The Biggest Problem Cryptocurrency Solves That Nobody Talks About
You may think bitcoin is a solution in search of a problem. Here's that problem.
It’s 2020. Bitcoin’s been around for eleven years. Ethereum’s almost six years old. Cardano’s still in the womb.
Over that time, cryptocurrency has given true believers enough evidence to claim it’s a legit technology while giving mainstream thinkers ample opportunities to say it’s a scam.
Meanwhile, the vast majority of people care about only one thing: whether they should buy bitcoin.
Is it any wonder you feel like cryptocurrency is a solution looking for a problem?
Maybe that’s because nobody really talks about the fundamental problem cryptocurrency solves. It’s not inflation or privacy. It’s a problem that affects every facet of our lives, but few people—even crypto peeps—realize it. They sense it. They feel it. But it’s not a conscious thought.
It’s a problem with money, but probably not the one you’re thinking about.
The problem with money
Whenever you use money, you need somebody to vouch for it.
You need some way for others to know your money is real, authentic, and worth what you say it is. You can’t just give somebody a piece of paper and expect them to accept it. They need some authority to guarantee its value.
Ideally, this authority would be competent, honest, fair, trustworthy, and free.
Usually, this authority charges fees, makes mistakes, defrauds you, lies to you, steals from you, colludes against you, takes your sensitive personal information, dilutes the value of your money, or arbitrarily changes the terms of your transaction.
Humans have found many solutions to this problem. For example, governments, settlement companies, clearinghouses, laws, courts, favors, accountants, signatures, and oaths.
All those solutions come with risks, costs, complexity, and the chance of human error. All can be corrupted. None can be scaled. It’s hard and expensive to create any uniformity or standardization of output.
With cryptocurrency, you can establish authority without many of those risks and costs.
Tokens ensure everybody follows the same rules while the blockchain guarantees transactions will go through exactly as you intend.
As a result, you no longer need to rely on government decrees, local regulations, or the good faith of strangers. You can safely transact with millions of people who you have never met, with whom you have no relationship, who live in a country with different laws and regulations.
If you trust bitcoin, you don’t need to trust people.
Specific applications are endless. My book, Consensusland, presents a few but many others have written about the litany of products and services you can create using cryptocurrency.
All solutions create new problems
Are there problems with cryptocurrency?
Yes, of course.
Most of the best-known cryptos suffer from problems with speed, scale, cost, user interface, practical applications, you name it. Other cryptos replace these downsides with some sort of central authority, which kinda defeats the purpose of a decentralized network.
Fortunately, “problems” do not usually keep people from using things. All technologies have problems, right?
Internal combustion is 150 years old and still sucks. Man-made electrical power is even older and causes all sorts of problems. Some say wireless technology causes cancer and destroys our society.
Even the wheel has its limitations.
People naturally understand this. Some will focus on the negatives, and that’s valid.
It’s also irrelevant. Technology succeeds because people find it useful, not because it’s flawless. As long as it offers some benefit over the status quo, people will give it a shot.
Only a revolution in hindsight
Every single bit of value on earth can be recorded on a blockchain and bought or sold at any time using cryptocurrencies like bitcoin.
Rat colonies in research labs. Patents and copyrights. Real estate. Hammers. Carbon emissions credits. Wireless data.
Assets we haven’t even created yet.
Thanks to cryptocurrency, you can now create marketplaces for everything—all $200 trillion to $1 quadrillion worth of “things” that exist. And you can do it from your laptop, at a global scale.
This has tremendous economic value and opens up a whole new world of solutions to financial and economic problems. It’s also really hard to conceptualize, even if you understand the technology. And it will take a very long time to happen.
Until then, we’ll just have to see how it goes.
While you wait, click the link below to enjoy a Thames News feature on international electronic mail from 1984. Can you believe anybody thought that thing would work? I mean, why not just use the Telex?
Mark Helfman is editor of Crypto is Easy and a top writer on Medium for cryptocurrency, finance, and bitcoin topics. His book, Consensusland, explores the social, cultural, legal, and business challenges of a country that runs on cryptocurrency.
I help normal people make the most of crypto markets. Writer of Crypto is Easy, a Top 10 newsletter on Substack (now on Beehiiv). Also the author of three books and a top Bitcoin writer on Medium and Hacker Noon.