Ethics of Emerging Technologies -
Technion - Israel Institute of Technology
Title: - Bitcoin; A Beacon of Hope in the Troubled Waters of the Fiat Money System. An Ethical and Social Science Perspective
Date: 2023-07-24
Submitted by: Max Peter
Bitcoin; A Beacon of Hope, in the Troubled Waters of the Fiat Money System. An Ethical and Social Science Perspective
I. Setting the Scene
In the saga of economics the fiat money system has taken center stage for more than a century. This system, where our money isn't backed by a commodity but by our trust in institutions has faced numerous crises that have exposed its inherent flaws. As a student of sciences I recognize the impact this has on societal well being, economic stability and power dynamics. The storyline of this system is riddled with turns such as inflation, debt cycles and power concentration among a few resulting in economic disparities and social unrest.
Imagine living in a world where your earned savings could vanish overnight due to decisions made away in corporate boardrooms. This is not some fiction but an unfortunate reality for many under our current fiat money system. In this essay we delve into Bitcoin—a cryptocurrency—as a protagonist, within this narrative.
By exploring the social science principles that form the foundation of Bitcoin, our goal is to bring awareness to how our monetary system impacts our freedom, fundamental rights and democracy. Additionally we will delve into how Bitcoin has the potential to reshape this narrative.
II. Background: The Evolution of Money and the Current State of the Fiat Money System
Money the lifeblood of our economies has undergone changes, throughout history reflecting the evolving needs and technological advancements of societies. From barter systems to metals, paper currency and now the digital era each transformation has left its mark on our journey through time.
The fiat money system, which currently governs our economy has been the force for the century. However it resembles a sandcastle built close to the waters edge— to inflation and economic instability. Picture a castle where central banks hold the keys to influence your moneys value at their discretion. This is how our fiat money system operates. In this essay we will explore whether Bitcoins decentralized nature can reshape this landscape by offering a fair economic terrain.[1][2]
III. The Flaws in the Fiat Money System
Imagine envisioning the economy as a web interconnecting various nodes, with the U.S. Dollar acting as its central hub—the reigning fiat currency.
The current economic system, which has been the foundation of our economies is displaying signs of strain. Fiat money, in essence is a currency that isn't tied to a commodity. Instead its value derives from the trust we have in the government that issues it (Wilck, Lynch, & Kauffmann, 2014).
Imagine a seesaw with banks on one side and ordinary individuals on the other. The control that banks have over the money supply can disrupt the balance. Result in inflation. This inflation gradually erodes peoples purchasing power. Creates instability. Moreover our system relies heavily on debt—a bit like a house of cards. Money is generated through lending practices leading to cycles of boom and bust that can jeopardize well being. These problems extend beyond economics. Contribute to widening inequality and instability.[3]
IV. The Unintended Consequences of Fiat Money
The impact of this can be especially harmful, for individuals with fixed incomes or limited savings. Take, for instance the decision made by the United States to abandon the gold standard in 1971. Since then the purchasing power of the U.S. Dollar has significantly decreased by, than 85% showcasing how inflation relentlessly eats away at its value.
The debt that emerges as a result of the fiat money system has repercussions leading to crises, social inequality and international instability. These consequences further exacerbate the divide, among groups.
Imagine a society where the gap between the wealthy and the impoverished continuously widens with each cycle. In such a society ones stability in life can be disrupted by decisions made in banking boardrooms. This is the reality we face due to the existence of the fiat money system. Hence it raises a question; Is it possible for us to navigate a path? Can Bitcoin, as a cryptocurrency serve as our guiding light, towards a balanced and fair economic landscape?
V. Bitcoin; A Revolutionary Response, to an Imperfect System
In the aftermath of the 2008 crisis, when economies were crumbling and faith in financial institutions was fading a new kind of currency emerged. Bitcoin, a currency came into existence as a reaction to the perceived flaws of the conventional financial system. Imagine it as a phoenix rising not from ashes but from the ruins left behind by a catastrophe.
The underlying philosophy of Bitcoin is to separate money from the control of governments—a concept that has gained momentum since the crisis. Its design principles, such as decentralization, fixed money supply and proof of work mechanisms position it as an alternative to our current fiat money system.[3][5].
VI. Bitcoin; A Beacon of Ethical Efficiency
In contrast, with the fiat money system Bitcoin has been specifically crafted to address many of its problems. Operating as a currency means that it functions without relying on any central authority. Consequently it cannot be influenced by governments or central banks for their benefit. Is safeguarded against manipulation by a privileged few individuals.
The supply of bitcoins is fixed, with only 21 million ever to be produced. This scarcity sets it apart from currencies, which can be printed without limitations.
Bitcoins core design principles include decentralization, transparency and immutability. These ensure that all transactions are transparent and cannot be changed, providing a level of security and trust compared to financial systems. Additionally it eliminates the need, for intermediaries resulting in cost reduction and increased efficiency.
One key feature of Bitcoin is its Proof of Work (PoW) consensus mechanism. Despite concerns about its energy consumption it's important to note that this energy usage is necessary for the security of the system. Miners solve problems using computational power and energy to validate transactions and secure the network effectively. While the total energy consumption may seem significant according to Wolfram Alphas data it serves as a trade off, for the security and decentralization benefits it offers [2].
VII. Practical Applications and Advantages of Bitcoin
Bitcoins potential goes beyond theory; it has already been put into practice across sectors demonstrating its applications and benefits. These real life examples demonstrate how Bitcoin can address concerns linked to the fiat money system, such, as transparency and decentralization.
