Bitcoin represents a significant threat to the currency domination of the USA, which is the only thing propping up the nation’s status as a worldwide superpower. Following the USA’s defaulting on all its international loans on August 15, 1971, the US trade balance has been maintained using a combination of military threats and telling people to buy US dollars just to fund the ongoing consumption of the USA. Where other world currencies have failed to challenge the USD, and therefore this mechanism of maintaining US economic dominance, bitcoin may succeed.

To understand this scenario, we need to understand just how bankrupt the United States of America is. For some reason, most spotlights at the moment are pointed at the failing Euro; this is probably in part due to the fact that the US Dollar failed long ago, and is being kept alive by blowing up a bubble harder by the day. An ELI5 version can be found here (ELI5 meaning “explain it like I’m five”), but in a nutshell, the USA defaulted on its international loans following the Vietnam War, and has been borrowing more money to fund its extravagant consumption ever since. Since long ago, more money is now borrowed just to pay interest on the previous loans. Last year, the United States’ budget deficit was an astonishing 50% of the budget – for every US Dollar in revenue, two were spent. Remarkably, this isn’t discussed a lot – I imagine if it were, the US’ ability to pay back its loans would be called into question, something that would bring down the house of cards like a ton of bricks dumped on top, so nobody is really interested in rocking the boat too much. After all, everybody is sitting on USD reserves that would become worthless overnight if that were to happen.

The United States started its money printing presses on August 15, 1971, and has kept them going ever since. Just in 2011, 16 trillion dollars – that’s trillion with a T – were printed to prop up the US economy. How much is that in perspective? It’s slightly more than the US gross production combined. For every dollar produced of value, one more was printed out of thin air, in the hope that somebody would buy it. And people do. That’s the thing – there is a key mechanism here that forces people to keep buying US dollars.

The United States is kept alive as a nation by the fact that if anybody wants to purchase goods from another nation, like China, they first have to buy US Dollars from the USA, then exchange those USD for the goods they want in China. That, and the fact that this results in all countries buying tons of USD to put in their currency reserves.

The fact that people must keep buying USD to get what they want from anybody else in the world is the mechanism that props up the entire US economy, and more importantly, fuels its military which in turn enforces this mechanism (see Iraq, Libya, Iran, etc). It’s a cycle of violence-enforced economic dominance that leads to extravagant spending, and an enabled such spending, by the United States – mostly on military power to maintain that very dominance.

(As a side note, it’s questionable how much the middle class in the United States benefits from this any longer. A decade ago, this feedback loop made the normal standard of living in the US noticeably higher than in other parts of the Western world; today, the US comes pretty much last in every category of standard of living.)

As “end of the world” articles are typically discarded as tinfoilhattery, I wanted to start this article with establishing economic facts on the table. The USA is bankrupt, and the only thing keeping it from collapsing are its military and the fact that everybody else is so heavily invested in the USA that nobody wants it to go bankrupt on their watch. Thus, the borrowing and overspending continues for another day… until it doesn’t.

What would happen if the US were one day unable to continue its overspending? We would see a mighty crash of the global economy, but more importantly, the US would come down in a Soviet-style collapse, only much worse due to structural differences. (To understand these differences, consider the fact that public transport kept running through the Soviet collapse, and that most families were well-prepared for food shortages. In the US, you would instead have people stranded in suburbs with no fuel, food, or medicine – only lots of weapons and ammo. See Orlov’s collapse gap for more on this structural difference.)

Enter bitcoin, which can break the cycle of borrowing and overspending.

As we observed, the key reason that people are forced to buy US Dollars today is that it’s the international mechanism of exchange of value. If you want a gadgetoid from China or India, you need to first buy US dollars, and then exchange the US Dollars for the gadgetoid. But as we have seen, bitcoin far outshines the US Dollar in every aspect as a value token for international trade. Using bitcoin is cheaper, easier, and much much faster than today’s international systems for transfer of value.

Pretty much everybody I’ve spoken to who is involved in international trade would switch to a bitcoin-like system in a heartbeat if they were able to, venting years of built-up frustration with the legacy banking system (which uses the USD). If that happens, the US won’t be able to find buyers for its newly-printed money that keeps its economy propped up (and its military funded).

If the cycle of dollar lock-in breaks, the United States of America comes crashing down. Hard. It would seem inevitable at this point, and bitcoin may be the one mechanism that breaks the cycle.