Title: The Inevitable Shift: Exploring the Future of Currency and the Rise of Bitcoin
Introduction:
Human beings are remarkable creatures. While biological evolution progresses slowly, the speed at which humans change the world through scientific and technological advancements is astonishing. Imagine comparing our lives today to those of a thousand years ago. Despite our similar appearances and relatively unchanged cognitive abilities, there is a vast difference in our quality of life.
However, no matter how rapidly the world changes, humans are ultimately limited by their organic and inorganic bodies and genes. Struggles for wealth and power driven by instinct, class conflicts, wars to rebuild the international order, and the cyclical nature of wealth and debt have persisted throughout history and may continue to do so. Human responses and behaviors to these issues are unlikely to undergo significant changes over time.
This viewpoint suggests that by studying human behavior and responses to significant events in history, we can predict future patterns. While we cannot predict the future with absolute certainty, unless there is a significant biological change in human beings or a fundamental shift in our collective mindset, such as worldwide conversion to Buddhism and enlightenment, we can make informed guesses about future trends based on the past.
Many published books analyze the enduring aspects of human society and our consistent responses to historical events. For example, Morgan Housel’s “The Psychology of Money” offers insightful explanations of the persistence of human thought processes from a micro perspective. On the other hand, Ray Dalio’s “Principles for Navigating Big Debt Crises” analyzes the repetitiveness of empire history from a macro perspective. Both books are highly recommended for readers interested in understanding these enduring patterns.
In this context, this article aims to explore some significant and inevitable trends that humanity faces today and their potential impact on society, comparing them to similar situations in history. This article specifically focuses on the uncertainty surrounding the status of the US dollar and the rise of universal AI (AGI), pointing out the significant risks they pose due to excessive centralization. Therefore, I believe that blockchain technology, which inherently promotes decentralization, will play a crucial role in the future of human society. Each section of this article will delve into how the blockchain industry, led by Bitcoin, will ultimately shape our world.
Section 1: The Inescapable Topic: Currency
1.1 The Inevitable Collapse of Reserve Currencies
Currency is a social contract established to facilitate transactions. Its legitimacy relies on the balance of power in the international order and the trust of its participants. Since human thought and emotional systems have not undergone significant changes over long periods, future currency systems are likely to follow historical precedents.
Most people today are accustomed to the US dollar as the global reserve currency and use it unquestioningly in their daily lives. The US’s dominance in military, financial, scientific, and other fields has solidified the seemingly eternal status of the dollar. However, humans often exhibit excessive confidence in things they have not personally experienced. A brief exploration of the nature and history of currency reveals that the lifespan of a global reserve currency is usually shorter than expected.
Since the establishment of the Bretton Woods system in 1944, the US dollar has been the global sole reserve currency for only 80 years. Before the dollar, the British pound held that position, and before that, it was the Dutch guilder.
The rise and fall of the Dutch and British empires, as well as their tenure as holders of the global reserve currency, followed very similar patterns. They both emerged after defeating declining great powers. Victories propelled the development of capitalism and the arrival of the Industrial Revolution, which enhanced the competitiveness of these nations and laid the foundation for them to become reserve currency countries.
However, history repeatedly shows that the wealth and prosperity brought by the status of a global reserve currency often sow the seeds of decline. Increasing account deficits and widening income inequality weaken a nation’s competitiveness and accelerate debt accumulation. Eventually, the enormous debts and currency devaluations caused by wars force these former great powers to cede the status of reserve currency to emerging nations.
The United States, currently the world’s leading superpower, has followed a similar trajectory. After the Civil War, the US strengthened its competitiveness through the Second Industrial Revolution, the development of capitalism, and its geopolitical advantages. It surpassed declining Europe in terms of wealth and prosperity during and after World War I and World War II, reaching new heights. With the victory of World War II becoming inevitable, the US convened a conference to restructure the post-war financial order, adopting the Bretton Woods system and establishing the dollar as the reserve currency under the gold standard.
However, reserve currency economies based on hard money face a dilemma. To use the US dollar as the primary currency for international trade, there must be an adequate supply of dollars, which requires reserve currency countries to maintain deficits. While gold reserves remain unchanged, the inevitable increase in the supply of dollars inevitably leads to currency devaluation and weakens international trust in the reserve currency. This problem is known as the Triffin dilemma.
