Bitcoin is changing rapidly, and there are theories that Bitcoin is increasing so much that there could be a phenomenon called Hyperbitcoinization. Some people think this development is inevitable, while others say it might not happen shortly. To accurately explore this possibility, it is important to take a closer look at the role that Bitcoin plays in the community. Then it will be possible to draw further conclusions about what the future of Bitcoin might look like, the prospect of hyperbitcoinization, and how the community should react to this potential development.
The Value of Money is the Value of a Community
When looking at various assets of the company, the idea of money is a unique concept. Currencies only have value if people trust that value. It is only with faith that money can become useful as a method of transaction for goods and services. If someone came to visit this planet, traditional fiat currencies, as well as Bitcoin, would be useless as they would be of no value to that visitor.
Experts in the business world call this the network effect. The network of people using currency only works if everyone recognizes that it has a particular value. While this can lead to circular reasoning, it holds as long as people trust the system. To some people, this faith may seem blind.
Due to the idea of blind faith, some people reject Bitcoin as having any value. They also view the rising price of Bitcoin as a form of a bubble. When these critics examine this idea, they ignore the point. An investment in the concept of Bitcoin is an investment in the Bitcoin community. For Bitcoin to be successful, those who exist in the community must trust it. After all, Bitcoin is a decentralized network that operates according to a set of rules that everyone accepts when they enter the community. The community is sort of what keeps Bitcoin afloat.
Taking a Look at the Network Effect for Currencies
There is a strong network effect in Bitcoin that keeps it afloat. Now, it is time to take a look at this idea as it pertains to traditional currencies.
The network effect might be harder to apply to traditional currencies. While traditional networks can succeed without harming others in the process, most people look at currencies as some zero-sum game. For a currency to be successful, that currency has to be drawn away from others. The reality is that owning any one currency leads to a very high opportunity cost when holding any other. To have one currency, that individual must necessarily have less of another. The same currency cannot be used twice. If anyone’s currency is acknowledged to be more valuable than the others, there is no reason to have more than one.
While two social networks can exist at the same time, the world itself is not big enough for two currencies on a long enough timescale. If there is an initial disparity between two separate currencies, no matter how small, this gap will continue to reinforce itself until the less valuable currency positively is driven out of existence. As the value of currency A starts to rise when compared to currency B, those who hold currency B begin will begin to see that their buying power drops. As a result, people will start to flee from currency B, and its decline will accelerate until it has died forever.
Now, this conclusion does not appear to come from the everyday experience of nations. This is because national currencies seem to stick around even though most of them are less valuable than the currencies of more developed countries such as the United States. The reason why these currencies survive is that these countries have laws that mandate their currencies to stick around. This is an artificial control that acts to reduce the usefulness of other currencies within the borders of one country. One popular mode of control is a tariff.
When taking a look at the future of Bitcoin, most people look at it as an all or nothing idea. If Bitcoin is strong enough to compete with other currencies despite the privileges that those countries enjoy, then it only makes sense that Bitcoin will overtake them. If Bitcoin is not strong enough, then a bubble should start to develop until it pops, and there are no true believers left. There has to be someone else who is willing to trade Bitcoin for something else of value. Therefore, if Bitcoin fails as an investment vehicle, then it will also fail as a form of payment.
Analyzing The Meaning of Bitcoin’s Upward Trend
When taking a look at two networks, if everything else is equal, then an extensive system is always going to be better than a smaller one. In this manner, Bitcoin is immediately at a disadvantage when compared to the national currencies against which it is competing. Therefore, most people assume that Bitcoin is going to end up declining when compared to other currencies, such as the dollar or the euro. Now, those who have paid any attention at all will realize that Bitcoin is not declining when compared to these currencies. In reality, it is increasing. This shows that Bitcoin is good enough to make it at least this far when compared to other national currencies. Some are saying that Bitcoin didn’t have anywhere to go but up because it started from zero; however, the fact that it did not fail is already a powerful statement. As Bitcoin gets bigger, its prospects will get better as well. This is due to the network effect.
