How Cryptocurrency Both Creates and Resolves Financial Uncertainty

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AUTHOR’S NOTE: This post is not about how to invest in cryptocurrency. Cryptocurrencies like Bitcoin and Ethereum, as well as others, are here to stay, but a lot of folks still don’t understand the ins and outs of how this new financial tool operates. For greater explanations of the inner workings of cryptocurrency, both as an investment tool and as a medium of exchange, I recommend reading this, and this, and this.

Cryptocurrency: A More Secure System

The very foundation of a digital currency is the blockchain. Blockchain, those elements of code and data constructed and “mined” through complex algorithms within the code itself, forms the heart of the whole crypto revolution: It is theoretically unhackable, precisely because it is designed to be hacked. Crypto is, for many of its most vocal followers, the culmination of all things open-source. It is inherently more secure as a system, precisely because no one person owns the master key, if you will. Thus, in an increasingly digital era, when more and more of the systems that global government and big business players take for granted as secure are being proven anything but, the rise of crypto is an enticing possibility for those hungering for a more secure financial system.

The reality is that there is little inherent difference between cryptocurrency and the digital banking and investing tools that major financial institutions already use to move money around, and that governments use to mint and track their national currencies. The biggest difference is, as I said, that no one person holds the “master key” in the crypto world. Math, rather than personality, governs the cryptocurrency world. In a time when so many are looking for logical, empirical security, separated from the whims of a society they no longer understand or feel a part of, crypto just makes sense.

Or Is It?

There’s also, however, an inherent lack of security in any unfamiliar system and, for a lot of folks, Bitcoin and the like are exactly that: unfamiliar, incomprehensibly complex, and, in the end, largely theoretical anyway. What intrinsic value is there in a string of 1s and 0s? For people who don’t trust the monetary systems of the world due to their lack of intrinsic value, for people who want “something I can hold in my hand” as proof of worth, crypto is just another iteration of the global financial system they already mistrust. If a power outage can wipe out billions of dollars of theoretical wealth on a stock exchange, the theory goes, what’s the difference between that and the Mt. Gox disaster that occurred two years ago?

Is Stability Inherently Risky?

This is the third problem that is posed by the rise of cryptocurrencies, and the digital age that they were birthed in: We’ve increasingly seen throughout the world that there is risk in stasis. Risk in trusting the institutions that society has leaned on for centuries is becoming a part of our understanding of society. Trusting institutions, we are reminded every day, is inherently a risk. Thus we see another catalyst for the overwhelming popularity and meteoric rise in value of Bitcoin and its brethren: If the middle men (institutions) are inherently untrustworthy, wouldn’t we as a society be better served by taking matters into our own hands and relying, not on other people, but on mathematics, machines, and emotionless, disinterested Data?

I contend that this is not the case. The rise of the self-interested loner, the mistrust in society’s institutions is certainly not surprising, nor is it unwarranted. However, we have to ask what the bigger picture damage will be to society. Cryptocurrency is a child of mistrust. The rise of digital currency occurs alongside the rise of individualism, less corporate trust, and a more interconnected, but increasingly distant society. While we are right to maintain skepticism, and embrace good change that will improve society, we also have to ask ourselves: In what ways has Bitcoin and its fellow currencies actually brought people together? Has it created community (I would argue that it has, definitely!)? If so, is that community in turn creating value for society? I’ll let you be the judge, but the bottom line is that we must examine carefully this new financial tool, to see where it exposes us to risk, and instability, but also where it creates security. More than other currencies, crypto is a two-edged sword. Its rise is a symbol of our times, and the increasing divisions between the institutions of society and the society they were instituted to serve.

Originally published at noholdsbarredleadership.wordpress.com on August 23, 2017.

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Writing about life, leadership, money and business.

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