massive influx of U.S. dollars—a critical milestone in world affairs.
When Digital Transactions was launched, digital transactions were transactions of digitally represented money secured by cryptography. Nobody imagined that a few years later cryptography would rise way beyond its role as a security guard, to assume a role as the building blocks money is made of. It was an intellectual surprise at the level of Einstein’s observation that the sun bends rays of light. And now, with Bitcoin in its second decade, we are still grappling with this new form of money.
Bitcoin inspired a remarkable insight: motion creates value. The more you trade something, the more inertia its price develops, even if this something is vague, unexplained, abstract, and useless per se. I will pay $10 to buy something, even though I have no idea what it is, because I believe I will be able to sell this mysterious thing for $11 tomorrow. I so believe because I expect the buyer is confident she will sell the same “black box” for $12 the day after tomorrow.
This is an earth-shattering idea. The essence of what is being traded is irrelevant and does not have to be understood at all. Until Bitcoin, the assumption was that money the public uses must be an entity the public understands. People used to bite metal coins to sense they are real. But Bitcoin’s foundational ingredients are obscure mathematical constructs that almost nobody fully understands. And yet that ignorance is irrelevant. Remarkable!
And where do we go from here? Money is the lifeblood of society. When money transforms in its essence, the impact on society is enormous. Financial experts, economists, sociologists, politicians, and philosophers are grappling with both the threat and the opportunities presented by a financial edifice created with cryptography as its cement.
This dilemma reflects the global question of democracy versus authoritarian governance. Bitcoin reflects the idea of democracy—power in the hands of the multitude, in this case, the trading community. But the oncoming waves of central bank digital currencies (CBDCs) exploit the tenets of crypto money to effect a massive destruction of privacy and thereby introduce the specter of population control through central control of who pays and gets paid.
For visionary thinkers, digital money stands to solve the age-old conflict between capitalism and socialism. They see it creating a core of capitalism, enveloped in socialism at the bottom and at the top. Survival paychecks for the poor, and a wealth ceiling for the very rich, with free trade in between.
Digital-money technology can support this or similar visions. It is now a political question. And while we are at it, here come quantum computers that threaten the entire cryptographic foundation that the new money is built upon. Will money cryptography hold out against the quantum attack, or will everything that has evolved since 2009 quietly, or not so quietly, fade away?
The most remarkable thing is we will soon all be guided by personal AI avatars that would motivate us to act for the good of society. Given that the mission of money is to motivate members of society to contribute to it (and get paid), if this motivation can be achieved otherwise, money will become useless and passé. It is not easy to think about this, but think we must lest we are carried away by unknown forces into an unknown destiny.
—Gideon Samid gideon@bitmint.com
