Before we start here’s a fact which is easy to forget: Currency is a form of technology.
Just like all technology, if an improved method comes along, there is a very good chance it will substitute what people where using beforehand. While it might not replace the alternatives entirely, at a minimum it will sit atop what is already being used, another layer of technology. It is also worth remembering that new forms of currency have often arrived during a new economic age.
- Commodity money such as Cowry Shells arrived with Barter Economies.
- Grain receipts during the Agricultural Era.
- Ferris coins during the Iron Age.
- Bills of exchange during the Age of Discovery.
- Fiat currency during the Industrial Revolution.
Now that we’ve entered the digital age, it is inevitable that a digital currency will emerge and gain mass adoption. But people make bitcoin sound more complicated than it really is. There are only three things you need to know as to why it (or a crypto currency) will eventually dominate global commerce.
1. Nobody controls bitcoin.
Not one person, not one organisation and not one country. It is a thing. And it is open for anyone to use it, yet nobody can change it, or alter it. It is fully distributed, via its public ledger (the block chain) and this is very unique to bitcoin. It’s also anonymous.
2. There will never be more than 21 million bitcoins.
This creates a level of scarcity and value protection that no other currency has had before. Even gold. (Gold has had a 2% extraction rate per year on average). To have enough currency, we simply divide by another decimal point.
3. Bitcoins can be sent to anybody, in the world, in real-time and for free.
Up until now, this has been impossible. All forms of currency exchange up until now always needed physical transport or to trust some third party, such as a clearing house, a credit operation, a settlement house or a bank, who also skim margin. They are all inefficient and relatively expensive. Bitcoin is peer-to-peer.
In short bitcoin has all the things a successful currency requires. It has scarcity, durability, divisibility, portability, acceptance and it is quickly gaining trust. Though the last two points are where the currency needs to make some gains. It might take 10 or more years, (think back to what the internet mean to you in 1995), but it is going to do for money, what the internet did for information.
But if you’re still not convinced, here are some things worth considering: Currently 5 billion of the people on earth rely solely on cash economically and 3 billion do not even have bank accounts. A little over 1 billion people have access to credit cards, and less than 1 million merchants globally accept credit cards for payment. Most of the world’s population can’t participate in the internet economically, because of the money they use.
In fact, the poor of the world are the worst effected by having cash as their primary currency. Bitcoin can reduce the risks of operating in a cash world, yet have all the benefits of cash. Close to 5 billion people will be using cell phones by the end of 2015 and in the developing world you’re more likely to have a cell phone, than a toothbrush, electricity or indoor plumbing. All anyone needs to use bitcoin is that cell phone…. this tells us what the possibilities are.
Bitcoin has a serious chance of playing Industrial Leapfrog and becoming a primary form of currency around the world – led ironically, by the developing world. I’m not saying your should go and convert your land holdings, Greenbacks, or gold bars into bitcoin, but at a minimum, anyone interested in the future, should at least pay attention, and maybe even hold some.
This article originally appeared on Start Up Blog. Steve Sammartino is the author of The Great Fragmentation.