This article takes a look at how more freedom could have a beneficial impact on blockchain and cryptocurrencies, especially if government and corporations were reduced in size.

Blockchain and cryptocurrencies seem to be part of the next stage of the Internet. But they need to be implemented in a free and open manner to be most effective. If they are not implemented this way, they’ll be increasingly ineffective. Cyryptocurrencies may fail and the blockchain technology won’t be much different than a single general ledger.

Earlier this year, Carl-Ludwig Thiele, a Bundesbank board member, told bitcoin investors not to buy the currency. A German news outlet quoted him as follows:

Bitcoin is a means of exchange which is not issued by a central bank, but by unidentified actors. I do not see it as a currency. If you think bitcoin would be as safe as the euro or the dollar, you have to take responsibility for it. We can only warn people not to use the bitcoin to preserve purchasing power.

Of course, it is an open question whether or not the dollar or the euro is “safe” in the early 21st century. And central banks seem to have a lot to lose from the cyrptocurrency implementation. But there are others who believe that cryptocurrencies will fail no matter what. Dr. Gary North is a well-known free market economist who says cryptocurrencies are a “spectacular private Ponzi scheme” that will outdo anything from Bernard Madoff.

First, someone who no one has ever heard of before announces that he has discovered a way to make money. … Second, the individual claims that a particular market provides unexploited arbitrage opportunities. Something is selling too low. If you buy into the program now, the person running the scheme will be able to sell it high on your behalf. So, you will take advantage of the arbitrage opportunity. 

... This strategy was described a generation ago by George Goodman, who wrote under the pseudonym of Adam Smith. You can find it in his book, Supermoney. This is done with financial corporations when individuals create a new business, retain a large share of the shares, and then sell the stock to the public. In this sense, bitcoins is not a Ponzi scheme. It is … a supermoney scheme. 

Dr. North states such coins will never be the money of the future. In fact, a definition of money was made by Austrian economist Carl Menger in 1892. He called money “the most marketable commodity.” It was a definition later adopted by another Austrian, Ludwig von Mises, who noted it in “The Theory of Money and Credit” published in 1912. 

Differences In Money

Mises made the point, just as Menger had before, that money comes out of transactions. Initially gold and silver were valuable as is. But now it becomes valuable as a “facilitation of exchange” as well. As it does, people employ gold and silver for new purposes.   

Over time the division of labor becomes larger and people become more efficient. Money becomes broadly employed due to the many transactions it facilitates. Thus the market gives rise to money. But it doesn’t happen quickly. It doesn’t become popular rapidly as bitcoin has done.

People are buying cryptocurrencies as an investment more than as “money.” Money is a “tool of production” that makes goods and services easier to obtain. People do not invent money on purpose. Real money is predictable and creating it is a long-term process. 

It is true that the rapid run up of cryptocurrencies make what is being paid a form of investment, and this is a danger sign. On the other hand, we need not write off cryptocurrencies just because they may be overpriced. There are numerous reasons for the high valuations that have to do with the larger state of money in the 21^st century.

Money, as North puts it, is a mostly stable commodity that facilitates other purchases. But money in the 21^st century is also the product of central banking which may be increasingly problematic. Central banking money is highly manipulated and interest rates—and even the volume of money itself—are set by the bank not by the market place.

Cryptocurrencies like bitcoin, on the other hand, are money with a fixed limit after which no more can be created. If money were not controlled by central banks, the price would likely lift gradually rather than fall constantly as it does now. People would see their savings gradually accrue in value and this would expand their net worth over time.   

Cryptocurrencies Obliterated?

The current stock market bubble is much bigger than cryptocurrencies. It is a bubble that has blown up because of general stock market and money manipulation. As of this writing it is one of the longest, if not THE longest, bull market in history and like all other bull markets will not survive forever. When it comes down, it will likely be with a shattering crash. This doesn’t mean that all cryptocurrencies will be obliterated. Just as not all dot.com companies vanished during the late 1990s crash. Some new and private money will likely remain. 

Blockchain too is going to survive in one form or another because it is basically a way of creating a public ledger. It won’t be affected as much as cryptocurrences by any upcoming crash. There is a lot of energy and effort tied up in both cryptocurrencies and blockchain. This article is written with the idea that at least some new money is going to survive in one form or another and that there are many ways that it will change the way we live and do business. Perhaps cryptocurrencies will not survive, but our guess is that some will survive in some form,

Of course that form may be considerably vitiated. In fact that’s the larger problem facing the new Internet and banks alike, especially central banks. Such banks are watering down the creation and implementation of both blockchain and cryptocurrencies. They are refusing to broadcast blockchain with enough non-insider nodes to make it public. They are making cryptocurrencies too much like our current central bank money.

Regulation Versus Markets

It is questionable as to how people feel about current money. Kenneth Boulding has written a paper for Central Bank Board of Governors on the legitimacy of central banks. Towards the end of the paper, he states:

Insofar as the legitimacy of the central banks is enhanced by alliances, it is with the national state, and the national state alone. In these days the national state is so fantastically legitimate an institution that it seems almost absurd to suppose that its legitimacy might decline or even collapse. Nevertheless, stranger things have happened.

In fact, we would wonder just how stable the nation state is today. The Internet itself has challenged certain fundamentals and the questions continue to grow louder. And when it comes to central banking itself, the high level of inflation and control over the value of money influence money in ways that cryptocurrencies may not.

No one forces you to use cryptocurrencies right now, though you are forced to use national currencies to pay your taxes and the like. Over time people may gravitate to cryptocurrencies that are not so controlled. Just as they will be attracted to blockchain implementations that are the most free. 

The problem with this is that the largest central and public banks might not let that happen. They could pass laws regulating what blockchain can and cannot do. And they will make it easy for them to be utilized in certain ways and not in others.

Thus people may go outside of government to use blockchain and cryptocurrencies on the gray and black market. It is not difficult to transact a cryptocurrency peer-to-peer. Nor is it difficult to use a freer version of blockchain than what central banks are building.

Government regulators may not be in favor of this, but it could happen nonetheless if regulations are too deep and make blockchain and cryptocurrencies much less usable than they should be. Regulation begins in the market itself with various implementations that make it possible for the markets and its products to become popular.

Secondary—government—regulation may not be nearly as necessary and is often intended for purposes of control rather than to make the market “safer." In fact, regulations are basically price fixes. Over time, price fixes are not efficient and rarely do what they are supposed to do.

There is also the question of middlemen and how blockchain, especially, will reduce middlemen, perhaps dramatically.

Solar Change is just one example of many that will reduce middlemen. Its Co-CEO is Assaf Ben-Or, a Ph.D. in Solar Energy and an experienced start up entrepreneur, with experience in blockchain, data security and renewable energy. The Solar Change platform is built from blockchain and helps increase the use of solar energy worldwide. It is increasingly taking aim at fossil fuels and those who run them.

Unlike previous tools, blockchain and cryptocurrencies can likely survive in an extracurricular environment. Creating secondary non-regulated markets is all-too-easy, while determining the right amount of regulation is a good deal harder. 

David Murry is a journalist working on both blockchain and cybercurrency issuance.