Investment vs Use

As an economist, I typically think about cryptocurrencies and blockchain from a monetary perspective. Cryptos are superior to government-issued currency in many ways: they can be better stores of value, they can be transferred electronically around the world with minimal fees, and they are much more secure. On top of that, many people have made a lot of money by investing in cryptocurrencies. Although these monetary benefits are certainly important, cryptocurrency is much more than simply a "better dollar." One of the most important benefits of cryptocurrencies is not just their investment value, but the freedom they bring.

Gab Example

While I was checking my emails this morning, I saw that Bitcoin accounts for 30% the social media platform Gab's operating revenue. For those of you who may not be familiar with the website, Gab is similar to Twitter but prides itself on being a free speech platform with very little censorship. Because Gab does not censor users, there is a lot of "edgy" content on the website that has led PayPal, Stripe, Coinbase, Square, and over 50 banks to ban Gab from using their payment processing services (Torba, 2019b). In order to keep providing service to its customers, Gab now uses Bitcoin for a large percentage of its financing. Gab's decision to allow payment with Bitcoin is an excellent example of how cryptocurrencies provide freedom to individuals that are suppressed under the traditional financial/payments system.

I want to be 100% clear that this article is not intended to support financing illegal activity with cryptos. There is a major difference between unpopular/offensive content and illegal content. Although there is certainly some offensive content on Gab, the website does prohibit users from engaging in illegal activity and willingly cooperates with law enforcement when illegal activity has been detected (Torba, 2019a). Despite Gab's cooperation with law enforcement, we see that many companies are attempting to restrict Gab's ability to operate and sell its service simply because they disagree with its message and some of the content on its site. This presents a problem for several reasons. Let's suppose that the government itself thought that Gab was doing something illegal. If that were the case, there would be a trial, and Gab could present evidence to support its position. Because PayPal, Stripe, and others are private companies, they have the right to stop providing service to Gab, or any other company, whenever they want and for whatever reason they want.

A Fundamental Question

The real issue here goes beyond Gab and presents a more fundamental dilemma. Third party payment processors such as PayPal can effectively shut down fully legal businesses that they disagree with simply by refusing to process payments. Even if you or I might not personally use Gab, the underlying issue is that these payment processors could shut down any businesses that they wanted. The fundamental issue is that large private companies are being the judge and jury over what businesses are allowed to exist and receive payments. This is an immense amount of power to give to a private company that is not bound by a constitution or follow a democratic process.

I fully support the right of companies such as PayPal and Stripe not to do business with a company that they object to. They are a private company, and in my opinion, it would be wrong to force them to do business with a company that they disagree with. At the same time, we have two groups that both want to interact with each other. Gab wants to provide its service, and its customers want to purchase the service, but they are unable to do so because of the lack of an appropriate payment processor. So, what is the solution to this problem? How can we enable buyers and sellers to transact when there is no "middle man"willing to process this transfer of value?

The Crypto Solution

Situations like this are exactly the type of problem that Bitcoin was designed to solve. The very definition of Bitcoin is that it is a "purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution" (Nakomoto, 2008). In other words, Bitcoin, and other cryptocurrencies, are designed to allow people to transact directly with each other without having to go through a bank, credit card company, or gain the permission of the government. This P2P nature of many cryptos means that all that is needed to transfer value is the consent of the parties directly involved in the transaction. There is no need to have the transaction approved by some third party. In his paper, Satoshi called Bitcoin an "electronic cash." While credit cards, debit cards, and checks may be more convenient than cash at times, traditional government cash does have many advantages over credit cards and checks. Credit cards can be declined, and bank accounts can be frozen. But physical cash can be spent anonymously wherever you choose.

In many ways, it is fitting that Satoshi called, Bitcoin "electronic cash". It fuses the convenience of electronic finance with the decentralized, private nature of traditional cash. With cryptos, companies such as Gab can continue to provide a service that their customers value even when no traditional payment processor is willing to be the "middle man" in the transaction. While customers could simply pay Gab in physical cash, cryptos can be transferred immediately online, so Gab and its customers can have both the advantages of traditional cash with the convenience of electronic funds transfer.

I will be honest, I like investing, and cryptos can be an exciting investment with a lot of potential for huge gains. As much as I like speculating on cryptos, their fundamental role is much more important than this. The fundamental reason that cryptos exist is to decentralize power and allow individuals to transfer value without the approval of a third party. Cryptocurrencies are not just a way to invest and make money; cryptocurrenceis are a decentralized form of value exchange that protects peoples ability to buy and sell products without third party interference.

References

Nakomoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. Retrieved from: https://bitcoin.org/bitcoin.pdf

Partz, H. (2019, July 18). Tor Project's Bitcoin Crowdfunding Campaign Hits Goal in 25 Hrs. Retrieved October 11, 2019, from https://cointelegraph.com/news/tor-projects-bitcoin-crowdfunding-campaign-hits-goal-in-25-hrs.

Torba, A. (2019a, August 25). Gab's Policies, Positions, and Procedures for Unlawful Content And Activity On Our Social Network. Retrieved October 11, 2019, from https://news.gab.com/2019/08/23/gabs-policies-positions-and-procedures-for-unlawful-content-and-activity-on-our-social-network/.

Torba, A. (2019b, October 7). Bitcoin Is Free Speech Money, Gab Will Introduce It To Millions of People. Retrieved October 11, 2019, from https://news.gab.com/2019/10/07/bitcoin-is-free-speech-money-gab-will-introduce-it-to-millions-of-people/.

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