Bringing power to the people (all the people)
Putting aside the outright skepticism that some express towards Bitcoin, the more substantive concerns tend to come down to Environmental, Social and Governance factors — ESG as they’re collectively referred to in investing circles.
When doubters decry Bitcoin as an elaborate technical Ponzi scheme, or deem Bitcoin inherently worthless since it cannot be touched and has no backing, amounts to matters of opinion.
We can argue about the merits and factual accuracy of such ideas all day long, and many spend their time on Twitter doing just that:
Nathaniel Whittemore on Twitter
When it comes to Bitcoin and its ESG credentials the waters become a little cloudier.
Environmental concerns tend to be the go-to for mainstream media when they want to raise red-flags about Bitcoin’s long-term prospects. Lazy stories such as this one from the BBC are good examples in the genre — they herald an imminent bursting of the Bitcoin bubble which will be triggered through its poor environmental credentials. The story is superficial and neglects to investigate the topic to any meaningful depth or provide evidence other than a little intended to grab attention.
Another example — it was announced in recent news that China is banning Bitcoin mining from being carried out in Inner Mongolia since the region has failed to meet government targets for a reduction in energy usage. Given that China accounts for around 65% of all Bitcoin mining and Inner Mongolia for around 8% of this, the skeptics might claim a victory for the environment.
Bitcoiners will claim the same victory however, pointing out that Inner Mongolia is one of China’s two biggest consumers of coal-fired energy. Other regions of China involved in Bitcoin mining favour the use of clean and sustainable energy sources such as hydro-electricity — this move thus demonstrates that Bitcoin is enabling the switch to cleaner energy sources to meet its considerable need for power.
The debate rumbles on.
I’ve tried to present as balanced a summary as possible of the situation regarding Bitcoin and the environment in a separate story — it’s something that I’m keenly interested in and will likely write more on it in future.
For the purposes of this piece, I want instead to look at the social factors of Bitcoin.
The social dilemma
A quick search on the internet or even just here on Medium uncovers pieces from those who believe Bitcoin is yet another tool being leveraged by the rich to get richer — in the process keeping the poor at the bottom. This excellent piece by Jessica Wildfire, one of my favourite writers here on Medium is one such example.
As I see it, the societal impact of Bitcoin isn’t about whether it can be all things to all people — clearly that’s not possible.
- Not everyone who invests in Bitcoin will get equally wealthy or lose their shirts — Through foresight or sheer good luck some will have bought low and sold high, or are holding on to a fortune. Others will have lost the farm after buying into hype. Relative success is about timing, how much risk you take and whether your investments are diversified. It’s not a function of the asset itself being unfairly skewed towards the rich or the poor.
- Not every asset class, currency or store of value will be superseded by Bitcoin — it has defined use-cases and specific facets that make it appealing and useful. There’s little chance of it replacing the conventional global monetary system that has been in place and evolving for centuries. Whether Bitcoin is deemed equally useful and equally accessible to all people shouldn’t be adjudged by the standard of whether it will conquer the entire financial and economic infrastructure.
- Bitcoin isn’t the only thing people should be investing in to protect and grow their wealth. Even the most hardened Bitcoiners recommend it as a relatively small part of a balanced investment portfolio. The advice to only speculate with money that you can afford to lose is widely shared and commonly accepted.
With these considerations in mind it seems more sensible to determine whether Bitcoin favours one sector of society over another at a fundamental level:
- Is it genuinely useful to all people equally (or does it have the potential to be useful)?
- Can it be accessed and used as easily by all people?
- Does it offer the same potential to all people equally in each of its various use-cases?
The answers to these questions are what determines whether Bitcoin has the potential to remove barriers of opportunity within society, or merely reinforces these.
It’s undeniable that many of the biggest investors in Bitcoin and the most vocal of its fans include those who are already wealthy (Elon Musk and Paul Tudor-Jones to name two). This isn’t a function of Bitcoin being restricted to the elite - these are simply edge-cases. Bitcoin isn’t a rich versus poor scenario.
