Bitcoin was first created on January 3, 2009 shortly after the 2008 financial crisis. This global crisis was triggered by many mistakes made from several financial institutions with regard to the management of risk. Satoshi Nakamoto, the pseudonym used by the creator of Bitcoin, was the first to bring a comprehensive and complete concept of a decentralized monetary system to the world. Often overlooked in the current Bitcoin ecosystem, this decentralized monetary system was for the whole world and not just for certain countries, wealth classes or financial entities. Different types of financial collapses tend to be instigated by centralized systems abusing power and control of a societal monetary system. The people belonging to these societies trust this central entity in order to ensure the society’s right to free trade. When individuals make mistakes in life, they suffer the consequences of their wrongful actions. This standard of correction should apply to every single person and every entity regardless of financial or political class. Bitcoin provides solutions to the many challenges current economic systems face, and the most impactful feature of Bitcoin is the instilment of accountability and trust into a global monetary system.
The idea of accountability and responsibility in systems has always fascinated me. Healthy societies teach adolescents about fairness and respect in hopes of raising “good” contributing individuals into the world. How or why this sense of “good” versus “bad” behavior has been instilled in humans is up for debate, but the majority is inclined to believe that these traits exist. The older we grow, the more we realize life isn’t necessarily fair and our perception of equality is flawed. Americans are fortunate to grow up in a country that prides itself on freedom and equal opportunity. While governments continually attempt to take away these rights from their citizens, sufficiently free market societies correct these mistakes and hold the ideologies of liberty in place. Market forces providing fair opportunity brings us to Bitcoin and the right to financial freedom for everyone worldwide.
Similar to gold, there is a finite amount of Bitcoins (21 million). In order to create more bitcoins, one must use a proof of work process called mining. Mining consists of many nodes or computers competing amongst each other to mine the next block whilst recording and validating the transactions between peers within the Bitcoin blockchain. In order to mine a block, a significant amount of computing power is required. Contrary to current government-backed financial systems where a central entity is capable of simply printing more money at any given time, miners are required to continually invest in the network to introduce more bitcoins into the economy. Many have used this to conclude that Bitcoin is the solution to save the global economy from a situation similar to the 2008 financial crisis and bailouts. However, we should focus on the root of the problem that led to this crisis instead. Just like a weed, if you do not pull out the root, the weed will eventually return to the surface. The core problem in 2008 and other historical financial crises was the lack of financial risk management and accountability. Countries like Zimbabwe and Venezuela are modern day reminders that economies built on improper accountability do not last forever.
An economy built on top of a finite decentralized monetary system requires both financial institutions and individuals to act in a responsible manner. Holding riskier entities accountable will inherently reduce the risk of a financial and economical tragedy. In the game of baseball, a batter is given three 3 strikes before he or she is out, while the pitcher is given 4 balls before the batter is allowed to take his or her base. The limits placed on both the pitcher and batter now force each competitor to strategically compete amongst each other instead of recklessly pitching as fast as one can or swinging the bat at every pitch. Similarly, having finite limits on the monetary system forces both entities and members of the society to act in a strategic and responsible manner when handling their wealth. If too much risk is absorbed, negative consequences can and will occur.
During financial recessions, the purchasing power of individuals is significantly damaged. The 2008 crisis has set the precedent that governments will bail out failing financial institutions for the greater good of the economy. This action does not solve the issue, but merely enables the risky behavior even further. During a child’s adolescent years, consequences or punishment negate bad behavior while positive reinforcement supports good behavior. In the implementation of Bitcoin, where a bailout is impossible, financial entities must act in a proactive and responsible manner. If they don’t, the market loses trust in the entity, and members of the society will utilize more trustful competitors with their wealth. Along the lines of Charles Darwin’s theory of survival of the fittest, institutions must act responsibly and strategically in order to survive and grow in the market.
Institutions and other financial entities managing risk and funds appropriately accelerates the necessity for individuals to more properly manage their own personal financial risk. Prior to the housing crisis in 2008, a culture where individuals spend more than they can actually afford to survive was being encouraged. This overspending culture was enabled by entities lending more than an individual deserved, let alone could afford. Under the financial transparency and accountability inherent to Bitcoin, the members of the society must live within their means in order to support themselves and their families. This trickle-down system of financial accountability creates a society motivated by strategic competition and responsibility, while retaining freedom and liberty. In the emerging digital era, Satoshi Nakamoto’s Bitcoin resolves the problems of inconvenient trade while also correcting the risks of manipulated inflation. Bitcoin holds irresponsible entities and individuals accountable for their reckless management of wealth. The security and immutability from attack results in a truly decentralized financial system. Everyone worldwide deserves equal opportunity and freedom with accountability through Bitcoin.