Analysis

Internet Expropriation Without Compensation: Cryptocurrencies As The Backbone Of Economic Freedom

By Charles Siwele

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Digital decentralised currencies or cryptocurrencies have been a hot topic in recent years. Most people with limited tech-savvy may have likely only heard of Bitcoin and possibly Etherium. However, without a clear understanding of what these “things” are, it’s difficult for anyone to truly gauge and understand the importance they have, or should have, in their lives.

I personally am relatively new to the space of digital currency and will be the first to admit that I am no opinion or information expert on the subject. However, I have granted myself a lot of reading hours over the past two years trying to bring myself to a point of thoroughly understanding what cryptocurrencies are and what kind of value they bring to me personally and can bring to the people around me. The world of “cryptos”, as they are affectionately known by inner circles, are just too big a concept to explore in the space of a single article, and I am not yet sure if I will be writing follow-ups to this one or not. However, as big a concept as it is, decentralised digital currencies are not necessarily a complicated concept to understand and apply. The applications of cryptocurrencies are plenty, and the possibilities for moving millions of people out of poverty and into financial freedom are real and exciting.

The true complexities of digital decentralised currencies lie in (1) the technical management of the underlying value propositions that give such currencies intrinsic value, and (2) the nature of the technologies applied to power these currencies. The development of technologies and applications that allow the regular guy or girl on the street to take advantage of these currencies is then the next step in the evolution. But before we get too technical and too wrapped up in the jargon, and “use case applications”, I feel it’s quite vital to visit upon the basics of what digital decentralised currencies are.

The concept of cryptocurrencies was born with the objective of creating an alternative to fiat currency. Why? Well, for years the value of fiat currencies has been mostly speculative and fundamentally corrupted by their susceptibility to manipulation. There was a time when the value of currencies was linked to the value of a commodity, commonly gold or silver. This was a time-honoured standard that made currency supply inherently finite, meaning every unit of paper money was ultimately backed by some arbitrary amount of a real, value-bearing commodity. However, due to a host of reasons, the status quo began shifted at some point and there was a general movement by central banks and their countries away from commodity-backed value to state-dictated value. This is therefore where the term “fiat” was adopted, to articulate this new currency nature. Now, this development might not seem like a major revelation to some, but to those who understand the economics of demand and supply, the implications of having paper money with (a) no fixed or grounded base value and (b) no real-world value equivalent, should have you feeling a little concerned about the value you assume to be carrying in your wallet or bank account. Why? Well, in simple terms, the prospects for extreme value volatility, currency inflation, and market manipulation become the status quo.

Under these fundamental economic assumptions, the value of a modern currency is thus eternally fragile and easily swayed by the whims and sentiments of investors and large financial institutions, rather than by the actual supply and demand of said currency’s underlying commodity (gold, silver etc).

Now, where do cryptocurrencies come in to all of this? Firstly where the supply of fiat currencies can be manipulated by central banks to achieve whatever fiscal and financial objectives they might claim to have (e.g. lowering inflation, currency devaluation, etc.) the supply of most crypto currencies generally resembles the supply commodities like gold and silver, which, over time, become more difficult and costly to extract, process and control, due to “natural” or mathematically built-in scarcity.

Secondly, due to the centralised nature of fiat currencies, the possibility for currency manipulation and the “cooking of books” is very high, as the auditing standards that apply to reserve banks (the source of all a country’s money supply) can be dubious and manipulated for public acceptance. Cryptocurrencies, however offer an innovative approach to auditing the supply and availability of currency (or money, as we can now equate). This approach is epitomised by the invention of the decentralised ledger.

What’s a decentralised ledger you ask? Well, imagine you are a store owner, and you need a stock-take to gauge your performance, current stock value and leakage. Now suppose you, as the store owner, have assigned a store manager the task of conducting this stock-stake. At the end of the process, he reports back to you with a set of results. How can you be certain he or she has not provided misleading or inaccurate information, whether intentionally or otherwise? Well, at this point you really can’t be certain. Now imagine you have ten store managers, all conducting the stock-take, independently, while continuously checking their own results against those of the other managers, and correcting each other where one or two may be grossly inaccurate. The chances for mishaps like fraud and inaccuracies are vastly reduced to negligible levels. This is what the decentralised ledger or blockchain offers as the backbone of almost every single available cryptocurrency on the market; unalterable transaction and accounting histories. Now, there are other concepts to explore in adding to the understanding of what cryptos are and how they function, but insofar as our topic today is concerned, if the above is friendly to your understanding then we have a good enough base to proceed.

I mentioned earlier that the applications of cryptocurrencies are plenty and can provide opportunities for moving millions of people out of poverty. The most exciting prospect in this developing space of decentralised digital currencies is the possibilities it creates for the attainment of economic freedom. When carefully perused, the concept proposes new opportunities and alternatives to achieve popular ownership of the economy. They can provide opportunities for revolutionary share ownership in the economy. Let that sink in for a moment; imagine an economy that facilitates millions of Rands’ worth of transactions monthly. With the transaction fees from these transactions, firstly, being significantly lower for the consumer than those of traditional financial institutions, and secondly, benefiting the public as a source of passive or secondary income.

This is where the possibilities and benefits afforded by cryptos becomes interesting. The concept of a decentralised ledger is founded on the idea of saving every transaction ever processed in a ledger that is then stored on multiple computers all connected on a network. Whenever a transaction is processed, the details of that transaction are saved to the network and all copies of the ledger are reconciled and updated to correlate and provide consensus on the new state of the ledger. The network compensates work done by computers on the network for reconciliation of a transaction. The computers are rewarded with a humble transaction fee for every transaction processed and reconciled. This transaction fee is fixed and a low percentage of the transaction amount. Now while the transaction fee amount is, by design, low, the number of transactions processed by a network-linked computer would ultimately determine how much income said computer generates.

Now, forget cooperatives, this concept makes anyone and everyone on the network someone’s bank teller, with any “teller” having the opportunity to generate enough income in transaction fees to be able to afford to meet at least some of their daily living needs.

What about inflation? Well, inflation is mitigated naturally through the economic forces of scarcity and value consensus (demand). Because there is a set amount of currency units available on the network, the prospect of limited currency supply ensures no more currency units can be created and therefore there is always an equitable demand no matter how widely distributed the currency becomes. And with the growth in popularity of the currency, the demand for it will presumably increase accordingly, and the increase in demand will ultimately lead to an increase in the value of a single unit. This will “lock in” flexible and positive value growth of the currency.

Please bear in mind that this concept is really just one possibility in a sea of possibilities. But Africans have thus far had both limited exposure to the true potential of blockchain technology and limited interest in the applications and implications of this new step in financial and technological evolution. It provides the possibility for unlocking value across the entire African continent while bringing us all closer together. If a movement, spawned from the birth of an Afrocentric cryptocurrency, can rise from the chaos of daily distractions and financial indifference and ignorance, the idea of creating something revolutionary is nothing short of awesome and exciting.

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7 Comments

  1. This is indeed interesting. Now all I need to know is how I can make money out of these crypto currencies.

    1. Eish, Naledi. That is what we all want to hear now. THe author says weekly, can we wait that long? Hahaha, dont know!

  2. Thank you Charles for this very insightful and educational piece. It written in simple language which even I can understand.

    I see you ask if you will be writing follow-up articles. Well you have no choice my brother, as you have left us with what is a clear need for at least one more article – the nitty gritties of how we make money out of these crypto currencies.

    Cant wait.

    Thank you.

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