Bitcoin as a technology was conceived and designed to be open source, decentralised and equally available and useful to all. There are many signs that it continues to succeed in accomplishing these aims.
Negligible barriers to entry
Critics claim that fundamental barriers exist in the accessibility of Bitcoin to the poorer classes. Such statements are easy to make and can evoke deeply emotional responses from those motivated by social equality.
A common misconception for example is that you need to have enormous home computing power to access or own Bitcoin. This is false.
With basic internet access and without specialist hardware you can buy, own and sell Bitcoin. It’s stored on a crypto wallet which can be as simple as a free app on your smartphone. A hardware wallet can be bought for less than $100 if you want to keep your coins completely offline (as is recommended best practice).
To gain a truer understanding of the relative barriers to owning Bitcoin, maybe experiement to see how quickly you can buy some and then compare this with how long it takes to set up an investment in other assets — physical gold, publicly traded stocks or Exchange Traded Funds (ETFs). I
When I first bought a tiny amount of Bitcoin it took less than an hour (including watching some basic YouTube tutorials and opening accounts with a popular Crypto Exchange).
Investing in physical gold, funds or stocks is not quick (or easy). To begin with you need bank accounts and proof of ID and address history. Such things aren’t universally available as much as we tempt ourselves to believe they are.
The UK’s Financial Conduct Authority estimates that 1.3 million adults in the UK are ‘unbanked’ — they have no bank account. In the US the FDIC estimates the number of unbanked adults to be 14.1 million, or 6.5% of the population. The composition of this population is also skewed, according to the FDIC:
“Unbanked and underbanked rates were higher among lower-income households, less-educated households, younger households, black and Hispanic households, working-age disabled households, and households with volatile income,”
A lack of a basic bank account is a fundamental and significant barrier to those who wish to participate in the conventional financial system, let alone invest in any asset. Try banking a Covid stimulus cheque without a bank account (for example).
We’re at risk of straying into the terrain of financial inequality and whether those who don’t have a bank account are likely to be concerned about investing in Bitcoin or anything else — they are likely living hand-to-mouth in many cases. But this is inequality is not a function of Bitcoin, nor is it made better or worse by the existence of Bitcoin.
Indeed, a bank account is not necessary to invest in Bitcoin anyway. While I had to submit ID for verification of my identity when I opened a Crypto Exchange account, this step could likely have been bypassed if I really just wanted to own Bitcoin. I could have downloaded a free Crypto-Wallet app for my smartphone and purchased from an over-the-counter (OTC) vendor.
Alternatively I could have received Bitcoin to my wallet from someone else willing to send me some — perhaps in exchange for goods or a service. There are no legal or structural barriers to holding Bitcoin if you wish to do so.
No minimum investment
The minimum investment I can make in Bitcoin on the exchange I use is £10 GBP. Granted, you don’t get much for that amount of money but there’s no minimum that you need to have accumulated before you can get in the game.
It feels good each time I buy a little more (and I’ve made many trivial investments of under £100 each to build my holding). My goal is to gradually accumulate more and to hold it for the long term. By the standards of many I bought when the price was high but over time I’m trusting in dollar-cost averaging to smooth things out.
If you’re genuinely motivated to own Bitcoin there are legitimate and legal ways of doing so — today. You don’t need to have accumulated enough to buy a full Troy Ounce of Gold. You don’t need enough money to buy a whole share of Facebook (plus the trading fees).
A common misconception when people hear of a single Bitcoin being worth $40,000 upwards is that they can’t afford such a price — who can?
In fact, the underlying protocol is designed such that each Bitcoin is comprised of 100 million Satoshi (named for the pseudonymous founder of Bitcoin). While many Bitcoin investors dream of owning a whole coin (or more) we can all get there one Satoshi at a time.
There is no barrier of a minimum investment when it comes to Bitcoin.
Equal access to digital transactions
Once an individual holds Bitcoin, through owning the private cryptographic key associated with their coin, they are ready to send and receive Bitcoin as an exchange of value. This is where the currency use-case comes into play.
