Cryptocurrency: Good or Bad Money?

Cryptocurrencies bring us both “Good Money” and “Bad Money”. Will we be able to tell the difference and be allowed to choose freely?

Digital currencies are programmable. They can serve both to freely encourage sustainable behaviors, contributing to our collective development, and to suppress privacy shutting down free willing consumption.

The most populous country on the planet has already made its choice, having been the first to launch a digital currency. As a centralized one, it will allow the regime to condition citizens’ transactions. By forbidding citizens to use “private keys”, it will be easy to control the behavior of each consumer, which constitutes strong reasons to suspect that the “great leader” didn’t only equate the financial dimension of these new currencies.

But there are also those who narrow the human eye to a single dimension…

In a report ⁽¹⁾ from the multinational Goldman Sachs, it is said that “cures can be bad for business in the long run”. This report, addressed to biotechnology companies, asks the following question: “is curing patients a sustainable business model?”. The report points to the example of the Gilead Sciences company and its treatment of hepatitis C, which achieves recovery rates of 90% (definitive cures). Recently, the shares of this pharmaceutical multinational soared after several patients of COVID-19 recovered quickly when they were given the drug “remdesivir”. Such a rise in the stock market is not surprising, since biotechnology seems to offer definitive solutions to new viruses which are considered inevitable given that humans are invading wild habitats. Still in the same report, it is stated that “The potential to deliver ‘one shot cures’ is one of the most attractive aspects of gene therapy, genetically-engineered cell therapy and gene editing.”. However, the report concludes that “while this proposition carries tremendous value for patients and society, it could represent a challenge for genome medicine developers looking for sustained cash flow.” …

This cold analysis shows a ruthless reality based on an absurd model. After all, unsustainable business models are precisely those that are based on the financial logic shown in this report. Do businesses really have to add up to zero? Does all human value have to continue to be financially reduced to a single dimension? This has been the dominant logic in business, but the future should bring about a very different reality. The unexpected change was announced by a technology, based on cryptography, which brought with it an unprecedented “net distributed trust”. It is on this technology that cryptocurrency is based.

It is becoming apparent that blockchain technology enables truly innovative business models. However, perhaps it remains to be understood that this new technology makes the world prone to undemocratic centralisms. Therefore, policies that safeguard citizens’ freedom and privacy are necessary. The “distributed trust” was born decentralized, as we will see, but there are two sides to digital currencies and we will have to learn to deal with both of them. To frame this reality, let’s start by looking at two digital ironies.

The initial goal of the creators of the INTERNET was to create a communications system that could be immune to localized attacks. They achieved this thanks to a key feature of networks: even if you cut or interrupt several connections, there are alternative connections that ensure the circuit remains, so the network will never stop working.

The first great irony of the digital world is that the Internet, although designed to defend authority, against possible actions that could subvert order and power, has itself become the most subversive instrument in human history.

The countless nodes and decentralized connections of the Internet resemble the countless heads of the mythological Greek creature Hydra. This monster is immortal and invincible, because when one of its heads is severed, two more soon arise. And really, despite some countries’ Herculean efforts to cut the network and end the Internet, it still works!

40 years after the creation of the Internet, another revolutionary technology emerged. It is a practically infallible way of carrying out entirely secure online transactions, all it takes is a private code. The possession of this “private key” guarantees the privacy of each transaction forever. Let’s memorize this information, which is crucial!

Blockchain technology is even more disruptive than the Internet itself, as it has endowed this global network with a capacity that, most likely, will change the entire world order.

In a second great irony, perhaps greater than the first, the invincible “Digital Hydra” is again surprising those that inadvertently increased its power. The first irony of the Internet had been an unplanned decentralization of society, but this time, the irony consists of the opposite: a centralization of power that is proving to be dangerously easy to plan!

Armed with a cryptographic “superpower”, the monstrous Hydra will now be able to settle the accounts of all transactions processed on its endless heads, all on its own… Believe it or not! Trust in transactions would no longer require human intermediation. Neither relatives, nor friends, nor banks, not even Nation or State … To trust in a transaction 100%, it was enough to just place all trust in a private key and in mathematics! Plunged into the financial crisis of 2009, this didn’t even seem like bad news …

According to its creator, Bitcoin’s “incognito father”, the aim of such technological innovation would be to free people from the financial dictates that were at the origin of the economic crisis of that time, which hurt many people, worldwide, as all of us remember very well. Many immediately distrusted this new “cryptocurrency” that was traded on the Internet without the intervention of banks or any human beings, while others considered it a justifiable attempt to avoid the financial schemes that originated the “sub-prime crisis”.

