In past 50 years, the world moved into what is now known as the age of debt. The Institute for International Finance put the global debt figure $247 trillion at the beginning of 2019. The beginning of 2019 also saw world wealth expand to $317 trillion.
Perhaps more importantly – no certainly more important – is the comparison we’ve seen between the growth in debt and the growth in wealth. Over the past 20 years, debt is up 394%. By how much is wealth up? 133%.
The discrepancy is integrally important as we enter the age of dealing with debt. That’s right. After spending 50 years building up massive amount of debt around the globe, we’re now moving into the age where we have to deal with the huge piles of interest-bearing assets.
How will we deal with it? What can be done to deal with it? Is debt really an issue? Could we just print our way out of debt?
All these, and many other questions are relevant to the future of mankind.
Could Bitcoin help solve the debt problem?
One possible solution to the debt problem is Bitcoin. How could Bitcoin help solve the debt problem? The answer is relatively simple.
Two assumptions underlie the premise that Bitcoin could help solve the world’s debt problem.
First, Bitcoin is built on the presumption that there is a fixed supply of the currency that cannot be manipulated by governments, banks, regulators, or any individual. The algorithm is the god of Bitcoin. This algorithm is outside the control of anyone.
By fixing Bitcoin to a moderately growing demand – until it reaches maximum supply – the Bitcoin creators specifically created a stable currency, incapable of manipulating the inflation or deflation rates.
How does this help the government debt crisis? Well, if the world started shifting more towards Bitcoin as their currency of choice, then demand for government-issued fiat currency would decline.
Bitcoin would essentially replace the US dollar, the Euro, and the world’s other currency as the ultimate store of value.
With governments having to issue debt in Bitcoin rather than their own currency (or more commonly the American dollar), there would certainly be less debt, in addition to lower risks of default.
Which do you trust more – the algorithm behind Bitcoin or the US federal government?
The second critically important assumption is that Bitcoin continues on a technologically improvement agenda to where the cryptocurrency could handle the world’s transactions.
It’s not an easy technological task. As of now, the world’s central banks handle a large portion of the world’s transactions.
Once the transaction problem is solved, Bitcoin can start cutting into the collusion between governments and central banks.
It’s really slicing this connection that would make Bitcoin the king of finance. Of course, actually making that cut is no slam dunk.
In looking at the potential for Bitcoin to help solve the world’s debt problem, two important assumptions underlie the theoretical premise that must be overcome for Bitcoin to make such a result happen.
First, individuals must develop more trust in Bitcoin than they do in central governments.
Second, Bitcoin must solve the technological problem of handling many trillion more of the world’s transactions each day.
Neither of these will likely ever happen, but then again, it isn't impossible.