The Cold War with the Soviet Union, the Vietnam War, and the oil crisis exacerbated the trade deficits and inflation. When the US could no longer meet the demand for gold redemption, President Richard Nixon terminated the convertibility of the dollar into gold in 1971. This led to a sharp rise in the price of gold from a fixed $35 per ounce to $850 per ounce in 1980, marking the beginning of the fiat currency era and the high inflation era.
Fortunately, due to the implementation of unprecedented high-interest rate policies by Paul Volcker, with interest rates reaching 20%, and the successful establishment of the petrodollar system, the dollar regained its value. This recovery ushered in a period of economic prosperity for the US in the 1990s.
However, after the end of the Bretton Woods system, the issuance of the US dollar underwent fundamental changes. Whenever funds are needed, the government begins issuing Treasury bonds, and the Federal Reserve prints money to purchase these bonds, resulting in a rapid increase in the money supply. Government debt skyrocketed from $391 billion (34% of GDP) in 1971 to $34 trillion (120% of GDP) by the end of 2023. During the financial crises of 2008 and 2020, the government accumulated a large amount of debt through this mechanism, leading to continuous devaluation of the dollar.
How long can such massive government debt be sustained? This question gives rise to various possible scenarios. One possibility is the emergence of inflation fighters like Paul Volcker, who may take severe measures to reduce debt, even at the cost of severe economic recession. Alternatively, disruptive innovations like AI could promote supply and production, exerting sustained deflationary pressure on the economy and prolonging the lifespan of the dollar.
However, as mentioned earlier, currency is a social contract. Therefore, when the international community begins to lose confidence in the US and its currency, the decline of the dollar will begin. The inevitable inflation that comes with being a reserve currency may exacerbate social issues such as income inequality and political polarization, further weakening trust in the dollar. While there are currently no clear signs of the dollar’s demise, more and more issues indicate that this scenario is becoming increasingly likely.
1.2 Bitcoin as Hard Money
As the credibility of the US dollar gradually diminishes, assets like gold naturally come into focus. Gold has been valued since ancient times due to its scarcity and unchanging physical properties. During major conflicts, gold is recognized as the most reliable ultimate asset internationally. Therefore, central banks have always maintained certain gold reserves.
Today, individuals can invest in gold through various means such as mining company stocks, gold futures, and gold ETFs. These investment methods are generally effective in countries with developed financial markets. However, if you reside in a country with underdeveloped financial markets or directly involved in war or revolution, investing in gold may be severely limited. These investment avenues do not involve direct ownership of gold and carry counterparty risks during international turmoil. Additionally, purchasing and storing physical gold is not easy.
In this scenario, Bitcoin can serve as a superior hard asset similar to gold. Its supply is limited, not controlled by any single entity, and particularly easy to store and transfer, even in crisis situations like wartime. For example, during the Russian invasion of Ukraine in February 2022, the trading volume and price of BTC/UAH surged, with a premium of 6% over the international exchange rate. Even in less extreme situations, countries with unstable national currencies exhibit high demand for Bitcoin. In Turkey, where the annual inflation rate is around 70%, Bitcoin experiences a similar trading premium as gold. These examples demonstrate that Bitcoin can indeed fulfill the role of a hard asset.
From the above examples, it is evident that Bitcoin has tremendous potential as hard money in the future. But does this mean that citizens of developed countries protected by stable monetary systems no longer need to include Bitcoin in their investment portfolios? Even outside of crises, allocating a portion of one’s portfolio to Bitcoin can bring substantial benefits in terms of diversification. As shown in the graph, while the correlation of Bitcoin with other assets such as gold, stocks, and the dollar fluctuates over time, it typically exhibits significant price volatility. This uniqueness makes holding cryptocurrencies like Bitcoin an advantageous choice.
In fact, many financial institutions in the United States have recently added BTC ETFs to their investment portfolios. According to K 33 Research data, in the first quarter of 2024, 937 institutions reported holding Bitcoin in their 13F filings. This growing recognition of Bitcoin as an investment option suggests its increasing acceptance and integration into traditional financial systems.
Conclusion:
The future of currency is uncertain, and the dominance of the US dollar as the global reserve currency may be nearing its end. History has shown that reserve currencies eventually lose their status unless an unprecedented perfect monetary policy emerges. However, the transition to a new reserve currency is a complex process with significant implications for global geopolitics and economic stability.
In this context, Bitcoin emerges as a potential alternative to traditional assets like gold, offering the advantages of limited supply, decentralization, and ease of storage and transfer. While the future remains uncertain, diversifying investment portfolios to include Bitcoin can provide tangible benefits for individuals and institutions alike.
