Ines AissaniThe growing and meteoric adoption of Bitcoin across the world has sparked debate about its potential role in the transformation of economies that cryptocurrency could bring about. An interesting idea also emerged regarding the potential impact of Bitcoin on preventing wars. Indeed, for many bitcoin fans, Bitcoin would be a currency incompatible with the idea of wars and armed conflicts.
As the Israeli-Palestinian conflict reopens a new bloody chapter, this perspective on Bitcoin seems more relevant than ever to analyze. This article explores this intriguing idea and examines how Bitcoin could contribute to a more peaceful future while highlighting its limitations.
On the idea of a “peaceful” bitcoin
At first glance, the connection between Bitcoin and war prevention may seem unlikely or coincidental. However, this idea has been developed by economists such as Saifean Ammous in “The Bitcoin Standard.” The idea is based on the assumption that wars are financed by massive printing of money by governments. As the historian points out, Pierre Bezbakh, "France and Germany resorted to printing money and borrowing to meet the expenses incurred by the First World War." It is now accepted that wars - especially during the 20th century - resort to printing money to finance wars.
The use of “money printing” by the central bank constituted the simplest means of financing state expenditure.
Pierre Bezbakh, How the belligerents financed 1914-1918
In this logic, if we remove the ability of States to print money unlimitedly, the possibility of waging wars fades. However, this is precisely what Bitcoin offers in its protocol: the impossibility of modifying the supply of bitcoin issued. Unlike government currencies which can be subject to uncontrolled inflation, Bitcoin is designed to be rare and limited to 21 million units. This means that no one, not even governments, can increase the supply of bitcoins to finance any activity.
It is this fundamentally "deflationary" characteristic which would be fundamentally incompatible with the financing of wars.
Bitcoin and “Time Preference”
The other argument that explains how bitcoin could prevent wars is based on the concept of "Time Preference". Developed by the economist irving fisher In "The Theory of Interest," the term refers to individuals' preference for immediate consumption over future consumption. According to Fisher, "time preference" makes it preferable for individuals to choose a dollar of gift in the immediate future rather than receive a dollar of income in the future.
However, you should know that time preference is more or less weak depending on the individual and the circumstances.
From the perspective of money and savings, individuals are motivated to save and invest for the future if the currency is stable and retains its value over time. In this case, individuals are willing to delay gratification for better long-term outcomes. They have a low "time preference." Conversely, when the value of a currency is unstable or declining, individuals are motivated to spend immediately rather than save for the future. In this situation, individuals will be more inclined to be epicurean and spend a currency that will inevitably be less valuable in the future.
Therefore, if individuals own bitcoin, they will be tempted by a savings approach, especially since the price of Bitcoin has continued to rise since its creation (although it has experienced periods of decline). cyclic).
The "holding" is also the leitmotiv many bitcoiners. The expression refers to saving as much bitcoin as possible and waiting for it to be adopted more and for the price to increase in value.
Financing wars through inflation
When governments decide to print additional money, the immediate consequence is to dilute the value of the existing currency. Finally, and by deliberately taking shortcuts, most wars are financed by inflation, which is essentially, let us remember, an invisible tax on the holders of the currency. Even more, war expenses can lead to an increase in public debt.
If governments opt to issue additional money, it is because there is no other choice other than to increase taxes. Faced with a choice that would likely be unpopular (especially to finance a war), States are forced to use the printing press method.
If we follow the logic, a state that owned Bitcoin could not finance the war through inflation and would therefore be forced to abandon the belligerent initiative. Of course, the state can always increase taxes. This would make the war more expensive and even more unpopular with the taxpayer. Ultimately, states would be discouraged from triggering armed conflicts and would then seek to build their economies in peace.
Limits to consider
Although the idea that Bitcoin could help prevent wars is very attractive to bitcoiners, it is crucial here to highlight its limitations. It is true, for example, that Bitcoin is resistant to inflation, but that does not mean that it is not subject to fluctuations in its value. The volatility of Bitcoin, although it tends to fade over time, can be an obstacle to its adoption. Some people might be afraid of owning bitcoin for the long term.
Additionally, the idea that Bitcoin could prevent wars relies on the assumption that governments would adopt Bitcoin as a reserve currency. For the moment this is not the case although there are two countries, namely El Salvador and the Central African Republic, which have decided to make it legal tender. For the moment and for the advantages it brings them, governments do not seem ready to give up their ability to control their own currencies.
Finally, and the saddest argument against this idea is that even if Bitcoin could potentially deter governments from financing wars through inflation, it would not be enough to guarantee peace. As we all know, wars can be started for many reasons and some would find a way to fight even without receiving funding. Worse, we can imagine in an extreme scenario that this could open up and favor terrorist militias which would receive diverted financing.
Final word on the peaceful aspect of Bitcoin
The idea that Bitcoin could help prevent wars is certainly both an intriguing and fortunate idea, but it also has its limitations. Although Bitcoin has the potential to encourage weak time preference and deter governments from financing wars through inflation, this may not be enough given that war seems to fall to human nature. In a fatalistic view, there will always be reasons to wage war that go beyond economic reasons.
Nonetheless, the possibility that Bitcoin could play even a minor role in promoting peace is worth examining and taking seriously. Finally, even Bitcoin is not the miracle solution for preventing wars, we can naively think that it could contribute to a more peaceful future between individuals if not between States….
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