21 Million Bitcoins & Beyond
Imagine a world. An ideal one. A world which knows only one currency — the Bitcoin (₿).
An economic system run by the people for the people (isn’t that democracy?) distributed through processing power.
At every 1st of the month, your account is topped up with Bitcoins. You pay the bills in satoshis(smallest unit of Bitcoin) and go out to get groceries without having to worry about withdrawing ‘cash’ from your ATM or even carrying it with you. You want to receive money from a client, just share your wallet number with them and *bling* your wallet is topped up — ₿₿₿.
No person, bank or government has the power to move or meddle with your satoshis and Bitcoins. Fractional reserve banking becomes a topic for financial history books. It’s just you and the honest distributed system, thanks to Satoshi Nakamoto (Bitcoin’s inventor) and the Bitcoin community.
Photo Credits: Omar Gillani
We can go on imagining the Utopia we invented, even write a whole book based on it but let’s just turn on the gravity and come back to reality.
Back To Reality
It all started with the barter system where you could swap goods according to your needs. Turns out, not everyone has reciprocating supplies. Hence, we move towards currency and introduce coins which further evolved into banknotes, also known as cash. The last widely adopted innovation in this area is plastic cash. Just converting banknotes into a card on the front-end with the back-end intact as before.
Today we stand at the brink of yet another evolution which can change the whole economic system as we know it. Electronic bits replacing plastic and paper. But there is a catch.
Twist In The Tale
If you don’t already know, Bitcoin is not designed like a currency. In fact it is a commodity just like gold or coal. There are a finite number of Bitcoins — 21 Million and as of this writing 79% of them have already been mined/released.
This is where the line is drawn and Bitcoin is questioned to be flawed (until the system gives a proof of concept). Obviously each of the 21 Million Bitcoins can be divided into 0.00000001 Bitcoins but still the quantity would be limited. One school of thought argues that the finity of Bitcoin will only result in a general deflation and prices would slip keeping economic system steady but another challenge at hand is to keep rewarding the miners.
Beyond the ₿21M
After the 21 Million Bitcoins, there will be no mining and the only thing that will motivate the miners (then auditors) is the transaction fee against which they will verify the transaction. According to Satoshi Nakamoto, this transaction fee is optional and ‘and there will probably always be nodes (faction of miners) willing to process transactions for free’.
Seigniorage & Imbalance
But if a majority of miners charge a transaction fee, they might become the new 1% of the world. Transaction fee is always a burden on the sender and/or receiver. It means a chunk of money(non-miners) from the transaction goes to someone(miners) as a fee for verifying the transaction. Accounting to all transactions that take place in the world, the net transaction fee would be huge. This creates imbalance.
Finding The Balance
Instead of forcibly taking a chunk of a transaction from the sender or receiver and giving it to the miner (seigniorage), a better solution can be to generate a reward for the miner to verify the transaction. This new ‘transaction reward’ can obviously be controlled by the system on various parameters, like the number of miners involved in the verification process, total processing power, transaction reward history etc. Just like the system is doing to control the difficulty and reward block at the moment, the same can be done to control inflation/deflation and equality. Maybe, generate a reward after ‘x’ number of verifications by the node. The conditions can be outlined accordingly.
But the benefit that the ‘transaction(s) reward’ will provide is that it will release new Bitcoins in the system and ensure the newly released Bitcoins are distributed fairly so that no one faction of miners is benefited more than the other. Hence the most important thing it will do is that will maintain a balance by not burdening the sender or receiver via a transaction fee like a typical bank would do.
“And imbalance, as history has proven over and over, will self-correct suddenly and aggressively unless we are smart enough to correct it ourselves slowly and methodically.” — Simon Sinek
This might be have its own share of disadvantages but certainly crony capitalism wouldn’t be one, for sure.
Conclusion
Obviously, to attain the Utopia we imagined at the beginning, the world will have to go through a lot of radical changes, resistance and even proof-of-concept from cryptocurrency itself.
Photo Credits: Omar Gillani
Nevertheless, the cryptocurrency has a long way to go and a lot to prove if it is to ever to become a currency. Not just figuring out the seignorage problem but also cutting down the transaction verification time.
Though one thing is for sure, change is at the doorstep knocking the door. It’s just a matter of finding the right door, opening it and welcoming it.