Bitcoin

Bitcoin and Financial Freedom

Part VII of Money as a Reflection of Political Values, Virtues, and Human Order

Bitcoin and Financial Freedom
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Part VII of Money as a Reflection of Political Values, Virtues, and Human Order

Previous Parts

As discussed in Part I - Politics, Values, and Money and Part II - A Defense of "Neutral" Money, “neutral” money is focused on money being rooted in the natural laws of the markets and having a fixed amount to maintain its scarcity and guard against inflation. The idea is that money is based on the natural law of the markets as a commodity and should be immune from state intervention since political actors can manipulate the currency for their own benefit at the detriment of savers. That said, Hayek’s vision of denationalized money shifted currency issuance from governmental institutions to private institutions such as banks and payment companies. What this resembles is a shift in trust from governmental institutions to private, for-profit institutions. In this case, currency issuance and policy are still in the hands of some form of central authority. The goal of bitcoin, however, is to go beyond any form of central authority to shape an ideal “neutral” money.

Bitcoin’s decentralized monetary design and governance is aimed to prevent any form of central authority from manipulating the currency, and is believed to be a design that deals with human corruption and fallibility. It is a decentralized system that is run by an algorithmic code that no central authority controls. This design allows for a true “neutral” money with embedded laws that resemble the "ideal" natural laws of money. It is purely shaped by market dynamics, and given its decentralized design and underlying technology, there is no need for any form of trust towards any type of institution and between transactors. Afterall, in the privatized competing currency world that Hayek envisioned, the users of the currency still require to trust the leadership of the institutions issuing the currency. In bitcoin, it is claimed, the code runs the monetary system and there is no need to trust any individual or authority given its decentralized, consensus driven governance model and embedded codified laws. This feature of bitcoin, it is argued, ensures the stability and value of bitcoin, which empowers and works for the benefit of savers and users, and impedes centralized authorities from manipulating the currency for their own interests.

Moreover, given bitcoin’s fixed supply, it results in value appreciation of the asset. It is a scarce asset that is approaching its supply limit. The closer it gets to the limit of 21 million, the more valuable it becomes. This is contrary to fiat money in which its value technically decreases with inflation, which is caused by monetary and financial authorities increasing the money supply by creating and printing new money into the system. Theoretically, bitcoin is even more scarce than gold because there is always the possibility of finding new gold reserves through mining, while it is believed that bitcoin is hard coded to be limited to 21 million bitcoins. That said, its value is based on supply and demand dynamics, with the supply side being fixed, but the demand side being uncertain, which results in significant volatility. Nonetheless, given its appeal to a growing group of people so far, the price of bitcoin has tremendously appreciated making many individuals wealthy. Overall, given bitcoin’s supply dynamics, it solves the pressing problem of inflation that thinkers such as Hayek always worried about, and, it is argued, is enabling savers or bitcoin holders to grow their wealth in a more effective way.

Beyond bitcoin’s decentralized, trustless model and its scarce, inflation resistant design, the bitcoin blockchain established a global payment system that allows for the transfer of value across borders in a more cost-effective and efficient way. This benefits many people who rely on remittances. Additionally, given its global nature, it allows for people who lack trust in their governments and banking institutions to hold value in a digital asset that is easy to custody themselves, travel with, and transfer. It represents ownership of value without requiring any intermediary who may unfairly confiscate or manipulate the owner’s assets. Moreover, the bitcoin blockchain is transparent and immutable. Anyone can see the history of transactions on the blockchain.

With all that said, bitcoin resembles a movement and a community that is promoting its visions of what money ought to be. Bitcoin's growth represents this community’s distrust in established governmental and financial institutions, and this movement aims to change the status quo to achieve a financial system that guards against inflation to the benefit of savers and that is less prone to censorship and to the whims of central, powerful figures. As mentioned in Part VI - Bitcoin's Genesis, bitcoin's adoption coincided with an increasing distrust in central authorities, institutions, and banks. That said, contrary to other forms of local alternative currencies that are also sometimes used as a form of protest, bitcoin is global in nature and digitally native with immense reach and influence (Larue et al., 2022). It is important to highlight that bitcoin’s design aims to promote the political and moral values of cypherpunks, right-wing libertarians, and anarcho-capitalists. Bitcoin was initially a form of protest against the status quo and a form of activism to empower the values and principles of financial liberty and freedom that, it is argued, can only be accomplished with a “neutral” money beyond anyone’s control (see Part II - A Defense of "Neutral" Money). That said, bitcoin has also grown in popularity due to its price appreciation. 

Bitcoin seems to be an extension of the “neutral” money that Hayek and right-wing libertarians promoted in the 1970s (see Part I - Politics, Values, and Money). The technology behind bitcoin and its decentralized governance system allows for a more enhanced “neutral” money that goes beyond what was envisioned by Hayek and the right-wing libertarian community. Its decentralized, trustless, and censorships resistant design and its scarce attributes as a digital form of value empowers individual financial freedom, sovereignty, and liberty (see Part II - A Defense of "Neutral" Money).

In Part VIII, we’ll provide a critique of bitcoin – Part VIII - A Critique of Bitcoin

References

  • Larue, L., Meyer, C., Hudon, M., & Sandberg, J. (2022). The ethics of alternative currencies. Business Ethics Quarterly, 32(2), 299-321
  • McIntosh, W. (2024). FA Hayek, Libertarianism, and the Denationalization of Money. Modern American History, 1-20

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