Many people are saying that Bitcoin is succeeding purely because its demand is promoting itself. In this manner, Bitcoin can be viewed as a prophecy that is fulfilling itself. On the other hand, currencies are useful not because there is any form of a need for a currency but because the currency itself is in demand. In this manner, the investment demand for Bitcoin enables the use of Bitcoin as a currency. By investing in Bitcoin, people are investing in the future of Bitcoin. They do this by making trades using Bitcoin, proving its worth as a currency.
As Bitcoin grows, the advantages that national currencies enjoy over it should start to decline. Eventually, Bitcoin will be the dominant currency, and national currencies will be at a disadvantage. In this manner, the growth of Bitcoin should become exponential. If this is true, then Bitcoin will eventually take over the world faster than anyone else could predict. People continue to be astonished by the success that Bitcoin enjoys, showing that this is well on the way to becoming real. Of course, before this can happen, it is crucial to take a closer look at the prospect of Bitcoin hyperbitcoinization. What does this mean, and how might this impact the future of Bitcoin?
To look at the other side of the growth of Bitcoin, we have to take a closer look at the demonetization of the currency itself, which is commonly called hyperbitcoinization. This is what might happen to other hapless currencies if they were to stand in the way of the growth of Bitcoin on its way to ruling the world. If other currencies tried to block the growth of Bitcoin, they would rapidly lose their value as Bitcoin continued to supplant it. It is essential to take a look at this potential event and what it might look like in terms of economics. What type of impact would this event have on the future of the world’s economy?
A Comparison to the Idea of Hyperinflation
First, for those who might not know, demonetization is a term that is used to refer to the process by which people cease to use a good as a form of currency. One of the most prominent examples had to do with the German Mark at the end of World War I. This is the classic example that saw the value of this piece of paper decline so fast that people would instead use it as a form of toilet paper or kindling for a fire. In essence, the paper on which the currency was printed was more valuable than the currency itself. This is hyperinflation at work.
A hyperinflation is a form of demonetization when the government essentially inflates the currency at a pace that accelerates incredibly quickly. Hyperbitcoinization is a different form of hyperinflation, although there are a fair number of similarities on the surface. In both events, the prices of doomed currencies will continue to skyrocket until neither is a form of currency anymore. Think of this as a form of death in the economic world.
Now, there are two differences that everyone should note when it comes to hyperinflation and hyperbitcoinization. The first difference to note is that a currency hyperinflates within the confines of restricted competition from other currencies. On the other hand, hyperbitcoinization takes place because of competition with Bitcoin itself. This takes place because capital controls are far more effective when used to try to control other fiat currencies instead of when they are used to try to control Bitcoin. Therefore, it is easy for Bitcoin to cross borders and compete with just about anything in its path.
The second difference that everyone should note is that in a case involving hyperinflation, the government will try to expand the money supply to try to outpace people’s expectations of how inflation is going to unfold. In this scenario, demonetization occurs as a result of the destructive interaction of the government itself. In a case involving hyperbitcoinization, there is no central entity that is altering the supply of the currency. In this manner, a hyperinflation is an entrepreneurial act that is undertaken by central regulators. There is an intervention that is always changing because the goal is to prevent equilibrium from taking place between the pace of inflation and the expectations of the people. If there is an equilibrium that forms, then the currency dies.
In a case involving hyperbitcoinization, this is a voluntary transition that takes place as people move from an inferior currency to a superior one. In this case, that might be Bitcoin. As the adoption of the superior currency unfolds, other currencies die naturally. This is how everyone can understand the main differences between these two events.
Applying Hyperbitcoinization and Hyperinflation
Now that these two differences are understood, it is time to make a few predictions on the possibility of a hyperbitcoinization event taking place. These include:
First, a hyperbitcoinization event is going to take place in a shorter period when compared to the idea of hyperinflation. This is because the government is going to have a hard time preventing Bitcoin from entering the country because the capital controls around it are relatively weak. On the other hand, hyperbitcoinization is recognizable and predictable. Therefore, the government will not be able to hide hyperbitcoinization from people.
