Note (opinion)

Bitcoin and the concept of economic freedom; Why would the world be more beautiful with bitcoin?


Bitcoin and the decentralized financial system of this digital currency were created following the global economic crisis in 2008 and the distrust of depositors in banks and financial institutions. Mike Co, economist and essayist in the field of digital currencies, in an essay Published on the Medium website, There are statistics that show that Bitcoin has done well in terms of its original purpose and is gaining ground among more and more people around the world; Especially among those without access to international banking services in countries with non-free and repressed economies. In this article, Mike Koo specifically examines the “Index of Economic Freedom.”

The Wall Street Journal and the Heritage Foundation have jointly reviewed the Economic Freedom Index for 2020. This index assesses the extent to which a country’s laws protect private property rights and the extent to which the government enforces these laws.

Countries, such as Singapore, which score higher in terms of property rights index, have on average higher per capita GDP, and vice versa.

In practice, if your savings are likely to be unfairly confiscated at any moment, do you still want to work hard? In many developed countries, such as the United States, democratic laws prevent such situations. However, this is a worrying possibility for billions of people around the world.

For billions of people, there are other similar factors that are just as frustrating. What will you do if the value of your savings is reduced by more than 3.5% each year due to inflation?

Bitcoin and the concept of “economic freedom”
Classification by Economic Freedom Index (2020)
Note: Venezuela has been excluded from the classification of average inflation and “monetary freedom” in the rating of economic freedom index.

Countries that score higher on the Index of Economic Freedom generally have low and constant inflation rates (around 2%) and vice versa. In calculating the index of economic freedom, in addition to property rights, factors such as government integrity, judicial influence, government spending, tax barriers, financial health, businesses, labor, investment, trade and financial freedom are also considered.

Billions of people around the world see their currency depreciate by more than 3.5 percent annually. This is especially the case in emerging economies such as Brazil (3.5%), China (3.7%), Russia (3.7%), India (4.6%), and Nigeria (11.5%). Turkey (13.3%) and Argentina (52.9%) are seen.

Bitcoin and the concept of “economic freedom”
Average inflation rate from April 30, 2019 (May 10, 1998) to April 30, 2020 (May 11, 99)
Source: Trading Economics

Another way to measure the devaluation is to compare the currencies of different countries against the dollar, the world’s reserve currency. Since 2018, the US dollar has been significantly superior to almost any other currency in the world. At present, citizens of emerging economies experience the greatest decline in monetary value.

Bitcoin and the concept of “economic freedom”
From January 1, 2018 (December 11, 1996) to May 8, 2020 (May 10, 1996)
Source: Bundesbank, FRED, BIS

Since 2018, the US dollar has returned more than 250 percent against the Argentine peso, about 100 percent against the Turkish lira and 78 percent against the Brazilian real. Even compared to the currencies of the world’s most developed economies, where annual inflation is less than 2 percent, as in the United States, the dollar has by far the best performance. The only currencies that have been able to rise or fall against the dollar are the Japanese yen and the Swiss franc.

Bitcoin and the concept of “economic freedom”
From January 1, 2018 (December 11, 1996) to May 8, 2020 (May 10, 1996)
Source: Bundesbank, FRED, BIS

Many people around the world prefer the dollar between the two options of keeping the US dollar or their native currency. However, billions of people can not freely choose.

According to open market index data on economic freedom, billions of people around the world live in “non-free” or “repressed” economic conditions. China is one of the most populous countries in keeping its citizens “suppressed” in the capital markets. Of course, in a more general index, the country’s economy is in the “relatively free” category.

Bitcoin and the concept of “economic freedom”
Classification by Economic Freedom Index (2020)

In countries with lower scores, access to the dollar is difficult or impossible for most citizens. In such countries, gold is a safe investment against inflation and government control of individual capital. Over the past decade, China has seen the largest demand for gold in the gold market compared to other countries. In addition, the citizens of this country have a great desire to buy and hold bitcoin, which is known as digital gold.

