I have yet to see anyone note a fundamental difference between fiat currencies and bitcoins: that fiat currency supposedly has value through the decree of a government, whereas bitcoins gain their value from the voices of the people. And that these two approaches fall into two categories: centralised control, and decentralised control. The decentralised control of the value of bitcoins is the democratisation of currency value.
This really can’t be overstated.
Fiat comes from the Latin word for “let it be done” and means an “official” arbitrary order, decree, or sanction. The value then rests in the acceptance of the authority of whatever is making that decree, or in the ability of that “authority” to enforce its decree.
Bitcoins on the other hand have no such authority to declare their value or violence to enforce their value. Their value comes purely from people voluntarily participating in the bitcoin economy by using it.
For example, as a customer you can go to many different stores. If one store only accepts bitcoins, you are free to go to another store. If you wish to use bitcoins, and a store does not accept them, you are free to go to a store that accepts bitcoins. If you wish to trade in your fiat currency for bitcoins, you can purchase them privately from someone, or you can go to an exchange, which is simply a marketplace for bitcoins.
The value of goods and services in bitcoins is then set by the market. Where one merchant may charge 0.0005 bitcoins for an orange, another merchant may charge 0.00075 for an orange. You are free to shop where you will.
But the importance of this really, really can’t be overstated. (The democratisation of currency.)
Let me recap so far:
Fiat currency: Given value because some government says so. People must obey the decree (or risk being thrown in a cage) and have no voice.
Bitcoins: Given value through the voices of countless millions of people. No government voices have any authority (though they may try to manipulate public opinion).
Do you remember Napster? It was a file sharing service. However, Napster used centralised servers. This made it possible to shut Napster down.
Are you familiar with BitTorrent? It’s a P2P file sharing protocol. However, it is decentralised with no central servers. It cannot be so easily shut down. Just ask the fellows at The Pirate Bay about that.
Is the parallel between Napster/BitTorrent and fiat/bitcoins becoming apparent?
As centralised systems, both fiat currencies and Napster are subject to a single point of failure. They are not resilient and quite fragile.
As decentralised systems, both bitcoins and BitTorrent are resilient with no single point of failure. A failure in any given node is pretty much irrelevant to the system as a whole. (I don’t mean the technical aspect of bitcoins here, although that is also decentralised and highly resilient. Here I specifically mean the way in which bitcoins obtain value is decentralised, and highly resilient. i.e. Free market.)
Some will point out the volatility in bitcoin exchanges as evidence that it isn’t resilient or that it is subject to failure. This doesn’t follow. Volatility only illustrates that the system is in fact working, and that there are competing voices speaking out about how much bitcoins should be valued at. The system itself is agnostic as to its own value.
That is, the “volatility” objection confuses the output of the system (the value of bitcoins) with whether or not the system is working.
This does not mean to say that bitcoins will skyrocket up to $1,000,000 per bitcoin. Much less that bitcoins will continue to grow at a rate of an order of magnitude per year, which would value bitcoins at $1,000,000+ sometime during 2016. (The actual growth is around 1 order of magnitude every 9~10 months. We’re being pessimistic here.)
What this does say is that it is far harder to collapse bitcoins as a currency than it is to collapse a fiat currency. No single node can declare a value for bitcoins. All nodes participate in its valuation. Provided those nodes decide that bitcoins are valuable, and that more nodes are added, the output of the bitcoin system will value bitcoins cointinually higher. (Pun intended.)
We are looking at the democratisation of currency here. No more dictatorial edicts. No more authoritarian force. No more being told how you can earn a living and how you can spend your earnings.
This is the end of authoritarian power in currency.
This is the voice of the people.
You have a real vote.
You have real power.
You can put the fruits of your labour into the trust of mathematics and the fundamental principle of the universe that guarantee those mathematical equations.
With bitcoins, the choice is entirely up to you. If you wish, you can vote for its value and purchase bitcoins. If you don’t want to participate, nobody is forcing you, which you cannot say about your local fiat currency.
This is a revolution and an evolution in what currency is. You now have to ask yourself which side of history will bitcoin and crypto currencies fall on, and which side of history do you want to be on.