Second, hyperbitcoinization is not going to disrupt the economy nearly as much as hyperinflation. Currency is a method through which people divide labour. In hyperbitcoinization, there is an effective alternative to traditional currencies. In hyperinflation, there is not. This is where the disruption comes in. Therefore, hyperbitcoinization is not going to wreak havoc on the country or the world as much as hyperinflation.
While hyperbitcoinization is still going to be a confusing time, once it is over, it will be hard for people to remember how they got by with an older system. Now, how close is the world to a hyperbitcoinization event?
Taking a Look at the Power of Proactivity
When talking about the idea of hyperbitcoinization, there is a lot of disagreement regarding how close the world is to such as an event. While the growth of Bitcoin is undeniable, there is still a long way to go before the currency is adopted as a method through which goods and services can be exchanged. Despite the value of Bitcoin as a form of investment, its proper use will not be seen until the coins themselves can be exchanged for goods and services.
So, for hyperbitcoinization to take place, the coins have to be spent on goods and services. Those who are in positions of power state that this process could be expedited if people were more proactive in supporting Bitcoin as a vehicle that can be used to pay for goods and services.
Of course, others might not want to see Bitcoin used in this manner. Some people urge caution because the narrative of Bitcoin should materialize naturally. They urge that Bitcoin is an experiment, and its value will only be realized if the currency is allowed to run its course naturally. They say that if hyperbitcoinization is in the future, then it will unfold on its own.
Sound as a Pound: Looking at the Future of Bitcoin
If Bitcoin is going to succeed as a sound currency, and as a global token, then it needs to be used for goods and services. At the same time, what defines a sound form of currency? This is where there is a lot of division over the matter. On the surface, it might seem straightforward. After all, most people say that money is a medium that can be used to pay for goods and services. Most forms of money are durable, divisible, portable, uniform, limited in their overall supply, accepted by nearly everyone, and fungible. Furthermore, money is only stable if the goods and services themselves are also stable.
In reality, Bitcoin checks the boxes listed above. After all, it is portable, divisible, uniform, durable, and limited in supply. Furthermore, the integrity of the Bitcoin network is also secured by the integrity of the Blockchain network under which it operates. At the same time, if Bitcoin is going to be accepted as a form of currency that can trigger a hyperbitcoinization, it needs to check the other two boxes as well. These involve acceptance and fungibility.
Gaining a Wider Acceptance
First, let’s take a look at the idea of acceptance. Of course, this entails its adoption as a form of payment at retail outlets, businesses, and even in the public sector. For this to happen, Bitcoin has to have a more robust payment network. Right now, the price is too high to carry out transactions using Bitcoin. This cost comes in terms of time and money. There are transaction fees that go to miners, and the payment is merely taking too long. Now, there is a lightning network that is being developed, but the validity and veracity of this network remain to be seen. If this network succeeds, then these worries might be issues of the past.
The lightning network itself also has its critics. This is a blockchain solution that has shown that it can successfully handle small payments on a large scale. It has only been around for two years, and so it is still in its beta phase. Some are optimistic, while others are not. The success of this network will determine Bitcoin’s acceptance in more ways than one.
The Fight for Fungibility
The other problem is fungibility. Some coins have never been spent. These are coins that have been mined recently and often sell for a higher price than coins that could have been used by criminals and therefore have been blacklisted by exchanges. In this way, addressing the issue of fungibility might be a more significant challenge than accepting Bitcoin. Fortunately, this question is also seeing a response in the Lightning Network, but also technologies like CoinJoin, etc. The only sure thing is that Bitcoin has a bright future. It is what form that future will take that is a matter of debate.
The Future of Hyperbitcoinization
The cost of rejecting Bitcoin could exceed the cost of adopting it. Bitcoin could begin to take on the traditional roles of money and gain institutional and government support. It would all turn into money and form the backbone of the new digital and global economy. Bitcoin offers us the opportunity to change our relationship with money radically. The machinations of central banks could finally come to an end. Two decades ago, we couldn’t imagine how the internet would change our lives. Over the decades, Bitcoin will reframe our roles as citizens in a borderless global economy.