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Can Bitcoin Slow War?

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Bitcoin exists on the periphery; most people either don’t understand it or don’t care to. Yet, there also exists a growing group of people who champion this new technology and say it will change the world. At The Next Web conference, philosopher Stefan Molyneux told a packed theatre: “[Bitcoin], has the power to limit the seemingly endless growth of political power…I really believe that it’s the most peaceful revolution that we can have in this world.”

That vocal minority doesn’t just see bitcoin as a new currency, but rather a currency that works in a new way. That it can “change the world” is an extremely broad and subjective claim, but what about something more specific – can bitcoin slow war?

Basic differences between bitcoin and fiat

Bitcoin is decentralised. New bitcoins are issued to computers that have donated computing power to secure the network and process transactions, but there is no central body that has any control. The code is open source and available for anyone to view and there are no restrictions on who can participate.

Government-issued money – called fiat – is centralised. Governments have a monopoly on fiat and decide who can and cannot participate.

Bitcoin has a fixed and finite supply. New bitcoins – which are divisible into a million parts – are released on a predictable schedule. At present, 25 new bitcoins are added to the total supply every 10 minutes. In 2016 that will drop to 12.5 every 10 minutes and every four years after that the number will half again. That diminishing rate means that most bitcoins that will ever be created, already have been. Once the total number reaches 21 million no new bitcoins will be issued.

Fiat supply is infinite and printed at the will of the government at an irregular and unpredictable rate. The official website for the US Bureau of Engraving and Printing, which is responsible for printing new money, has chosen a surprisingly honest URL: moneyfactory.gov. According to its data, rates of production are sporadic but generally go up. For example, in 1980 100m $100 bills were printed. In 2013, 4.4bn $100 bills were printed. This is representative of a perpetually increasingly supply, which is one of the main tools government uses to finance war.

Those are not the only differences, but they are two major ones and the two that would most affect how wars would be financed.

War financing

War is currently financed by a combination of three methods: the printing of new money, collection of taxes, and raising of debts.

Paul Poast, a political science professor at the University of Chicago and author of The Economics of War, explains: “Historically, [having the power to print money] has been a primary means by which governments finance wars, sometimes by literally running the printing press. Though often the inflationary pressure will be delayed, for example they won’t print money per se, but they will create debt. Eventually they have to pay that debt and government will issue new currency to pay that future debt, creating a lag when the inflation will actually take place.”

War is massively expensive. It’s so expensive that most governments would not be able to afford it without creating a new money supply and deferring the costs to the future. World War One was expected to last just a few months because that’s when money would have run out. Instead, one by one, each nation began leaving the gold standard and creating new money to continue financing the war effort. “War and limited currency don’t mix very well,” explained Molyneux in his talk. “When you have fiat currency you don’t have to give people the choice [between financing war or financing social programmes]…When governments can print money they don’t have to ask the people to make rational decisions or to balance things.”

Separation of money and state

Paul Poast explains: “When countries have less discretion over their money, war is disincentivised. In order for government to finance the huge cost, without the option of creating new money and debt, they would have to rely more heavily on the existing pile and either raise taxes significantly or significantly cut spending on other government expenditures like infrastructure or education.

A small number of nations have already chosen to give up their ability to print their own currency. Ecuador, El Salvador and Panama have all stopped issuing their own currency and now use the US dollar for all transactions. They have given up the power to control their money supply. “Because of this missing economic lever, funding war becomes more difficult. It creates a disincentive.”

How bitcoin can help

Roger Ver became one of the world’s first bitcoin millionaires after his hardware company became the first major business in the world to start accepting the digital currency in 2011. He has since become one of the technology’s most vocal supporters. He claims: “Bitcoin is the most powerful tool the world has ever had to help bring a stop to endless war.”

The fact that bitcoin is finite and cannot be easily manipulated by government is one of the most powerful reasons to think a bitcoin world may be a more peaceful one. “When the money runs out, the war will stop,” explained Ver.

Other large government expenditures, such as infrastructure or healthcare, would not be affected by a finite currency because they are generally included as part of the budget, meaning money is already put aside for those costs. While there is a military budget, war funding does not generally come from that pile. Because of the oversized role of inflation and debt in war financing, it would be especially vulnerable to a change to a finite currency. Money for war would mean less money for everything else, and the war costs would become much more visible to the public.

Ver also points out that bitcoin would give more control to citizens to resist taxes meant for war. Bitcoin allows its users to have complete control over their funds, meaning that they do not have to rely on a third party, such as a bank, that could be pressured by government to disclose information or allow government to access or seize its citizens’ assets. “People would have the ability to say no, not in my name and not with my money.”

Joe Ventura, CTO and founder of bitcoin startup AlphaPoint, reiterated those points. “If we are going to limit ourselves to [bitcoin], when government wants to fund a war it will be hard for them to extract that from the population, and even then they could only take as much as their people have.”

The limits of bitcoin

A bitcoin universe may make war less economically attractive, but it’s uncertain how feasible such a world would be. “Government would not want to give up its power to manipulate money,” Poast told me. “What incentive would government have to allow a world with a finite currency? That’s the one thing that may stop bitcoin from becoming dominant.”

“And once all bitcoins are mined, if government wants to regain some control over money they will find a workaround – other currencies might arise to work alongside bitcoin and effectively inflate the money supply.”

Ventura added: “If a willing society of people, regardless of money availability, want to get something done they will find a way.”

The nascent technology and currency is still too young and untested to fully understand how its potential growth would affect society and all of its moving parts, including war. Still, it has spawned a movement of people that believe it can help to change the rules of the game. Ver ended our interview with a simple message, “If you are opposed to war, then start using bitcoin in your personal life today.”

 

This was first published in Contributoria

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