A friend asked me about the implications of the upcoming halvening over in the digital currency world, so here are some (very general) musings on that.
In the bigger economic picture, we’d be wise to consider that the impact of what’s occurring now will be felt far more poignantly in 6–9 months’ time (and well beyond). And that from that perspective, we can anticipate the proverbial “flight to quality.” (What this phrase usually means is that when a perceived crisis causes a loss of confidence, state-based currencies tend to lose their perceived value. Often very dramatically and very suddenly.)
Once the writing is on the wall, as the degree of uncertainty about our future begins to dawn, and in order to preserve our hard-won personal wealth, we move quickly to alternatives — in recent history, predictably to the US dollar and other presumably secure (lasting) instruments like bonds. And the more liquid (easily movable and tradable), the better.
Then, as confidence wanes in those, we tend to move the wealth again, this time into gold and precious metals. And from there, as uncertainty deepens further, we go to even more liquid items, like food and clean water and medicine.
All that said, in the current scenario — and thanks to unlimited “quantitative easing” (aka wantonly printing money) — the dollar is unlikely to be able to continue to hold its perceived value for very much longer.
As 2020 unfolds, we’re navigating truly uncharted territory; we’ve simply not experienced anything this disruptive, on this scale, within living memory.
A globally-interdependent economic system is, we should note, a very recent development. Now when one corner of the world’s system falters or fails, all the other corners are affected, directly or indirectly. And while gold has been the traditional safe haven, now with space mining technology advancing so rapidly, even gold may turn into another thing that’s “subject to volatility” (namely, something that can lose its perceived value virtually overnight).
So, where do we go from there?
Digital currency has been suggested as one potential solution to an unsustainable worldwide economic system; however there are caveats there as well. (And that’s a longer discussion!) That said, Bitcoin in particular, as a store of value, is still the most promising of the digital currencies to date. It’s not snazzy at all, and is a bit of a one-trick pony, but let’s just say it’s a great trick.
It’s quite basic, really: it’s a strictly limited resource. Once all the bitcoins are minted, that’s it. You can’t make more, and you can’t fake more. This technology has been around, solidifying itself with a community of developers rallying around it for over 10 years now. And despite the sturm und drang that usually accompanies any evolving technology, it’s managed to muddle right on through, and doesn’t show any signs of going anywhere.
Is it perfect? No. It’s quite limited, but should prove to be quite useful given that very limitedness. Could something come along to unseat it? Absolutely. Just like space mining to extract gold off-planet could unseat the value of on-planet gold, quantum computing — which is likewise advancing rapidly — could unseat the Bitcoin blockchain by breaking its encryption algorithms.
The only thing we know for certain is that nothing is certain. Especially with the technological tools we have in our hands today.
As for the upcoming “halvening,” as long as mining Bitcoin remains worthwhile to miners at the new rate of reward, it will continue. That’s it. (That goes for any digital currency, for that matter.)
It’s a good idea to keep one’s lenses clear, though, and not mistake the tortoise for the hare. Bitcoin is a tortoise. Every so often people try to put long ears and a fluffy tail on it, but they invariably fall off as the tortoise continues trudging — inexorably — forward. And the hares go take a nap.
While none of the forthcoming changes are likely to be comfortable, some of them might be exciting. (And some might not. As in really not.)
These are unprecedented times. How can we stay safe through them? We don’t know… yet. We’ll all be learning as we go. And, hopefully, helping one another make better sense of it all.
Short story long, it’s usually wisest to take the long view with such matters — both looking backward to glean whatever insight we might gain from the history of human behaviour, as well as looking forward to ask ourselves what future it is that we wish to create.
And now, more than ever before, it would be wise indeed to continue to question, even more deeply, what we think we mean by “value” in the first place.
That may well be changing.
Bring it.
∞
