Even among freedom minded individuals, classical liberalism gives way to conservative resistance on the issue of money. The view prominent on the right and the left is that money is the exclusive right of the state, rather than private initiative.
Thus, the dominant view is that the monetary policy should be the sole responsibility of central banks. They have a monopoly on the volume of money in circulation, credit and interest rates.
In 1978, Friedrich August von Hayek presented the view that the state’s prerogative to issue money should be extended to companies in order to create market competition and allow people to choose their own currencies.
This idea, presented in Hayek’s book “Denationalisation of Money” suggests that it is possible to establish a decentralized currency, and allow for institutions in various parts of the world to issue money. This competitive system would have the same protection against counterfeiting that is given to any another document. With competition, currencies would be more stable in their purchasing power.
Hayek foresaw the base for the emergence of virtual currencies. Yet he did not see the development of the conditions that made the adoption of this idea feasible today.
Bitcoin was introduced to the world in 2008 on an Internet discussion board, and can be considered the embodiment of Hayek’s ideal of a competitively driven medium of exchange. After intense decades of research and development, the result is a fully decentralized peer-to-peer network which does not require an intermediary. This blockchain technology, according to Investopedia, is “a digitized, decentralized, public ledger of all cryptocurrency transactions, constantly growing as completed blocks. These blocks, which hold information for the most recent transactions, are recorded and added to it in chronological order, blockchain allows market participants to keep track of digital currency transactions without central recordkeeping. Each node, or computer connected to the network, gets a copy of the blockchain, which is downloaded automatically.”
The Bitcoin and other currencies whose exchanges use blockchain technology and encryptions to ensure the validity of transactions are known as “cryptocurrencies”. It is a new class of assets, more characterized as a means of payment than properly money, since they do not exist physically. These are decentralized resources, which do not depend on the central banks to be issued or negotiated.
The difference in relation to traditional currencies is that “transactions carried out in the Bitcoin system are recorded in a ledger that does not depend on the authority of banks or governments but with the assurance of a public computer network that (theoretically at least) can participate”.
Cryptocurrencies are created by a large number of computers distributed throughout the world, which record and approve the operations performed. More and more difficult mathematical problems are solved to approve the transactions. With each set of problems solved, a block is closed, allowing the so-called “miners” to receive a fraction of the coin as their reward. This is the blockchain, which is the structure of the cryptocurrencies.
Cryptocurrencies, therefore, represent real examples of the feasibility of applying Hayek’s principles. With the technological development they have achieved so far, cryptocurrencies are not limited to opportunities related to economic issues, they also solve the classic problems faced by every currency, such as the problem of double-spending, the problem of scarcity in the digital world and the problem of Byzantine generals.
The evidence grows that the privatization of money could be a possibility. Despite the resistance and distrust that still exist, the model of blockchain technology has been tested and validated. As is common in market dynamics, it is likely that some of the models will fail to be corrected, that security problems will occur, and the state will create legal, economic, or other obstacles that hinder the adoption of these technologies. In addition, historical records show that technological advancement commonly faces resistance. Remember the resistance of the producers against the sale of songs online, of publishers against eBooks, and taxi drivers against Uber.
The benefits of these new technologies, however, are profound and give freedom and power of choice to individuals. It is good for people because they can choose which type of cryptocurrencies they want. Consumers have more security and when companies are in the market they compete with other currencies. The biggest winner in this situation is consumers. Human flourishing is important because have dignity given to them by God and should be able to exercise their full potential.
Cryptocurrencies are gaining space in the real and virtual field of society at a global level, and the data indicates their capacity to expand as an alternative means of payment. The benefits of this growth can align with societal goals, providing the favorable results predicted by Hayek four decades ago when he claimed that “it will be possible to establish a number of institutions in various parts of the world which are free to issue notes in competition.” Let us hope that Hayek’s goals will continue to be realized and cryptocurrencies will continue to evolve.