As the world continues to evolve, it is crucial to observe historical patterns and leverage technological advancements like blockchain to shape a more decentralized and inclusive future for humanity. The role of Bitcoin and other cryptocurrencies in this process cannot be underestimated.The demand for computing power and hardware for training and inference of AI models is immense. Large tech companies, such as NVIDIA, constantly purchase GPUs like the NVIDIA H 100 for model training, exacerbating the global hardware supply shortage. While services like AWS and Azure provide data centers for cloud-based AI model training and inference, they operate in a monopolistic manner, resulting in high profits for users. To address these challenges, new services that provide decentralized computing power using blockchain technology have emerged.
For example, platforms like Akash and io.net allow users to contribute the computing power of their hardware in exchange for incentives. There are also protocols that specialize in specific services, such as Gensyn, which focuses on AI model training. While general decentralized computing services can reduce costs by utilizing idle hardware, executing stateful computations like AI model training in a decentralized manner poses challenges. Gensyn addresses this issue by leveraging concepts like probabilistic learning proofs and graph-based precise point protocols. Gensyn focuses on training AI models, while Bittensor focuses on AI model inference. Users can submit tasks, and Bittensor’s decentralized nodes compete to provide the best results.
zkML combines zero-knowledge (zk) cryptography and machine learning (ML) to enhance the privacy and transparency of AI models. Currently, many AI models run in closed-source mode, leaving users uncertain about whether these models use the correct weights and perform inference accurately. By applying encryption techniques like ZK-SNARK (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge) to ML models, it is possible to prove that AI models perform inference correctly without revealing their weights, thus achieving privacy and computational integrity.
ZK-SNARK is a powerful encryption technology that can prove the validity of any computation without revealing input data. To illustrate this, consider a real-world example of proving someone’s age online. Typically, this requires complex Know Your Customer (KYC) verification involving disclosing personal information like name and ID. With ZK technology, this process can be simplified and made more private. Once a user has verified their age through an official entity, they can generate and submit a ZK proof when they need to prove that they are over 18. The proof does not contain any personal information but assures verifiers of the user’s age, making the identity verification process safer and simpler.
Applying the same concept to ML models, consumers using closed-source ML models cannot determine if the models perform computations honestly on given inputs. By integrating ZK-SNARK, ML providers can assure consumers that computations are performed correctly without revealing inputs or weights. ZKP (Zero-Knowledge Proof) of ML inference can be generated and verified through smart contracts on neutral blockchain protocols, ensuring trust in the results.
While the concept of zkML is appealing, there are significant challenges. Verifying specific computations with ZKP is relatively simple, but generating these proofs requires more computational power than the actual computations. According to Modulus Labs, generating a ZKP for an ML model with 18 million parameters based on Plonky 2 takes approximately one minute. Considering that GPT-3 has 175 billion parameters and GPT-4 has 1.76 trillion parameters, substantial progress needs to be made before zkML can be widely adopted.
As the AI industry continues to evolve, the importance of data grows exponentially. However, this surge in data has led to an increasing number of data sovereignty infringements. Through blockchain technology, individuals can manage their identity-related information through self-sovereign identity, providing data only when necessary through digital signatures. Additionally, blockchain enables transparent data provisioning or sales through incentive systems or markets accessible to everyone. Reddit’s approach to data sovereignty, offering long-term users the opportunity to participate in its IPO while signing contracts to provide data to Google, showcases a new path for data sovereignty.
Although slightly different from data sovereignty, blockchain also has the potential to address issues in the data labeling industry. Data labeling is crucial for improving the accuracy and ethics of AI models. Currently, this task often falls on low-paid workers, becoming a new social problem. For example, the AI industry in China exploits students from vocational schools, while OpenAI outsources this work to low-paid workers in Kenya. Integrating blockchain into data labeling can democratize participation and ensure fair compensation.
Decentralized computing, zkML, and data sovereignty may address some challenges in the AI industry. However, identity proof and Universal Basic Income (UBI) are crucial for maintaining human sovereignty in a society transformed by AGI. Let’s explore how blockchain supports human sovereignty in such a profound social change.
With advancements in AI models, AI-generated content in various forms (text, images, videos) is becoming increasingly common. Differentiating between human-made and AI-generated outputs is becoming more challenging. Digital acceleration is inevitable, and with the proliferation of AI-generated content, related social issues are undoubtedly on the rise.
