How Big will Bitcoin Become?
The story of the printing press can provide some insights.
Store of value. Medium of exchange. Hard forks. Altcoins. Price swings. Bitcoin dominance. Energy consumption. Government bans. Beneath all the buzz lies a technological innovation with profound implications. So just how big will Bitcoin and the growing ecosystem of cryptocurrencies become? Will they spell the end of the existing financial order, be buried by it or reach some middling accommodation? Time will tell. But turning back the clock can provide some perspective.
Every now and then a technological innovation comes along that has broad social impacts far beyond its apparent function. The printing press may seem mundane today but it was one of the most important inventions in human history. Francis Bacon called it – along with gunpowder and the compass – one of three innovations that created the modern world. So why was it such a big deal and what insights can we apply to Bitcoin and cryptocurrencies today?
Meet the Press
The printing press severely disrupted the religious and political systems of medieval Europe. In both cases the crux of its impact struck existing relationships between these institutions and the general public, radically shifting power toward individuals. This happened through a mutually reinforcing cycle of progressively empowering and educating significant numbers of people over many generations.
Consider the impact on the Catholic Church. The first book to be printed at scale was the bible; its widespread dissemination allowed people to read scripture directly and in their own languages, empowering them to make more independent religious choices and eventually leading to the Protestant Reformation. Protestantism espoused a more direct relationship with God, circumventing the oppressive hierarchy and significantly weakening the power of the Catholic Church.
The impact on medieval political systems was also profound. Historians consider the birth of European nation states to be enabled by the proliferation of printed materials. The spread of newspapers covering issues of broad concern reoriented people’s perspectives and helped them think in nationalistic terms. Content was printed in vernacular rather than Latin so reinforced national identities. And over time, differences in local dialects declined due to the linguistic standardization of these publications. New perspectives contributed to greater political participation and helped end feudalism.
The print industry itself contributed to the creation of new economic systems in Western Europe. Its technological sophistication required discrete skill specialization. Ink and paper makers, compositors, type-setters and pressmen worked in coordinated fashion but in highly differentiated roles. This early formalized division of labor helped sow the seeds of the Industrial Revolution. Moreover, the use of standardized interchangeable type hinted at what would become possible under later systems of mass production.
A rudimentary version of the printing press had been invented by the Chinese more than a thousand years earlier; however, centralized control and technical constraints meant that the innovation would remain on the fringes of Chinese society. But the conditions in Europe at the dawn of the Modern era would create a perfect storm for this new technology. At the time of Gutenberg’s mid 1400s invention there were a few million handwritten manuscripts and woodblock-printed documents scattered across Western Europe. Within fifty years, twenty million books had been printed and hundreds of millions would be in circulation by the end of the 16th century.
During this time a growing quantity of new – and old – content was becoming available. Over the course of the 1500s, Europeans rediscovered vast volumes of classical Greek, Persian, Latin and Arabic works in math, natural sciences, astronomy, medicine and philosophy. During the same period, expeditions to the Americas, Africa and Asia sparked European curiosity and imagination. These old and new sources of content became widely distributed and greatly contributed to the success of the print industry.
Today, Bitcoin and the cryptocurrency ecosystem are beginning to enable individuals to anonymously transfer value anywhere, for any reason, without permission from our governments or financial institutions. That’s a very big deal. This technology has the potential to disrupt governments, central banks and the large institutions that currently oversee our financial relationships. Similar to the print industry, cryptocurrencies will shift power away from these institutions by empowering and educating significant numbers of individuals.
This will take time. It’s early days and the extent of this disruption remains unclear. Bitcoin’s primary use case may well be limited to a store of value. The first use case of the printing press was to publish papal indulgences, documents issued by the Catholic Church granting absolution from sin – for a fee. Gutenberg recognized that printing these documents for the Church would help keep a powerful potential adversary onside and protect his fledgling technology. But just as the printing press was designed to cheaply reproduce any information, cryptocurrencies are designed to cheaply transfer value – not just store it.
An important parallel exists between these industries that can be appreciated by considering their linkage to the quantity of available information and money. Printed content during medieval times consisted mostly of bibles and documents concerning Canon Law. The Church exercised an effective monopoly over the sourcing, production and distribution of this limited quantity of information. But as we’ve seen, the printing press came along just as the quantity of information was expanding and provided an elegant technology that enabled people to more easily access it.
Now fast forward to the world of money. Andreas Antonopoulos and other industry visionaries describe money very broadly as a form of communication. But what then is being communicated? Of course, the answer is wealth, but what at essence is wealth? Human technological innovation creates wealth. These innovations result from human imagination, creativity and ingenuity. And so wealth can be thought of as an accumulation of historical innovations. Just as printed words capture human ideas, wealth in a sense, is an encapsulation or distillation of past innovations; a kind of historical blockchain of humanity’s best ideas. And because money forms a standardized unit of accounting of accumulated wealth, we can observe how its quantity has grown over time.
For most of human history, the quantity of money – like medieval information – was quite limited. Prior to the Industrial Revolution, the world grew very slowly and while overall real wealth did increase, it was largely absorbed by expanding populations, so wealth per person essentially flat lined. But the Industrial Revolution changed all that. The steady unleashing of waves of technological innovations has produced exponential growth in wealth per person and even greater increases in total prosperity. This recent and dramatic growth in wealth per person can be seen in the Wikipedia World Economy chart below.
As with the printing press and information, Bitcoin and cryptocurrencies have come along just as the quantity of money has exploded. And just as the adoption of the printing press enabled greater access to and participation in the growing quantity of information – with all its disruptive ramifications – Bitcoin and cryptocurrencies are enabling the same thing with money. This is truly a grand experiment. If it succeeds, it will do so as did the printing press, by shifting power to far greater numbers of individuals.
Like their medieval predecessors did with information, today’s political and financial institutions exercise effective monopolies over the sourcing, production and distribution of money. This comes with greatly increasing costs. Governments have grown addicted to Keynesian monetary policies, legitimately begun during the Great Depression, whereby fiscal and monetary levers were used to dampen business cycles. These policies have now morphed into politically fueled mountains of un-repayable debt. Entrenched financial institutions extract huge profits while delivering little innovation. The Great Recession was a reckoning. More will come.
The printing press was one of the world’s great innovations. Its impacts likely far exceeded even Gutenberg’s expectations. Regions such as Western Europe that embraced it experienced the Renaissance, Enlightenment and Industrial Revolution. Areas that banned it, such as the Ottoman Empire, didn’t fare so well. The possible widespread adoption of secure, sound money, controlled by individuals – with all its ramifications – would on balance be a very good thing indeed. This and the broader potential consequences of decentralized blockchains may well surpass even Satoshi’s wildest expectations. Yet the simple motivation behind the printing press was to enable essentially unlimited copying of information. And it is historically ironic that the basic motivation behind Bitcoin was to stop those who would do the same with our money.
Bruce Saunders is currently writing a book on world history.
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