Bitcoin and the Steady-state economy

Bitcoin is rapidly gaining popularity. Despite the recent problems with the Mt.Gox bitcoin exchange, I think the Bitcoin protocol itself will prevail, and more and more people and businesses will start to use it.

I’ve started to experiment with using Bitcoin myself, and found that it works really well. For instance, the Android Bitcoin Wallet┬ámakes it easy to transfer money to friends (who use Bitcoin), or to merchants that accept them. New services are arriving in the Bitcoin ecosystem every day.

What does Bitcoin mean in the bigger scheme of things? Unlike most currencies, Bitcoin has the property that there is a fixed upper bound on the number of bitcoins that will ever by created. Currently, there are about 12.5 million bitcoins in existence, and there will never be more than 21 million.

Does this mean that Bitcoin is more well-suited for a Steady state economy? As there is a bound on the amount of physical resources the economy can use, and the environmental impact of economic growth continues to worsen, many, including myself, believe that an economy without the annual growth in energy and material use is desirable (the alternative being a crashing economy).

With Bitcoin, people who save money, are not immediately watered down. The fixed amount of bitcoins and the fixed amount of physical resources should give price-stability in the long run. A fixed amount of physical resources and an ever-increasing amount of traditional money supply leads to loss of value and an unhealthy incentive to go out and hoard resources. Which is exactly what rich people do today when they get their hands on more money: They run out and invest it in real estate, stocks, energy or materials.

Leave a Reply