It’s still widely accepted that the use-case for Bitcoin as a means of exchange (strictly as a like-for-like replacement of, say, Visa transactions) is not the most mature or widespread usage compared to that as a store of value.
Bitcoin can be used today to transfer value by way of a sum of Bitcoin from one individual to another (the peer-to-peer aspect of it). The appeal of this is somewhat limited by the volatility and frequent move in its price. A few Satoshis sent to pay for a bunch of flowers today might be enough to buy a truckload of them in a month’s time.
Nonetheless it is feasible for one person to agree a sum that will be sent to another and to then send it quickly, easily and irrefutably from one to the other. The appeal from a societal perspective becomes more significant in cultures or environments where people are restricted from holding or exchanging conventional currency.
Consider the example of blogger Parisa Ahmadi who lives in Afghanistan. She has been able to bypass the patriarchal societal rules that would otherwise have prevented her as a woman from earning money or having a bank account. Being able to set up a crypto wallet has enabled her to receive payment in Bitcoin, and to eventually buy her own laptop with the proceeds of her work — all made possible by her being able to receive payment in Bitcoin for her work in a society that wouldn’t otherwise have allowed it.
Protection against deflation of traditional currencies
One final way in which Bitcoin is helping to alleviate societal issues is in allowing citizens in countries whose currencies are in a spiral of hyper-inflation, to have some means of storing and protecting their wealth.
In countries like Venezuela and Argentina where hyper-inflation of traditional currencies are devaluing citizens’ savings and pushing up the prices of staple goods, many people are resorting to Bitcoin as a means of storing the wealth they’ve accumulated and using this where necessary to buy essentials.
Nigeria is a further example of a country where devaluation is encouraging citizens to invest in Bitcoin as a means of hedging against the inflation of their native currency — the Naira. Nigeria is the third largest trader of Bitcoin by volume after Russia and the USA and many of its citizens recognise that making money and hoping to store that value in Naira is a lost-cause when that currency is dropping value daily compared to the US dollar standard.
In the longer term continuing to do this may become problematic, as the Nigerian Central Bank is pursuing legislation to prevent financial institutions from allowing money to be transacted into Bitcoin — time will tell of course whether this takes effect or whether it materially prevents citizens from leveraging the benefit of Bitcoin.
It seems though that in the absence of rigorous and reliable monetary policy on the part of some governments, citizens have become attune to the opportunity presented by Bitcoin to facilitate them taking control of the monetary system for themselves.
Striving for equality
The examples I’ve provided likely only scratch the surface of the societal aspects of Bitcoin. No amount of evidence will sway the hardened critic but equally I’m mindful that I’m looking at the issues from the perspective of someone who’s firmly onboard with the concept of Bitcoin. I’m not impartial either.
I do see opportunities presented by it though — not to fix all the problems of society or even those inherent in the existing financial system, but in facilitating a new means for people around the world to conduct their businesses, to store their wealth and to potentially grow it too. Those opportunities are as equally available to all citizens of the world as are the existing infrastructure of the financial establishment. Bitcoin brings many benefits besides — those that have been described already to name a few.
One final word is reserved for a recent example of philanthropy centred on increasing the accessibility and utility of Bitcoin in countries with less ubiquitous access to technology.
Jack Dorsey, CEO of Twitter and Square, and Rapper Jay-Z have between them put up 500 Bitcoin (approximately $25million) to fund projects to increase the uptake of Bitcoin as the preferred internet currency within these countries. India is a further country whose government is currently exploring a ban on the use of Bitcoin via its central bank in favour of a state-owned and developed cryptocurrency.
In spite of this, the blind trust established by Dorsey and Jay-Z demonstrates ways in which leading entrepreneurs and tech-CEOs are driven to help embed Bitcoin in the world, not just as a means of boosting their own wealth or profile, but also to help advance its cause for those in less-privileged countries.
It seems that Bitcoin offers a great potential for bridging social divides, not merely of lining the pockets of the rich. Time will tell!