THE LEGACY OF BITCOIN AND THE NEW CASHLESS SOCIETY

"The lesson is that anything China bans, invest in." -Fred Wilson, Union Square Ventures

Bitcoin is not only a cryptocurrency but served as an intellectual and development experiment that allowed people to be able to bypass the central banking system and move funds from one country to another without any transaction fees. The largest rise in Bitcoin came to a peak when its value reached $19,666 in December 2017.

However, Central banks, together with the IMF, recently announced its intention to stop the rise of cryptocurrencies by encouraging every nation to set up their own government backed digital currency. Nouriel Roubini, an economist and Professor at NYU wrote an opinion piece last year in which he asserted that the implementation of Central Bank backed digital currencies would destroy all other non-Central Bank backed cryptocurrencies such as Bitcoin.

International Monetary Fund (IMF) Managing Director Christine Lagarde recently made an announcement encouraging all governments to develop their own cryptos in order to stop the rise of Bitcoin and other non-government backed cryptocurrencies.

Nations around the world began their government projects to launch digital currencies beginning with Dubai’s EmCash, China's internal government backed crypto project set to launch in the near future, as well as corporations launching their own cryptos, such as South Korea's KakaoTalk's Klatyn, and Libra, an asset backed crypto from Facebook. It could be in the near future, there will be numerous digital currencies that are backed by each government or corporation, and would resemble a world in which many different currencies used to exist in Europe before the adoption of the euro, with the exception that each transaction would be cashless and tracked through the blockchain or the RXP ledger protocol that is being implemented in many different cross-border financial transactions.

“Bitcoin is the beginning of something great, a currency without a government, something necessary and imperative.”
-Nassim Taleb, scholar, risk analyst

Despite that now governments around the world are developing their own cryptocurrencies in order to shut down non-government cryptocurrencies, it is still highly unlikely that Bitcoin would be affected as it still represents a way to bypass the Central Banking system. However, due to the inherent problems with non-government backed cryptos, including the lack of regulation, price volatility and the hacking of exchanges in which cyber criminals stole $4.3 billion from crypto-related crime in the first 8 months of 2019, it is unlikely that Bitcoin would become a common method of transaction with widespread adoption. Instead, it would most likely remain a legacy cryptocurrency utilised by elite organisations in order to shift capital around or else allow high income individuals to make cross-border transactions during times of extreme currency fluctuation.

Currently, the Chinese yuan dominates Bitcoin trade, taking up 58% of the day’s global volume, as when the yuan drops in price, the Chinese elite flock to Bitcoin to preserve its value.

The Chinese yuan ($CNY) (top) and Bitcoin ($BTC) (bottom) may share an inverse correlation, as a drop in $CNY may signify a later rise in $BTC. At least 58% of the trading volume for $BTC is executed by the yuan as Chinese investors flock to Bitcoin when the yuan drops in value.

Nations such as China, South Korea and Japan often engage in currency manipulation in order to artificially keep their currency undervalued to boost exports and create a trading surplus.
During times when the yuan is kept at an artificially low level, wealthy Chinese citizens and investors flock to Bitcoin in order to preserve its value. The Chinese yuan takes up 58% of the day’s global volume in Bitcoin exchanges.

As long as nations are using currency manipulation as a tool to boost exports, Bitcoin would most likely not be destroyed by Central Bank’s adoption of their own native government backed digital currencies primarily due to Bitcoin’s inherent advantage in being able to bypass Central Banks in cross border transactions. Bitcoin’s volatility also serves as a motivating factor, due to its high fluctuation rates to lead people to use the cryptocurrency for profit motives. However, what could possibly put an end to Bitcoin is a comprehensive agreement to end currency manipulation by nations such as China, South Korea and Japan as what President Obama and Former Secretary of State Hillary Clinton attempted to do in the Trans Pacific Partnership. When currency manipulation is eradicated through trade agreements, organisations and high income individuals will no longer be motivated to utilise Bitcoin as their cross-border cryptocurrency.

CASHLESS SOCIETY AND SOCIAL CREDIT

“We don’t buy things with money, we buy them with hours of our lives.” - Anonymous

As we enter a cashless society, and depend more on digital transactions to pay for items, it could be that in a future society, currency will be replaced entirely by credit altogether. Akin to a point system, credit could be utilised to control population migration, distribution of food and other resources and as a payment for services and goods. Although currently, nations focus on GDP as a metric for their economic output, a new system could arise that is value driven by local communities. Instead of the old system of raising “cash” in order to support local endeavours, credit could be issued based on being active in the community in the form of work organised by different corporations or government agencies.

The Chinese social credit system has been highly criticised by Western scholars as totalitarian in scope, but its utopian objectives could potentially be integrated into a new system of governance in a cashless society.

Cashless stores have been criticised by the American Civil Liberties Union (ACLU) due to its effect on the poorest populations, in which their lack of bank accounts make it impossible to purchase items from such stores. To counteract this predicament, Facebook recently announced plans to launch the Libra cryptocurrency in order to allow the poorest populations access to a bank account, although according to many critics, how Facebook will help the unbanked is entirely unclear.

It could also be in the future that social networking platforms such as Facebook might integrate its own system of social credit to its members, therefore allowing members access to goods and services that are only accessible inside the social networking platform. However, currently at this time, Facebook’s cryptocurrency, Libra fronts a think-tank, The Social Advisory Board, based on financial inclusion, but the method of its implementation is still based on a fiat-currency trade of Libra, which would make it impossible for the poorest populations to be able to use, since they would still need bank accounts to access the Libra cryptocurrency.

CASH IS NO LONGER KING IN THE NEW ERA

As we move into a brand new world in which currency may no longer exist, and entirely replaced by social credit, we have to redefine wealth in terms of social capital, access to resources and control of companies.

Social capital involves the potential of individuals to secure benefits and invent solutions to problems through membership in social networks. A high degree of trust is fostered in this type of environment in which there is mutual obligation and shared objectives. Resources could be distributed to high tech, heavily automated civilisations in which everyone has an active role in their communities and economic output could be measured in terms of social capital. Whilst “cash” has often been a motivating factor in socially fragmented societies with a high correlation in crime, the cashless society would shift from the anonymous, transactional nature of cash into one that utilises social credit as the basis for the exchange of goods and services.

In this way, the fractional banking system that has dominated financial institutions within the last several centuries will have to undergo a transformation from one that collects interest on cash and creates financial products to one that collects controlling interest in the production of goods and services. From the feudal era, to the communist era, to the capitalist era, this system of governance could resemble a hybrid of capitalism and socialism, in which the means of production, distribution, and exchange is primarily owned or regulated by the community as a whole.

By Sierra Choi