What follows is a bit of speculative fiction, because why not?
In the late 2010s, cryptocurrencies like Bitcoin and Euthereum were dipping their toes into mainstream economics. For years, they had been dismissed by polite society as little more than a curiosity and something that criminals used to do their business.
How foolish we were.
In the end (or perhaps I should say: in the beginning), it wasn’t Bitcoin that took over the world. Instead, we had a plethora of currencies floating in different markets for different purposes. They were mostly interchangeable. But to discuss the cryptocurrency wars is to miss the larger culture war that was taking place. It was a war that would shape the economic, political, and social spheres forever, without firing a single shot.
The shift arguably began when young people started asking to get paid in crypto instead of hard currency. It was easier for them to use and the value kept climbing, which made saving much easier. Long attacked as “deflationary”, cryptocoins were infinitely divisible but extremely limited in supply. So, a $1 in coin today would easily double to $2 in just a few short months back then.
The gold rush mentality brought hordes of people to convert their real money for digital coin. As they did so, the value of “real” currency dropped, as the demand for it decreased.
The switch to cryptocoin was messy. While early adopters made a fortune, those late to the game found their life savings evaporate. It didn’t take long for everyone to jump on board, but the losses were horrific. Like those who didn’t survive financial crashes of the past, many took their own lives.
The bigger shift, though, would come to institutions.
The first institutions to feel the crunch were the banks.
As cryptocurrencies, by their very nature, did not allow for the “creation of money”, fractional reserve banking was not a viable option in the new financial order. While those who had the means did finish paying off their existing debts, the banks was severely limited in their ability to issue loans and collect interest. As the creation of money had long been the real source of the bank industry’s wealth, their only option was to raise interest rates. It wasn’t long before rates spiraled so out of control that no one was willing to pay.
The shift for them came faster than anyone had anticipated. As people withdrew their funds to purchase the more lucrative cryptocoin, a run-on-the-banks quickly occured. It was gradual at first, but when the first few banks started to fail, people rushed to withdraw their savings. Of course, due to fractional reserve banking, there was only enough for a fraction of the people. It was a house of cards, and the unimaginable happened. The banks failed. All of them.
As the banks failed, so did the system of credit they had built.
Next came the governments. Governments the world over had always relied on two primary mechanisms to fund their existence. The first was their control over the national currency. They could always print more money, regardless of how that devalued the money already in existence. It was a form of invisible taxation, but they called it inflation and told us it was for our own good.
The second mechanism was, of course, taxation itself. Income tax, sales tax, revenue tax, property tax… the list goes on. But most of these taxes depended on the government’s ability to monitor transactions. Without the ability to reliably know how much money was exchanging hands, it was difficult for them to know how much you owed them.
Most governments tried to crack down on cryptocurrencies for this very reason, but it was too late. The genie was out of the bottle, and there was no putting it back in.
Every day, as citizens moved more and more of their finances to anonymous and untraceable cryptocoin, government revenue decreased. As revenue decreased, they turned to lendors. But lendors – both banks and nation states alike – were in the same crunch, unable to help. Ironically, they attempted to appeal to the owners of cryptocurrencies to borrow from them. But it was plain as day that any coin lent to a government was never going to get repaid, and even if it did, the interest earned wouldn’t compare to the value of simply allowing your coin to appreciate in value.
As a result, public services got slashed. First, of course, was pensions and social aid. They’d wanted to take those away for years, anyway. Gone was the social safety net, no matter how much you, as a private citizen, had paid into it.
Then, infrastructure and investments. The government can’t invest what it doesn’t have.
Privatization was inevitable. It was also unofficial and gradual.
As public services degraded, those who had the means began investing in the services they wanted. Private police forces; private roads; private hospitals. Some of these were even illegal, but the state was too weak to do anything about it.
Eventually, one by one, the governments of the world failed. They became obsolete. The services people demanded of them were fulfilled by other, private players.
Many a would-be warlord tried to take their place, but found themselves in the same boat. People simply refused to value the old forms of currency that the warlords of the past could loot and horde. From cash to gold to diamonds and other rare metals, these were of no real value, because they were so easy to steal. Instead, people kept their wealth in crypto, away from prying eyes and out of reach of would-be thieves.
There was anarchy, absolutely. But there was no real power to fill the void. Power had always relied on wealth and violence – carrot and stick – to institute itself. Without the ability to monopolize wealth, violence was of limited use. The stick alone could not rally people to a cause.
It was a cruel reality, to be sure. A world where those who had, had everything. And those who didn’t, often might as well have not existed at all.
But for many places in the world, this was nothing new. On the African continent; South America; a good portion of Asia; and a larger chunk of “the West” than anyone liked to admit, most people had always had no one they could rely on. The social safety net was a phenomenon of Western of bureaucracy, and hardly universal.
For some, the new reality was absolutely crushing. They simply couldn’t make the shift. For many, though, the shift meant they were finally free to make their own destinies. Without government, there were no borders keeping them tied to unproductive land. No one to tell them they didn’t have the right to exploit the abundance of natural resources around the world.
No one to tell them “no”.
To be continued.