Is Bitcoin Really “Economic Freedom”?

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Bitcoin has led decentralized finance to emerge as a global and open alternative to our traditional financial system – and while the concept is appealing to many, the question is whether it is truly decentralized and takes into account the economic freedom that it is. he promises. Since the 1990s, a movement of activist cryptographers – cypherpunks – shared ideas and thoughts online on how to achieve the “economic freedom” of the centralized banking system by creating an anonymous and decentralized form of virtual money through cryptography.

On Halloween night 2008, at a time when banks were facing one of the worst crises of all time, Bitcoin made its dream come true. A pseudonymous person (or group of people) by the name of Satoshi Nakamoto introduces “A peer-to-peer version of electronic money” on the basis of a consensual (IT) protocol rather than relying on the banking system. Bitcoin is created by a process called mining. Participants in the Bitcoin network compete against each other to solve a mathematical puzzle, which requires a large amount of electrical energy. The first participant (miner) to solve the puzzle sends the solution to an open network, and only when the majority of the network participants agree on the solution, Bitcoin transactions are verified and recorded in a block. These blocks are recorded in a distributed ledger called the Bitcoin blockchain. The miner who fixes the problem is rewarded via Bitcoin. In 2009, the award for the extraction of a block was 50 Bitcoins, while in 2020 the reward is 6.25 Bitcoins. Before disappearing in 2011, Nakamoto mined around 1.1 million Bitcoins. This secured him ownership of around five percent of the entire Bitcoin supply..

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Bitcoin is often compared to gold for its scarcity, capped at 21 million Bitcoins. One of the reasons the United States is the number one economic power is its majority gold ownership – it holds a little more than four percent of the total gold supply in the world. Nakamoto’s ownership of five percent of the entire Bitcoin supply means it has a higher percentage of Bitcoin than the United States has in gold. As cryptocurrency professor Matthew Greene noted, Satoshi Nakamoto has the potential to play a vital role in politics. If Bitcoin becomes more important than gold, an unknown person, rather than a country or a public institution, will play a vital role in our economic system.

The question is whether it is pure coincidence that Nakamoto is the biggest owner of Bitcoin or if that fact shows that the cypherpunk movement is simply shifting from one form of control to another. As appealing as the concept of Bitcoin is, it seems unlikely that Bitcoin can replace current fiat currencies and be the tool of democracy and economic freedom that some desire. While Nakamoto appears to be disinterested in taking a public role in Bitcoin ownership, his overall conduct should at least spark serious curiosity as to whether he trustsa purely decentralized system in the first place.

Today, Bitcoin mining is fundamentally impossible for a single computer, as it was in the early years of Bitcoin. There are professional mining centers that centralize Bitcoin mining, especially in countries like China where electricity is cheaper. After Nakamoto, the biggest bitcoin owners seem to be Micree Zhan, the co-founder of cryptocurrency mining company Bitman, followed by Chris Larsen, the co-founder and executive chairman of Ripple (the third blockchain platform for importance) and Changpeng Zhao, the founder and CEO of Binance, one of the leading cryptocurrency exchanges. Most Bitcoin transactions today are done by exchanges or other intermediaries rather than directly by users.

The question is whether Nakamoto’s Bitcoin system created “economic freedom”? Not exactly. At this point, Bitcoin seems to have demonstrated that the more its value increases, the more the network tends to centralize with its unknown creator behind the scenes. It’s common to hear that “Bitcoin is a bank in your pocket” because the network is open to everyone and allows people to transact without a bank account. However, the Bitcoin network relies on the Internet, and in countries like India, half the population still does not have access. The same banking system that Bitcoin was created to bypass soon allow customers to buy Bitcoins through their bank accounts.

The history of Bitcoin is far from unique. Nakamoto could have run the Bitcoin “experiment” as a brilliant game to temporarily confuse the existing monetary system, and the cypherpunks could have found in Nakamoto a perfect leader. However, they cannot claim that Bitcoin represents everyone’s idea of ​​democracy and economic freedom.

Giovanna Massarotto is an Academic Fellow of ICTC at Carey Law School, University of Pennsylvania.


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