Bitcoin as Legal Tender: The Case of El Salvador[6]
In a historic move, El Salvador became the first country to adopt Bitcoin as legal tender in 2021. This bold step signifies Bitcoin's growing acceptance and its potential to serve as a viable alternative to traditional fiat currencies. The country's move to embrace Bitcoin has opened up new possibilities for financial inclusion, economic growth, and innovation.
VIII. The Challenges and Criticisms of Bitcoin
According to a study, by Bonneau, Miller, Clark, Narayanan, Kroll and Felten in 2015 it was observed that the value of Bitcoin can fluctuate greatly which can result in losses for users. This volatility may discourage users. Undermine Bitcoins reliability as a stable form of value storage.
Another concern raised is the impact of Bitcoin mining. The mining process involves solving problems to validate transactions and add them to the blockchain requiring substantial computational power and energy. This has sparked worries about the carbon footprint associated with Bitcoin especially considering the pressing need to address climate change. Critics argue that this is wasteful; however they fail to consider the security and efficiency provided by Proof of Work (PoW). PoW makes the Bitcoin network highly resistant to attacks, necessitating energy consumption as an aspect of maintaining a global transaction system.
Bitcoin has also faced criticism for its association with activities like money laundering and illegal trade due to its nature. Consequently there have been calls, for regulation and oversight that could potentially undermine Bitcoins nature and privacy advantages (Sas & Khairuddin 2017).
The regulation of Bitcoin remains an issue. While there are some who argue against it expressing concerns, about activities and market stability there are others, including myself who believe that Bitcoins inherent design principles make it self regulating. The transparency of its blockchain and the decentralized nature of Bitcoin create a system where market forces and network consensus drive its operation and governance [2].
IX. Conclusion
As we find ourselves at the intersection of evolution the current fiat money system presents its challenges such as inflation, economic disparity and centralized control. This calls for a shift. Enter Bitcoin. A beacon of hope in the landscape. Its decentralized nature and limited money supply offer an alternative to the system.
From an ethical and social sciences perspective Bitcoin is more than a currency. It serves as a tool for promoting inclusion reducing inequality and outlining a blueprint for a more democratic financial system. The urgency for regulation on Bitcoin may not be as immediate as some might think. Its design principles inherently provide security, transparency and fairness while effectively bypassing the shortcomings of the fiat money system.
Envision a world where money isn't controlled by a rather acts as a democratic medium accessible to all individuals. Bitcoin brings us closer, to this vision of reality.
It tackles shortcomings that exist within the fiat currency system and signifies a notable advancement, in the progression of money. The potential for Bitcoin to reshape our system into one that's fairer and more effective is not just an abstract idea but something we can realistically achieve. As we navigate the path in finance Bitcoin serves as a guiding light offering a voyage, towards a financial landscape that is more inclusive, equitable and open.
Footnotes
- Yermack, D. (2013). Is Bitcoin a real currency? An economic appraisal. National Bureau of Economic Research.
https://doi.org/10.3386/w19747 [↩] - Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System.
https://bitcoin.org/bitcoin.pdf [↩] - Saraswat, S., Chauhan, V., & Faujdar, N. (2016). Analysis on Crypto-Currency. International Journal of Computer Applications, 144(6), 975-8887.
https://dx.doi.org/10.21172/1.91.28 [↩] - Saraswat, S., Chauhan, V., & Faujdar, N. (2016). Analysis on Crypto-Currency. International Journal of Computer Applications, 144(6), 975-8887.
https://dx.doi.org/10.21172/1.91.28 [↩] - Monem, M., Ahmad, A., Jumana, R., Ahmed, R., & Arif, H. (2020). Efficient Blockchain System based on Proof of Segmented Work. 2020 IEEE Region 10 Symposium (TENSYMP), 1717-1722.
https://dx.doi.org/10.1109/TENSYMP50017.2020.9231027 [↩] - El Salvador: Launching Bitcoin as Legal Tender - Case - Faculty & Research - Harvard Business School (hbs.edu)
https://www.hbs.edu/faculty/Pages/item.aspx?num=62068 [↩]
References
Bonneau, J., Miller, A. K., Clark, J., Narayanan, A., Kroll, J. A., & Felten, E. (2015). SoK: Research Perspectives and Challenges for Bitcoin and Cryptocurrencies. Retrieved from
Fauzi, M. A., Paiman, N., & Othman, Z. (2020). Bitcoin and Cryptocurrency: Challenges, Opportunities and Future Works. Retrieved from
Khairuddin, I. E., & Sas, C. (2019). An Exploration of Bitcoin Mining Practices: Miners' Trust Challenges and Motivations. Retrieved from
Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. Bitcoin.org
Narayanan, A., Bonneau, J., Felten, E., Miller, A., & Goldfeder, S. (2016). Bitcoin and Cryptocurrency Technologies: A Comprehensive Introduction. Princeton University Press.
Sas, C., & Khairuddin, I. E. (2017). Design for Trust: An Exploration of the Challenges and Opportunities of Bitcoin Users. Retrieved from
Tapscott, D., & Tapscott, A. (2016). Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World. Penguin.
Wilck, J. H., Lynch, D., & Kauffmann, P. (2014). Bitcoin: A Pedagogical Guide for the College Classroom. Retrieved from
Zappia, C., Chen, Y., Pavone, P., & Pisani, M. (2018). Bitcoin and the Blockchain as Possible Corporate Governance Tools: Strengths and Weaknesses. Retrieved from