These issues are not just speculative; they are already happening. Fraudulent activities, such as deepfakes that mimic a person’s face and voice, have become prevalent, resulting in significant economic losses. The existence of deepfakes has sparked intense debates about the authenticity of videos online.
A recent incident involving Caitlyn Jenner vividly illustrates this point. She announced the launch of a memecoin on the Solana network through the platform X. Given the unusual nature of this announcement, many suspected her account had been hacked. Despite Caitlyn herself posting a video, there is still considerable controversy about whether it is a deepfake. The controversy only subsided when Caitlyn’s agent also released a video.
As we enter the AI era, one of the most critical challenges will be proving a person’s humanity in the digital realm. This concept, known as “identity proof,” aims to prevent witch attacks and false information in the digital world. Currently, most applications rely on government-issued identity systems like passports or credit cards to verify identity. However, these methods come with privacy risks and the possibility of a single point of failure. Therefore, a true digital identity system is essential. Blockchain technology provides a solution that allows individuals to prove their humanity and the authenticity of the content they create, potentially mitigating issues like deepfakes.
The most common form of digital identity verification is biometric systems that verify specific body parts. Sam Altman, the CEO of OpenAI, is advancing a project called Worldcoin, which combines blockchain technology with iris scanning. Users install the application on their mobile devices to receive a private key (account) on the blockchain. By using the Orb, an iris scanning device, users can verify their human identity in the digital world. Orb ensures that users are indeed human and that their irises have not been registered, granting digital identity securely.
Orb only transmits the hash value of the iris data to the server and subsequently destroys the actual iris data. Users can later prove their human identity without revealing their account address through ZK-SNARK, addressing privacy concerns. However, potential issues like hardware backdoors still need to be addressed. The importance of identity proof goes beyond content authenticity; it also plays a crucial role in the concept of Universal Basic Income (UBI), which we will explore in the next section.
As mentioned earlier, the emergence of AGI is expected to bring about an unprecedented leap in human productivity. However, this revolutionary progress will inevitably lead to a significant loss of jobs. To maintain social stability, the concept and necessity of Universal Basic Income (UBI) are gaining increasing attention. The concept of UBI predates AGI and can be traced back to Thomas More’s “Utopia” in the 16th century. UBI entails providing regular, unconditional financial support to all members of society. An existing example of UBI can be found in Alaska, where the Alaska Permanent Fund Dividend provides a form of UBI, demonstrating positive results in areas like poverty, employment, and health.
The focus here is not just on UBI that improves the quality of life, but UBI sufficient to support individuals who become unemployed due to AGI, ensuring they can lead fulfilling lives without work. Elon Musk refers to it as “universal high income.” Similarly, Sam Altman shows a strong interest in UBI and conducts research through OpenResearch. He proposes innovative ideas such as providing UBI in the form of assets and means of production like equity or computing power, rather than just cash.
Sam Altman’s Worldcoin, discussed in the “Identity Proof” section, is also closely related to UBI. A critical aspect of UBI distribution is ensuring that only genuine individuals receive it and preventing one person from making multiple claims. Therefore, preventing Sybil attacks is essential for implementing UBI. Worldcoin achieves this through iris recognition. Currently, users who undergo iris recognition through the Worldcoin application receive regular WLD tokens, which serve as a form of UBI. While I resonate with the vision of Worldcoin, there are still some concerns about the distribution of WLD tokens.
Even beyond Sam Altman’s Worldcoin, blockchain technology is indispensable for establishing a comprehensive UBI system. Blockchain can not only improve transparency and efficiency for recipients through identity proof but also enhance the transparency and efficiency of the distribution process, ensuring more effective and transparent UBI delivery.
In any case, humans will need blockchain technology. Despite experiencing unprecedented crises like the collapse of Terra and FTX, the blockchain market has quickly recovered its scale. However, reflecting on the previous and current market booms, the industry’s vision has undergone a noticeable shift. In 2021, many protocols were driven by a decentralized grand vision, capturing the imagination and excitement of many. Now, despite a similar market size, there seems to be general uncertainty within the industry and community about the direction of blockchain development. This is not due to any failures on our part or flaws in blockchain technology itself; rather, it is simply because the current era has not yet created an urgent need for blockchain technology.
While observing the application of blockchain in niche markets is interesting, the industry must aim for higher goals. As the long history of humankind demonstrates, we will continue to experience cyclical currency systems and revolutionary technological innovations. In these grand trends, blockchain will be a key technology for maintaining human sovereignty.
