Failing Fiat Economies Push Bitcoin Adoption
Hyperbitcoinization: For Bitcoin idealists, the coming utopia of global finance begins with Bitcoin dismantling fiat hegemony. This civilizational proposition has appealed to cypherpunks since the early days of Bitcoin. Now, crypto has gone mainstream as ordinary people are increasingly squeezed by failing economies and overbearing government policies.
Satoshi Nakamoto Institute co-founder Daniel Krawisz describes Bitcoin’s upcoming rise to power as “hyperbitcoinization.” This will appear in part due to bad policies, failing economies and overbearing government intervention. It will force people to opt out of fiat hegemony.
“Bitcoin-induced currency demonetization, or hyperbitcoinization,” is what would happen if “any unfortunate currency” stands “in Bitcoin’s way of total world domination,” Krawisz says. “If this happens, the currency will quickly lose value as Bitcoin replaces it.”
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From recent government crackdowns on political protests, it’s clear that when pressured, people migrate to the next technology to assert their agency. As the world enters an uncertain season of recession, hyperbitcoinization may finally become a reality.
Hyperbitcoinization: the failure of fiat money
Lebanon, Turkey, Venezuela, Cuba, Zimbabwe and several other countries have faced problems with hyperinflation. Fiat currencies are in a race to the bottom, prompting governments to implement questionable policies to stop the rot.
But the invocation of special powers by presidents, price controls and surrogate currencies also compete with economic sanctions, poor governance and other structural factors that render the government’s fiscal control efforts meaningless. It also denies citizens control over their money.
The humanitarian failures of fiat money were evident in Venezuela sometime in 2019. Families were forced to buy rotten food and give up their children for adoption in the face of a lack of basic goods. At the last official count, inflation in Venezuela was 151% in May.
Such tragic cases impress the urgency of an alternative currency that is not vulnerable to the whims of central banks. In Lebanon, failed government policies have robbed people of their savings and pensions. Its national currency has also dramatically lost value.
Turn to Bitcoin
According to a recent CNBC report, people in Lebanon have increasingly turned to Bitcoin to preserve the value of their money in the wake of a severe financial crisis caused by decades of “expensive wars and bad spending decisions.”
Citizens use Bitcoin as a means of payment for both local and foreign transactions, the report said. USDT stablecoin is also popular in the country. While crypto is not allowed as a means of payment by the Lebanese government, people don’t seem to care.
Businesses are promoting crypto as an acceptable payment method on Instagram and other social media platforms, CNBC reported. It added that the banking system is broken and the local Lebanese pound has lost 95% of its value since 2019. Banks are limiting withdrawals.
Rising global food and energy costs driven by the Ukraine war and the fallout from the COVID-19 pandemic have exacerbated food shortages and driven inflation even higher this year. Official data says year-on-year inflation was 162% in September, one of the highest in the world.
“The use of USDT is widespread,” said one user, identified only as Gebrael. He added:
“There are a lot of coffee shops, restaurants and electronics stores that accept USDT … so it’s convenient if I need to spend not in fiat, but from my bitcoin savings. The government has much bigger problems right now than worrying that some stores accepts cryptocurrency.”
Government repression
Economically failing and isolated governments have historically resorted to obsessive control of institutions and repression of citizens as they voice protests. In Zimbabwe, where inflation is the world’s highest at 269% in October, the authorities have cracked down on dissent.
Zimbabwe is often cited as a good case for Bitcoin adoption due to its long-standing currency problems. In January 2019, the government banned popular social networks for containing protests and blacked out coverage of a brutal government crackdown.
The demolition reportedly resulted in the death of 12 people and left more than 60 gunshot victims in hospital. There was widespread beating. However, repression has led to new technological opportunities opening up earlier.
Zimbabweans responded to the total shutdown of the internet by migrating to Telegram. Telegram is designed as a communication app to resist surveillance and suppression. Citizens also unlocked banned social networks, Whatsapp, Facebook and Youtube, through virtual private networks (VPNs).
As citizens reclaim their democratic freedoms through alternative communication channels, there is reason to believe they will follow suit in reclaiming their economic freedoms through censorship-resistant currencies like Bitcoin.
In fact, Bitcoin has continued to flourish on social media since the Reserve Bank of Zimbabwe, the country’s central bank, banned cryptocurrency trading and closed two exchanges in May 2018.
But trade did not die with the ban. Instead, it reinvented itself on Whatsapp through peer-to-peer trading. Over time, crypto enthusiasts have built strong Whatsapp groups where they share information and news about developments in the sector.
Now they use similar groups to buy and sell cryptocurrency, using connections they already know or new ones. The trust built in this community is key to building trust and preventing theft.
To combat inflation, Zimbabwe’s government has unveiled a scheme that allows ordinary people to buy gold coins using local currency. The plan also aims to help people in a country that has seen the worst inflation in history, at 4 billion percent, preserve their value.
Reclaim individual financial freedom
Some countries are clearing the turf for crypto through soft touch regulation. Others unwittingly do the same by failing to contain inflation. This has led to a breaking point where citizens are taking back their freedom via alternative currencies, primarily Bitcoin.
In Turkey, the government’s crackdown on crypto exchanges has failed to stop citizens from turning to BTC. Inflation in the country reached a 24-year high of 86% in October. Turkey also banned crypto payments in 2021.
According to LocalBitcoins data, BTC peer-to-peer trades in Turkey rose by 51% and 40% during the 1st and 2nd quarter of 2022. All this happened as the value of the Turkish lira fell. People use Bitcoin as an inflation hedge.
Chainalysis says Turkish citizens received $192 billion in crypto between 2021 and June 2022. The country has some of the fastest Bitcoin adoption rates in the world.
Bitcoin continues to make inroads worldwide. This has happened through progressive government policies and increasing user adoption. Failure of fiat currencies in developing economies will continue to force citizens to reclaim ownership of their money.
At the tipping point of hyperbitcoinization, Daniel Krawisz’s radical vision of economic freedom and inclusion will see citizens of poorer countries act in a way that is borderless and permissionless.
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