However, it would again “backfire” on those well intentioned who created such a revolutionary technology, proving too easy to deprive citizens of their personal data. It is no longer just a matter of exchanging our privacy for “kittens” on the Internet. Information means power and having all the information about consumer behavior is equivalent to having all the power over the consumers themselves. With cryptocurrencies, if the data of all transactions is centralized, we can all say goodbye to our privacy and freedom …

In the 21st century, the new “Digital Hydra” will not be defeated by Hercules but may be trained by totalitarian regimes and / or corporate interests, becoming the ferocious guardian animal of dictators and / or voracious CEOs seduced by a logic of personal power and / or greed.

We need a truly free market, but we also need money that does not reduce all human value to the one dimension revealed in the Goldman Sachs report.

Now, it turns out that the new digital currencies represent a multi-dimensional solution to this problem, as they can be programmed to align the financial value propositions with the economic value propositions in a community. However, for such programming to revert to human development, the merit of the various cryptocurrencies must be judged in an open and decentralized manner, in free competition in the market. Only in this way will cryptocurrencies serve the community interests instead of the usual interests.

Under the market laws, private digital currencies will not only encourage collective action by their owners, they will also measure the value created in community ecosystems. It is very important not to mistake “collective action” for “collectivism”: digital tokens can be programmed to have specific uses and function as individual economic incentives from a community perspective. Each individual is able to pursue his personal profit in a multi-dimensional way, transacting values that can stay ​​indexed to the development of communities and collective success.

To understand this new reality of the post-blockchain era, we should understand that cryptocurrencies integrate more resources than those that are necessary for the way money works. We can think of them as tokens or programmable digital assets, which will create an entirely new financial system. In fact, as strange as it may seem, it has become technically possible for a single individual to create monetary systems accessible to anyone.

Cryptocurrencies can have a utilitarian dimension corresponding to the expectations of the communities where they circulate. They can integrate community benefits (previously incompatible with an individual financial perspective), because they allow to qualify positive (e.g. recycling) and negative (e.g. pollution) externalities. It is essential to understand that the digital economy and finances are sufficiently “elastic” to allow the trading of externalities. This “digital elasticity” will be crucial to face the enormous sustainability challenges of our time.

While traditional currencies cannot represent different dimensions of value, cryptocurrencies can do precisely that: imagine that you have to cut down a tropical forest in order to build schools. By quantifying, in the same currency, all the advantages and disadvantages of this option, measuring only one dimension of value, we will be assuming that the costs and benefits of having trees and having schools are of comparable quality. As is easily understood, this is not true. The rainforest will be lost forever, no matter how many schools are built in its place. We can conclude that traditional money, when contemplating a single dimension of value, fails to do the job when it comes to accounting for multiple aspects that are extremely relevant to human development.

Let’s see, in turn, what happens in the case of new programmable money. Now, if two different digital currencies are used, one of them quantifying CO₂ emissions and the other evaluating educational benefits, it becomes evident that the construction of schools can never “settle the score” in view of the diminished capacity of the rainforest to capture CO₂. In a free market system, the relative value or quotation of each cryptocurrency will depend on the respective supply and demand in the community ecosystems in which they are used. In this way, digital tokens can act as a system of incentives and rewards that will serve to encourage certain behaviors and discourage others. Finishing our simplified example, individuals who maintained a balance of CO₂ tokens above the average, could benefit from a favorable social reputation when applying for certain functions, or obtaining discounts on certain products. In this way, individual behavior in private transactions will be influenced by the importance attributed to each token in the community.

“Cryptoeconomics” brings with it a reality that is still poorly understood. Most investors who occupy the crypto space, seem to consider that the most challenging applications of blockchain technology consist of basic tokens (e.g. Bitcoin), which mainly function as a store of value. Such individuals and companies may not be interested in community destinies (unfortunately, the predatory and speculative instinct in society grows), but other individuals, rooted in their communities, will have a unique incentive to create “circular economies” aligning individual and collective interests.

For all these reasons, we need to fight for the political and economic freedom necessary to let cryptocurrencies compete freely and openly on the market. They can encourage creativity and innovation, on the path to a sustainable future. For this “good money” to become a reality, it is important not only to understand its nature, but also to remain vigilant in the face of the “bad money” that came first…

Dario de Oliveira Rodrigues

⁽¹⁾ Firstadopter. “Goldman Sachs Asks in Biotech Research Report: ‘Is Curing Patients a Sustainable Business Model?’.” CNBC, CNBC, 11 Apr. 2018, www.cnbc.com/2018/04/11/goldman-asks-is-curing-patients-a-sustainable-business-model.html.

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