Erik Weijers, a year ago
In the early days of crypto, traditional media often equated the technology with criminal payments, pyramid schemes, hot air. Negative coverage is still there of course but the tide seems to be turning somewhat. Let's analyze why we are actually excited about crypto. What are the advantages of this new financial system over the existing one?
Renowned media outlets like The Economist and The Financial Times have recognized the important and good role of crypto since the war in Ukraine. Stories chronicled included that of a Ukrainian refugee who fled to Poland with $2,000 worth of Bitcoin on a hardware wallet. The article highlights how important the speed of crypto transactions is in war situations. And that it can be peer-to-peer. The Wall Street Journal writes, 'It’s a godsend in a country that needs money and lacks functioning banks.' In the words of Forbes, 'Crypto has long been viewed as speculative and has its fair share of detractors. Fewer can now challenge its efficacy.'
Not that we need the approval of traditional media, but still. Let's use the positive coverage as an occasion to dive into the fundamentals of crypto and why they are important - perhaps even essential - to an honest society.
You'll hear it time and again: Bitcoin is a decentralized network. And indeed, Bitcoin is without doubt the most decentralized protocol of all. At the other extreme are blockchains that are managed by a small club and are decentralized in name only (decentralization theater this is called mockingly). Why is decentralization important? Because we want to get rid of the situation where a central authority like a government or company manages our money or our data and can censor these. All other features of crypto are linked to this aspect of decentralization.
Bitcoin Maximalists (militant proponents) of all kinds of crypto camps are at each other's throats. While in many cases they are pursuing roughly similar goals. Namely, promoting financial inclusion, combating monetary devaluation, and giving people ownership of their digital assets.
Which crypto currencies are "right" and which are "wrong"? According to Bitcoin and crypto explainer of the first hour Andreas Antonopoulos, it is beside the point to call one crypto currency as good and another as bad. Instead, he says, it is better to look at a set of criteria that different coins meet to a greater or lesser degree. It's a spectrum. Antonopoulos lists the criteria in the acronym RIPCORD.
Does the crypto in question meet the following requirements?
We'll go through the RIPCORD criteria one by one.
Billions of world citizens still do not have access to a bank account: they are not profitable enough for banks. Those same people do, however, almost all have cell phones and internet access. The revolutionary thing about crypto is, first of all, that this group can gain financial autonomy. They are no longer dependent on the bills issued by their government, the purchasing power of which always declines.
But crypto is also revolutionary for people in wealthy countries. If you put some of your money in Bitcoin, you own something that cannot be taken away from you by anyone or devalued by inflation. That IS revolutionary. In a similar way, NFTs promise to make artists independent of the art establishment. They can sell their creations online and retain contractual rights to royalties, for example. NFTs create a market for everything of cultural value.
Ownership that is fixed on a decentralized blockchain is irreversible, at least that is the principle. That you own your coins is set in stone. The authoritarian regime someone lives in can block their bank account (Canada did too, by the way, at the time of the infamous trucker protests in 2022) and can expropriate you from land and home. But try taking away someone's Bitcoin. Good luck trying to pressure Bitcoin's CEO: there isn't one. In practice, it has happened that transactions on a blockchain have been reversed by the founders. With Ethereum, this happened as recently as 2016. But it is a highly questionable and unusual intervention. With Bitcoin, it is not possible because the protocol uses proof-of-work (energy).
The fact that crypto's transaction history is recorded on a publicly auditable database (the blockchain) makes it difficult to play backroom politics. For example, it is incredibly difficult for hackers to get away with their crypto loot. This is because the agencies can follow the trail of the money online. Follow the money has never been easier. A positive way to approach this is that it is easy to prove that you own something. Want to get a mortgage with your Bitcoin as collateral? Bitcoin is 'pristine collateral'.
Crypto is open source. Anyone can contribute by starting their own crypto project or proposing improvements to existing projects. From the very beginning, crypto has been a bottom-up project. The builders as well as the first investors and journalists came from the "ordinary layers" of the population. It was not a project of a government or Wall Street.
Openness here means that the only thing needed to get in is a working cell phone. You don't need to upload a copy of your passport to create a crypto wallet on MetaMask. This makes access low-threshold rather than elitist.
The aspect of censorship resistance is related to the earlier point of immutability. Even powerful central authorities cannot block or reverse transactions on the network.
As mentioned, this is the core point around which all other points revolve. Only by distributing power can a crypto currency ideally provide (financial) autonomy for everyone in the world. The fact that there are tens of thousands of nodes running Bitcoin makes it infeasible for, say, a government to kill the network. Ditto for the distribution of Bitcoin miners around the world, who ensure the security of the network. These are not all in one country, which makes a local ban irrelevant.
Crypto can provide financial autonomy to everyone. It's an industry that makes it low-threshold to take control of your own money and data. Are you going to Do Your Own Research? Then the above criteria are good to keep in mind. And especially the decentralization. Is the coin managed by a small club of founders or is the governance and validation of transactions divided across a large number of participants?
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