Bitcoin: The dematerialization of money

“Software is eating the world” was already written in 2011 by Marc Andreessen, someone who should know. Every area of life is being digitized. Why should this trend end with money?

This article first appeared in Cryptocompass 07/2021.

Marc Andreessen is a tech specialist. Among the investments in which “a16z”, as Andreessen Horowitz is also known, has been involved are Facebook, Groupon, Skype and Twitter. The success speaks for itself: Andreessen has understood how companies can succeed in the 21st century: by digitizing fundamental areas of life. Facebook is dematerializing social life, Google Maps is dematerializing road maps, and Amazon is dematerializing retail.

“Why Software is eating the world”, ten years after its publication, can be understood as a blueprint about the most successful business model in the 21st century: Start a software company and there are no limits to expansion. It is by no means a coincidence that nine of the ten most valuable companies are technology giants.

The intrinsic value of software

For Marc Andreessen, the case is clear: the intrinsic value of software companies is that business models are no longer local, but can reach a global audience at lightning speed. The only variable of digital distribution, then, is the degree of penetration of Internet connections and devices that can access it. And this is steadily increasing: According to Statista, 4.66 billion people worldwide had access to the Internet in January of this year, or nearly 70 percent.

Local retailers don’t stand a chance against a “total addressable market” that can potentially reach everyone. Consequently, Amazon – a software company – is the largest book retailer in the world. And it’s not just the physical book business that the corporation has dematerialized. The book itself is also written digitally and in many cases is no longer even printed. If it lands on the Kindl at the end of the value chain, it remains entirely in digital space.

Smartphones are of particular importance when it comes to digitization. After all, mobile devices have dematerialized several objects at once: Cameras, Walkmans, street maps, calculators, alarm clocks and the like are now available as apps on smartphones. And there are good reasons for this.

After all, the fact that software is penetrating ever further into every area of life is due not least to the massive efficiency advantages that digital applications have over their physical counterparts. Software only has to be developed once; copying data downstream is virtually free and can thus be delivered to a global target group. This also reduces costs for users. Marc Andreessen was right: software is eating the world.

Financial sector lags behind

But one sector is not quite willing to get rid of its anachronistic image: We are talking about the financial world. It is true that a large proportion of financial transactions in this country are already conducted electronically. But if you look beyond the In the global north, for example in the direction of sub-Saharan Africa or Latin America, the picture is less rosy. Cash is still the number one means of payment in large parts of the world, while the rate of bank accounts is alarmingly low. The World Bank estimates that around 1.7 billion people worldwide belong to the “unbanked population”, i.e. do not have a bank account.

Those who do not have a bank account have to receive cash via services such as Western Union and the like. This is time-consuming, insecure and, above all, expensive.

The fact that sending money in the 21st century has not long been as easy as sending e-mails is an indictment and is due not least to a lack of competition.

Competition to traditional money

But competition is emerging: it’s called bitcoin. The No. 1 cryptocurrency brings with it all the advantages that software has over its physical counterpart: it is faster and more secure than cash services – but above all, it is open and decentralized. Everyone can voluntarily participate in the Bitcoin network; the more applications there are and the easier it is to get started, the more will use Bitcoin.

In addition to the efficiency and cost advantage that digital money has over physical notes, BTC has a very crucial marketing argument on its side: price growth, also known as “Number go Up Technology” (NgU Technology). Because even if it’s not quite enough to become currency yet, as a digital store of value BTC is already ideally suited.

Especially in countries like Argentina, Venezuela, Turkey and Lebanon, this is a crucial aspect. While Bitcoin has already grown by around 264 percent year-on-year when measured in US dollars, it has grown by 393 percent when measured in Argentine pesos.

Over its eleven-year existence, Bitcoin has grown by an average of around 200 percent per year. With a total increase in value of several million percent since its genesis, Bitcoin is the best performing asset in the history of mankind.

The dematerialization of gold?

So the dematerialization of gold is only a matter of time from the perspective of permabullish Bitcoiners like Michael Saylor. In the podcast with Stephan Livera, the MicroStrategy CEO said:

“I conclude that cryptocurrencies are about 10 to 100 times better than gold. […] It just doesn’t make sense to invest in gold. Gold as a store of value will be rationally eaten up by Bitcoin.”

What Michael Saylor outlines here as “better” can be fleshed out even further. For example, the characteristics that make a good store of value can be broken down to a few core aspects such as scarcity, transferability, divisibility, durability, recognizability. In pretty much all aspects, Bitcoin beats gold hands down. For example, BTC is significantly more divisible than gold (who wants to pay for a coffee with gold crumbs), it is counterfeit-proof – anyone with a full node can verify transactions and thus “authenticity”. It is also much more transferable because it is data that is sent at the speed of light.kt can be made.

Bitcoin transaction more efficient than that of gold

If you want to send physical gold across the Atlantic in large quantities, you have to incur enormous costs to do so. A BTC transaction, on the other hand, is set in digital stone after just one hour.

The only thing missing from digital gold is its history as an established store of value; Bitcoin cannot look back on thousands of years of history as a form of money. It is clear, however, that a new money cannot gain global acceptance within a few years.

Whether and when Bitcoin can completely knock gold off its throne is impossible to reliably estimate. But if every area of life is mapped in the digital space, why not money as well?