Bitcoin is revolutionary. More specifically, blockchain, the technology and mechanism underlying bitcoin is revolutionary. I am by no means a bitcoin maximalist, but blockchain offers significant paths forward for attacking the second gate of the enemy. So here are two I’ve been thinking about: an alternative to the petrodollar and (if this doesn’t get me placed on an NSA watchlist, I don’t know what will) a check on nuclear proliferation. I’ll talk mostly about the petrodollar thing in this post.
Recall in one of my previous posts I describe civilization as having three gates, drawing from martial artist thought that an enemy has three ranges or “gates” as they’re referred to in kung-fu. I believe the gates are based off of physical parameters, so two of those gates are information (in society it is represented as propaganda, in science it is the basis for digital physics) and energy (in society it is in the form of power generation sources, like fossil fuels, in science it is defined as the potential to do work). The gate that ties the two together, just as the elbow ties the fist to the body, is currency. And leverage is greatest at the second gate.
I’ll be the first to admit, I know next to nothing about global finance, blockchain, commodities trading, or the valuation of currency. Most of what I will try to lay out was the diligent use of Google and is thus probably wrong. But still, it might inspire someone.
There are a few pieces to understand before we continue.
- What is bitcoin/blockchain?
- What is money/currency?
- What is the petrodollar?
So, what is Bitcoin? Bitcoin is what is called a “cryptocurrency” because it is a form of currency or money that is secured by underlying cryptography methods. This method is called a blockchain. So, what then is a blockchain? Blockchain is essentially a “distributed database” or “distributed ledger” that does not require a central authority to verify transactions. Maintaining this database requires computing power (also known as Proof-of-Work) which is reward with a Bitcoin. The two key issues Bitcoin was attempting to solve was how to prevent people from double-spending (it’s a digital currency, so what stops me from spending my totally real eDollar twice?) and how to create global consensus. I would watch this video for greater detail. Suffice it to say, blockchains application are wide, from creating a new digital direct democracy to hot startup Ethereum to Dogecoin.
Alright, but let’s now take a quick look at what currency or money actually is. According to Wikipedia (please just keep reading, I know, I know, I’ll use better sources later, I promise) money serves four basic functions: as a medium of exchange, a unit of account, a store of value, and standard of deferred payment. Okay, fairly intuitive, I’ll buy that. I may also be worthwhile to read the Medium is the Message by Marshall McLuhan and reflect on how the light bulb example illustrates (ha-ha) my conceit of totems and tokens, especially how money acts as totem, token, and increasingly, idol.
The last piece to direct your attention to is petrodollars. This is the strange notion that the US dollar is essentially backed by oil. This is incredibly hard to discuss, but googling Bretton Woods System, Nixon Shock, and Henry Kissinger + Saudi Arabia might help you get started. My (admittedly flawed) understanding is that post-WWII, the great economists of the world held a conference to architect the decimated economy. One of the peculiarities that came about was that the US dollar would be pegged to gold. This effectively made the US Dollar the reserve currency of the world. In 1971, the Pres. Nixon, facing pressures of a decrease in demand for US Dollars (the world was losing faith in it), severed the dollar from gold and established the US Dollar as a fiat currency.
Gah, geopolitics sucks. And don’t worry, this isn’t a rant about how we should go back to the gold standard. That ship has sailed. But what happened after that was the US needed to continue the increase in demand for US Dollars in order to maintain global hegemony. So, to do that, the US established a deal with OPEC countries to essentially peg oil to the US dollar. That’s why oil producing nations sell barrels of oil in US dollars. To think about how weird that is, imagine if the US traded toasters with Canada in Yuan. Bizarre, right?
What’s the point though? Well, my entire point here is that if the medium is the message and the US Dollar is a token, then the message is unsustainability. The store of value, that third of the four functions of money? The value that money is storing is the fraction of a barrel of oil needed to do something. We trade in how much we are taking from future generations.
My point is that blockchain gives us a path to establish a unit of currency based off of sustainable resources. Bitcoin, as I mentioned, is based off of Proof-of-Work which is energy intensive, but what I really want is a currency that is backed by sustainable resources. Originally, I was thinking about how bitcoin is set to stop generating coins in around 2140. This is arbitrarily set by Satoshi Nakamoto, the founder of bitcoin. So my initial thought was to set the end of this coin production to something more meaningful, like peak oil. But then peak oil stopped being a thing. Maybe peak oil demand? Maybe a hybrid of peak oil demand and the development of renewable resources? And are there better, less energy intensive ways to mine bitcoin? Proof-of-Stake methods are better because they incentivize early investment, so in this renewable-backed currency early adopters would not only reap greater rewards after renewable technologies were commercialized, but have an incentive to propagate the technologies. I can’t say this is my most fleshed out thought, but I take solace in that I’m not the only one thinking like this: see Ecocoin and Hub Culture’s Ven for a similar (but not what I’m getting at) ideas.
One last note. A fifth view of money that I was thinking about was how money is tied to labor or time. This thought has been explored by time banks and Ithaca Hours (see the sidebar). In context of this peak oil/renewable commercialization dialogue, my idea becomes a little more ominous. Our currency becomes how much time we have left.