Bitcoin and its crypto-cash counterparts are essentially trustless monetary systems that upend the banking establishment’s ideals of how a financial system should operate.
Intriguingly, the concept of digital money was predicted as far back as the late ’90s.
was one of the most renowned economists of the 20th century and his ideas radically changed the way that policymakers made their decisions.
Friedman foresaw that bitcoin, or something like it, could have great advantages and would inevitably be developed – much to the animosity of incumbent institutions in the financial world.
Jeffery Tucker is an economist, the founder of the Liberty.me and a regular speaker at bitcoin conferences. He says that Friedman had precognition about decentralized forms of money.
The liberating web
Friedman passed away before the arrival of bitcoin, but he lived long enough to see the Internet’s meteoric rise throughout the ’90s. By 1999, he had realized the Internet would shape authority:
Despots have come to understand this too. In the recent ‘Arab Spring’ upheavals, autocracy often did its best to suppress the uniting power of the web.
Friedman was long against ‘collectivism’, a term he used for a government that had become too all-reaching and powerful.
Fortunately, authoritarian regimes now have to deal with a new digital threat – decentralization.
Systems that lack a central authority can cause severe headaches for governments both good and bad.
What Friedman had in mind when he proposed the idea of digital cash, however, was reducing the need for a third party in transactions.
It seems that Friedman knew the decentralization of money would arrive one day. But it’s not so certain that he willed it to happen. As Coinapult founder Erik Vorhees says:
Furthermore, Friedman advocated for abolishing the Federal Reserve, to replace it with an automated system that adjusted the money supply accordingly. It seems that he also believed the free market would bring that concept to fruition. He was right.
Bitcoin has been lauded as one of the technical innovations of its time. But it has an image problem to overcome – a common perception that is dark and lawless – created largely by the stream of sensational media reports.
Many people now believe cryptocurrencies are merely an avenue for criminality or bad behaviour, such as theft, drug dealing and gross negligence.
That’s why Friedman’s prediction that e-cash would be anonymous is concerning to many. Then again, this is an economist that believed in complete economic freedom; intervention was an impediment in his idealistic world.
The economist prophesized a method of electronic money that would be simliar to cash – a system that banking embraces, yet possesses major flaws:
Eventually, Friedman’s belief that e-cash would proliferate on the Internet has proved correct, of course. Its advantages could not be ignored. One concern, however, is how legitimate could a cryptocurrency be if it were truly anonymous? Friedman saw this as a small problem that the market would eventually correct:
It seems Friedman knew that Silk Road would have to proliferate in order for bitcoin to become popular with the masses. On the negatives of ‘e-cash’, he said:
Keeping it real
Some economists deride bitcoin because it is ‘Internet money’, and argue that it’s not ‘real’. The fact that bitcoin is a payments system with billions in market capitalization, and has a mass collective of machines confirming transactions, seems to prove nothing. But as Marc Andreessen put it for the New York Times:
Brave new world
The barriers that centralized banking has put in place have proved to be major societal problems.
Crowdfunding, peer-to-peer lending and decentralized math-based currencies are new innovations, and are ideas Friedman would likely have approved of.
Mobile technology, which will shape the future of payments, would likely have been applauded too.
What also might have excited Friedman is the Seasteading Institute – a project his progeny are involved in – that has promoted the concept of creating permanent communities at sea. The institute is researching new ways to experiment with community economics outside of national borders and has embraced decentralized currencies.
“Of course, Friedman didn’t predict the block chain,” summed up Jeffery Tucker. "But he was hoping for a trustless system. He saw the need.”
Quite a premonition, indeed.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is an award-winning media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. In November 2023, CoinDesk was acquired by Bullish group, owner of Bullish, a regulated, institutional digital assets exchange. Bullish group is majority owned by Block.one; both groups have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary, and an editorial committee, chaired by a former editor-in-chief of The Wall Street Journal, is being formed to support journalistic integrity.