By Marc A. Carignan, Founder of The Bitcoin Tutor
Brian Armstrong, Co-Founder and CEO at Coinbase, wrote an interesting blog article last month, entitled “Controlling your own wealth as a basic human right.” It’s an interesting assertion and one that is fully aligned with liberty-minded thinking. I will refer to several of his points and add much of my own perspective as well. And, I will relate it to bitcoin as well!
I believe that the world is in chaos, and that this chaos is spreading. As recently as 2013, the country of Cyprus (an island in the Mediterranean Sea, near Greece and Turkey), froze all bank accounts. The banks had failed. Rather than bail them out as the west (U.S. and Europe) did in 2008, they chose to bail-them-out-from-within, a so-called, “bail-in”.
I have written about this concept before, along with the fact that the United States, Canada and the European Union have now all approved plans for future bail-in’s, in preparation for another eventual bank failure. In short, this means that the next time banks fail, they will tap into YOUR deposits to make the bank solvent rather than use taxpayer money (a “bailout”). However, the banks haven not made any substantive changes since 2008, and the too-big-to-fail banks are even BIGGER today than they were then (having consolidated lots of smaller banks who were not bailed out).
India was in the news as recently as late 2016, having withdrawn 86% of its banknotes from circulation. Spun by the government as a way to cut down on the black market economy and collect taxes (that were not often being paid in a cash-only economy), this event crippled a country where most transactions occur in cash, especially among the POOREST of its people.
A few weeks later, Venezuela followed. The country’s economy had been faltering for years with a consumer inflation rate of nearly 500% in 2016 and an expectation of triple that percentage in 2017. Bread lines became bank lines, and now its citizens struggle to access both food and money.
In fact, a Venezuelan man recently reached out to me asking how he might get into bitcoin in a country where the official exchange rate is a fraction of the true, black market, exchange rate. And, where bitcoin exchanges are no longer accepting Venezuelan bolivars and only accepting U.S. Dollars. Unfortunately for him, it was too little too late for him to benefit from bitcoin with his nearly worthless paper money.
Who Controls Your Wealth?
Today, most people keep their money in a bank. These INSTITUTIONS, as they are called, are seen as safe and secure. They are conservative and guarantee access to your money. And even if they fail, there is an insurance policy to protect you. Right? Well, actually no.
Banks have reached new heights of irresponsibility and criminality, especially in the last 10 years. Where much of the crime was hidden in the past, today banks around the world are being found guilty of crimes like money laundering, price-fixing, market rigging and more. Sounds like a cartel or the mafia, doesn’t it? Yet, this is OUR banking system today.
As for the insurance policy, don’t hold your breath. The FDIC in the U.S., the Federal Deposit Insurance Corporation, is not sufficiently funded to bail out EVEN ONE of the big banks. Do you think Congress will bank you out if a big bank fails? This will not be popular politically, and with the Dodd-Frank rules in place, this is unlikely to happen. You might simply lose everything on deposit.
What About Property Rights?
For most of the known human civilization, wealth was controlled by kings and emperors. Tribes and other groups would regularly attack and confiscate the wealth of another group, and seizures against personal property occurred frequently. It was not until the 17th century that today’s concept of property rights began taking hold.
In the Second Treatise of Civil Government in 1689, John Locke wrote:
Everyman has a property in his person; this nobody has a right to but himself. The labor of his body and the work of his hand, we may say, are properly his.
This led to workers keeping more of the proceeds from their work. And, with hard work, you could create a better life for yourself and your family (a concept we take for granted today). Upward mobility became a new possibility. Yet, this idea did not take hold everywhere.
Many governments, from India to Venezuela to Argentina and more, caused its people to lose much of their wealth. Although fund seizures have been common throughout human history (whether in cash, cattle, property, etc.), inflation is another way in which economies have stolen people’s wealth. The concept of fiat currency, which I write about in my book The Bitcoin Tutor: Unlocking the Secrets of Bitcoin, has stolen over 90% of the world’s wealth as well.
Yet, there are other ways to lose some or all of your wealth. Wealth can be stolen by companies and individuals, whether by outright theft or by litigation. Taxes are considered a form of theft by many as well, especially in societies (like the United States) where most people do not directly benefit from the collection of such taxes. (Many higher taxed people in Europe are more accepting of higher taxes as they get direct social benefits such as free health care, free child care, free university education and much more.)
What Are the Pros to Controlling Your Own Wealth?
- People tend to work harder as they feel that they control their own destinies.
- Market innovations increase, more products and services are created, and consumers are given more choices.
- People with great ideas and strong work ethic are attracted to places where property rights are respected.
And the Cons?
- We see it today with greater income inequality. I do not believe this is the only reason for this phenomenon, however. Unfair governmental policies that reward the top 1% are not always due to market innovation and creation of competition. Rather they are sometimes created, as has occurred repeatedly in the last decade, in industries that lobby legislatures to make it easier for them to win, to earn more and to pay out less (think banks, insurance companies, etc.)
- There are other cons including larger market swings, good people struggling due to bad actors’ taking advantage of the system, and likely other reasons.
Bitcoin and other digital currencies are unique opportunities for people to regain control of their wealth. These currencies are controlled completely outside of the banking and financial services sector.
When properly managed (by securing managing the keys that control these digital currencies), bitcoins and other digital currencies are out of the reach of government agencies, court judgments, criminal hacks and more. They are also less affected by inflation of national (fiat) currencies, and may in some cases, even rise in opposition to traditional currency values.
Bitcoins require no intermediaries, so you do not need a government’s or bank’s permission to use your money. This is the case today with checks, credit and debit cards, and most other forms of money (except for physical cash, of course). Bitcoin is also available globally, where it is trading for virtually every other currency, and even directly for gold!
Yet, bitcoin still has some challenges. It is new and not yet directly accepted by most merchants, whether online or in-person. Changes could occur in bitcoin (or other digital currencies), modifying the way that some aspects of the currency work which could affect the value of your bitcoins (although this requires a consensus among all bitcoin network participants, something that is relatively difficult to do). And, we have yet to see how well bitcoin will scale at it reaches out to billions of people around the world.
In any event, the invention of bitcoin and its separation from governments and banks, provides us with a new level of control and freedom over our wealth. This is a level of control that has NEVER been available in the known history of human civilization. I, for one, believe that regaining this control of my own wealth, for the labor of my own hands, is fair and just. For this and other reasons, I believe and invest in the future of bitcoin!