#1 Redistribution of wealth
Bitcoin is like digital gold. Early geeks adopting Bitcoins, risk taker investors buying early coins, thieves stealing unprotect wallets – they will all accumulate a great purchasing power while holders of Fiat Currencies and Fixed Income assets will lose their relative purchasing power in a great inflation. Not all the wealth in the world will be distributed. Only 5 percent of wealth is represented by Currencies. And since gold will be still gold, it’s a good assumption that a maximum of about 2.5 percent of the world wealth is likely to be represented by Bitcoins. The total world wealth is about 200Tr when denominated in 2013 Dollars, therefore, the total amount of Bitcoins will be probably worth a maximum of 5Tr 2013 Dollars (2.5% of 200Tr) which gives each Bitcoin a maximum purchasing power of about $238,000 in today’s Dollar terms (5Tr divided by the final number of 21,000,000 Bitcoins in circulation).
#2 Momentary pause in debt driven economy
Inflationary Currencies like Fiat Currencies encourage loan taking rather than saving. In an inflationary economy, the purchasing power of a Currency diminishes with time while in an deflationary economy it increases with time. People tend to confuse growth with inflation, but human progress is driven by ambition rather than by debt. In a deflationary economy people will be encouraged to save rather than to spend, but entrepreneurs will still try to change the world. The only difference will be that more value creating projects will be financed and less value destroying project will be financed.
Even in a deflationary economy, savings will generate a maximum of only 5% returns (increase in purchasing power rather than in nominal amounts) while value creating projects will generate higher returns. Therefore, investors are still better off investing in value creating project, it’s just that the scrutiny will be thorougher.
In an inflationary economy, even value destroying projects can be financed as they destroy less value than the value destroyed by the inflationary Currency. This is an absurd which need nothing but disappear (it will be back at some point when political powers find ways to devalue decentralised crypto Currencies, but it may take many years – that’s the way of the world).
#3 Shifting risk from retailers to consumers
One of the issues in today’s e-commerce economy is that most items are delivered before the Currency changes hands. This poses risks to retails that lose about 2-5% of revenues from bad debts.
Bitcoin transactions are direct and relatively immediate. As Bitcoin transactions are nonreversible, retailers are able to send products only after receiving Currency from customers and eliminate the risk of bad debt.
Of course that the risk will shift to consumers that may lose Bitcoins to fraudulent retailers. But even though we hear more about rough retailers because their stories are sexier and we can empathy with the poor consumers, in actuality, the loss for the economy is way larger from fraudulent consumers rather than from fraudulent retailers. Furthermore, in a digital economy the reputational risk for fraudulent retailers is huge and any misbehaviours will drive retailers out of business. Fast.
Eleven Thirty PM 