What Bitcoin Can Do For Us

There are 7 billion people on the Earth, producing tons of waste every day. With overflowing landfills, fouled lakes, and oceans covered in a fine patina of plastic, there is an increasing sense of urgency that something has to be done to decrease the waste. We have to produce less.

But how do we maintain our current standard of living, and continue to increase it, without producing more waste? The only way to do this is to make sure the products we use are constructed with the goal of durability.

Unfortunately, the incentives for corporations that make the products we use every day cause them to build ‘planned obsolescence,’ or to make certain components intentionally weak so that the product will have a predictable failure rate. That means the washing machine you just bought is designed to, on average, break after five years. This ensures that people will be coming back and buying more washing machines and keeps profit margins fat. Building durable products is a good way for companies to build themselves out of existence.

For the consumer, though, this is lose-lose-lose. They lose because their pocketbooks continually get hit to replace goods that could have lasted much longer but for planned obsolescence. They lose again because the old goods foul the environment they live in. And they lose yet again because planned obsolescence uses up our natural resources at a faster rate.

The question is this: How can we change the behavior of profit-driven companies so they’ll prefer making durable products?

Of course, a market based solution would be best: if consumers prefer durability, they will not buy less-durable products, punishing companies that plan for obsolescence. Is that a realistic possibility, though?

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Let’s analyze the current situation first (inflationary currency):

Money as we know it now is inflationary due governments and central banks printing more and more of it to prop up economies and decrease the value of massive national debts. The increase in the money supply means that the value of the money in your pocket loses a tiny percentage of its value every day.

To prevent that loss of value, people have to do something with the money – invest in the market, buy treasury bonds, or even just buy stuff.

We have seen this trend playing out in Argentina where people are buying large appliances and cars and storing them under tarps in their gardens because that’s the best way to secure their savings as the peso drops in price.

This is an extreme case, of course, but one we see playing out in first world countries as well since in the face of rising prices, people will buy things now rather than waiting. We saw just this scenario play out last spring in Japan when the government raised the sales tax. Just prior to the introduction of the sales tax, there was a large spike in consumer spending followed by a fall-off that hasn’t yet returned to normal five months later.

Let’s analyze a new situation (deflationary currency):

Now imagine a world where the currency, because there is a fixed amount of it which can never be increase, is deflationary. Now, because of the growth of the economy the money in your pocket gains a tiny bit of value every day. Demand for the currency rises driving down the price of goods and services.

At this point, consumers, rather than having a built in reason to spend their money before it devalues now have a strong incentive to save as its value increases. Rather than buy that new widget today, why not wait and get a better one tomorrow?

Companies would now have to change their strategies radically. The newly empowered consumer would begin to value durability in their goods and companies would have to compete on that basis. Innovation and service would become the preeminent way companies would compete, and strong second-hand markets would spring up to buy older, but still working goods.

The cycle of production, obsolescence, and waste would continue, but at a far slower pace and with much better recycling of older goods. This will be to the benefit of everyone. Imagine a world in which nothing ever really gets thrown out. When you get a new washing machine, the old one is taken to a second hand market. When the person who purchases it there gets a new one, it’s shipped to a developing country where it continues to do its job.

In this way the quality of life of everyone can be raised.

This is not a dream:

Deflationary currencies have been used at different points of human history in the form of coins made of precious metals. Despite the solid nature of these currencies, they have always ultimately succumbed to devaluation. The governments in charge, crushed by debt they had brought upon themselves would begin to lessen the purity of the metal in the coins until they needed to be replaced by a new coin and the cycle would start again.

Despite using paper money, things are no different now. The US dollar started out being backed by gold and silver. In the early 1970s it was taken off the gold standard by Richard Nixon and ever since the value of the dollar has been falling precipitously. When Nixon was president, a gallon of gas was just 35 cents. How much is it now? How much will it be tomorrow?

There is an alternative, though. In 2009, a mysterious benefactor who went by the name Satoshi Nakamoto, gifted to the world a digital currency called Bitcoin, based in math, unencumbered by national politics, and useable by everyone anywhere there is a cheap cell phone or cheap computer.

One of the things that Satoshi did was limit the number of bitcoins to 21 million. There can never be any more than that, and that makes Bitcoin deflationary. And that makes my dream much more than a dream. It makes it something we can all realize.

Are you using Bitcoin yet? What are you waiting for?

Adapted from a post from Reddit user Nooku. 09/06/2014

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