Cryptocurrencies have emerged as a disruptive force in the global financial system, promising a new era of transparency, efficiency, and decentralization. However, the rise of digital currencies and blockchain technology has also sparked intense debates about their impact on privacy, equality, and the traditional roles of economic institutions. This article explores whether cryptocurrency is a tool for individualism and inequality or a means to foster transparent transactions, government accountability, and stability.

Transparency vs. trust: The crypto paradox

One of the most compelling arguments in favor of cryptocurrencies is their potential to ensure transparency in financial transactions. Blockchain, the underlying technology of most cryptocurrencies, records every transaction on a public ledger that is immutable and accessible to all. This transparency is often seen to reduce the need for trust in centralized institutions, such as banks, by providing a verifiable and tamper-proof record of all transactions.

However, this transparency is predicated on the belief that blockchain technology is flawless. While blockchain is indeed a robust and innovative system, it is not immune to vulnerabilities, such as coding errors or cyberattacks. Additionally, the assumption that transparency alone can replace trust overlooks the fact that most people lack the technical expertise to verify blockchain data independently. As a result, trust in the technology and its developers remains essential, which de facto will be another private central institution without the public checks and balances.

Privacy concerns: The cost of full disclosure

The transparency offered by cryptocurrencies comes with significant privacy concerns. Although transactions on a blockchain are pseudonymous, they are not entirely anonymous. With enough data and analytical tools, it is possible to link blockchain addresses to real-world identities, compromising individuals’ privacy. This full disclosure can be particularly harmful in a world where personal financial information is increasingly valuable and vulnerable to exploitation.

Moreover, the immutable nature of blockchain records means that once information is recorded, it cannot be altered or erased. This permanence can expose individuals to risks if their financial history is made public or misinterpreted. The challenge, then, is to strike a balance between the benefits of transparency and the need to protect individual privacy.

A tool for individualism and inequality?

Cryptocurrency is often hailed as a tool for financial freedom and individualism, allowing people to transact without relying on traditional financial institutions. However, this same individualism can exacerbate inequality. If more people adopt cryptocurrencies, the value of these digital assets could rise significantly due to its scarcity, making it difficult to access. As gold, it will be own to store value, not to create value, although some say that the limited number of Bitcoin for example can help control inflation because there is no way to “print” more. 

Unlike traditional economies, where wealth redistribution is facilitated through taxation and public services, the decentralized nature of cryptocurrencies poses challenges for addressing inequality. Without taxes, there is no mechanism for redistributing wealth or funding public services that benefit the economy and society. This could lead to a situation where the rich become richer while the rest of the population struggles to keep up — a dynamic that mirrors, and potentially exacerbates, the inequalities of the current economic system.

This should be an opportunity to push more transparency and efficiency on government expenditure and the real economic engineering to demonstrate how many taxes are rally needed to foster economic growth, fund public services without destroying people’s freedom.

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The role of traceability: Replacing human institutions?

One of the most intriguing possibilities of blockchain technology is its potential to replace traditional checks and balances in the financial system. Traceability in cryptocurrencies could theoretically eliminate the need for some human institutions, by providing a fully transparent and automated system for economic transactions.

However, this raises important questions about the role of human oversight in economic governance. Central banks, for example, play a critical role in stabilizing economies through monetary policy, while legislative bodies ensure that economic decisions reflect the will of the people. The scrutiny of journalism and civil society organizations is essential for holding governments and corporations accountable. Instead of fighting these democratic institutions, shouldn’t we use the technology to help them ensure that the system will finally be fairer and just?

The role of government: The first insurance and shared risk network

Governments have traditionally served as the first insurance and shared risk network, providing essential services such as healthcare, pensions, justice, and disaster relief. In times of economic or natural crises, governments step in to stabilize societies, offering safety nets that protect banks, companies, employment and the most vulnerable. The banking system serves as the second layer of protection, managing financial risks and providing liquidity, while the capital markets act as the third layer, offering investment opportunities and facilitating economic growth.

The question then arises: Can cryptocurrency provide these vital services, or at least assist existing institutions in doing so? While blockchain technology has the potential to enhance transparency and efficiency in these areas, it is unlikely to replace the fundamental roles of government and other institutions. For instance, while a decentralized financial system might offer new ways to manage and distribute funds during a crisis, the coordination and collective action required to address large-scale challenges still rely heavily on centralized governance structures. A good exercise is to ask what went right and wrong during the pandemic, the 2008 crisis, or how to prevent or manage a hypothetical international or civil conflict.

Accountability and taxation: The potential of blockchain

While some view cryptocurrencies to avoid taxes and accumulate wealth, others see blockchain technology as a tool for enhancing government accountability. By recording all transactions on a public ledger, blockchain could make it easier to trace how governments spend taxpayer money, potentially reducing corruption and inefficiency.

However, this potential has yet to be fully realized. For example, El Salvador’s President Nayib Bukele has promoted Bitcoin to empower citizens and reduce dependence on traditional financial systems. Nevertheless, his claims that taxes are unnecessary because governments can print money are misleading. Printing money without backing can lead to inflation, which disproportionately harms the poor. Moreover, taxes are not just about raising revenue; they are also about redistributing wealth and funding public services that are crucial for growth, stability and cohesion.

Embracing change with balance

Cryptocurrencies and blockchain technology will continue to shape the future of finance and governance. However, their success will depend on how well we address the challenges of transparency, trust, privacy, and inequality. If cryptocurrencies are used as tools for avoiding taxes and accumulating wealth through speculation, they could contribute to a more unequal and unstable society.

On the other hand, if we harness the power of blockchain to create a more transparent, traceable, and democratic economic system, we could take a significant step toward a more free, prosperous, and equitable society. This will require thoughtful regulation, technological innovation, and a commitment to ensuring that these new tools serve the common good rather than narrow interests.

The only constant is change, and as we navigate the opportunities and challenges of cryptocurrency and blockchain, we must remain vigilant to ensure that these technologies are used to build a better future for all. – Rappler.com

Juan Pablo Camacho is a policy advisor and business manager, former advisor for the former Vice President of Colombia, and recently relocated to Manila for family reasons and entrepreneurship. He is a compulsive reader, foodie, and football fan, and has just begun diving.