China currently owns 65% of the bitcoin mining network. However, according to a study by the University of Cambridge, this rate has dropped by 10% in recent months. Miners process transactions with a timestamp and receive a certain amount of new bitcoin in return. This reward is halved every four years with the Hawing event. However, mining affects the network and is done by computers called nodes, which follow the rules of the original Bitcoin protocol.

Bitcoin and the concept of “economic freedom”

Nodes operate in at least 101 countries, especially in developed markets. In addition, miners are mining bitcoins in at least 78 countries, especially in emerging markets. Bitcoin is truly an international currency. In this digital currency network, miners are constantly processing transactions that have been approved by nodes. Nodes run a protocol that is supported and maintained by hundreds of developers around the world. In addition, there are users, investors and traders who set the price of this electronic money.

Bitcoin nodes confirm that new Bitcoin units are currently being offered at an inflation rate of about 1.7% per year. This is below the inflation rate that developed economies consider for their local currencies. Bitcoin has the same inflation rate as gold and, like other currencies in the world, is not produced by the sudden decision of central banks or governments. Bitcoin can grow like gold in different countries with different levels of economic freedom.

Bitcoin and the concept of “economic freedom”
2019 survey of selected countries with about 1,000 respondents in each country
Source: Statista Global Consumer Survey 2019

Bitcoin will be more widely accepted in high-inflation countries such as Turkey, Brazil, Argentina and South Africa, according to a 2019 Statista survey of consumers. Bitcoin has been shown to be a growing value resource in these countries and a good asset for safeguarding against inflation around the world.. Since 2019, bitcoin has grown by more than 200 percent compared to the Turkish lira, the Brazilian real, the Argentine peso and the South African rand. By comparison, at the same time, bitcoin is only 140 percent better than the US dollar.

Bitcoin and the concept of “economic freedom”
From January 1, 2019 (December 11, 1997) to May 15, 2020 (May 26, 1999)
Method: Current dollar exchange rate multiplied by the current bitcoin price using data from the CoinMetrics platform
Source: Bundesbank, FRED, BIS

Of course, bitcoins do not form pairs with all of these currencies, and these numbers are just calculations on paper. However, bitcoin liquidity is increasing through peer-to-peer trading platforms such as LocalBitcoins.

Bitcoin and the concept of “economic freedom”
Total volume from January 1, 2019 (December 11, 1997) to May 19, 2020 (May 20, 1999)
Method: Total daily volume of bitcoins for each currency multiplied by the instantaneous price of bitcoins in dollars using coin metrics data
Source: Local Bitcoin

In the local bitcoin platform, the trading volume is high and remarkable both by the citizens of the developed economies and by the citizens of the emerging economies. “Researcher and data analyst Matt Ahlborg says:

In Latin America, bitcoin is used not only as a tool to store value, but also as a channel to obtain more stable currencies such as the US dollar as well as various stable currencies.

Bitcoin technology led to the evolution of digital dollars, which are called stable coins or stable digital currencies. Stable currencies such as the USD Coin bring stability to the US dollar for anyone, wherever they are, with internet access and a digital wallet, with the ability to transfer any day of the week and any hour of the day or night. The International Settlement Bank says:

1.7 billion people worldwide do not have access to banking services. In essence, stable coins can enable a wide range of payments and serve as a gateway to other financial services. By doing so, Stable Coins can play the role of current accounts and be a step towards greater financial freedom.

However, bitcoin is anti-censorship compared to stable coins and has a predictable and stable monetary supply. In addition, this amount of supply is directly managed by the international consensus of nodes, miners, developers and users. Users in any country, with access to the Internet and a digital wallet, can directly receive and maintain bitcoins. Eric D. Eric D. Chason, a law professor at the William and Mary Law School in the United States, explains how bitcoin can act as a property right:

Satoshi Nakamoto has created a form of ownership that can exist without relying on government, central power, or traditional legal structures.

Thus, bitcoin has made monetary and economic freedom possible all over the world. This is summarized in a study from the New York University School of Law:

The history of money shows that a non-governmental currency that can function as a common currency in times of monetary inflation has always been popular. If this demand continues, it will be possible for decentralized and private digital currencies to survive.

This article was edited by Majid Jihadi.

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