Is the dematerialization of money coming now?

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

Ten years after its publication, “Why Software is Eating the World” can be understood as a blueprint for the most successful business model of the 21st century: start a software business and there are no limits to expansion. It’s no coincidence that nine of the ten most valuable companies are tech giants.

The intrinsic value of software

For Marc Andreessen, the case is clear: the intrinsic value of software companies lies in the fact that business models are no longer local, but can reach a global target group in no time. The only variable in digital distribution is therefore the degree of distribution of Internet connections and the terminals that can access them. And it keeps growing: according to Statista, in January of this year, 4.66 billion people in the world had access to the Internet, or almost 70%.

Local retailers don’t stand a chance against a “total addressable market” that can potentially reach everyone. Therefore, Amazon – a software company – is the largest bookseller in the world. And the group has not only dematerialized the activity of the physical book. The book itself is also written digitally and, in many cases, not even printed. If it ends up on the Kindle at the end of the value chain, it remains entirely in the digital space.

Smartphones are of particular importance when it comes to digitization. After all, mobile terminals have dematerialized several objects at the same time: cameras, walkmans, road maps, pocket calculators, alarm clocks and others are now available in the form of applications on smartphones. And there are good reasons for that.

Not the least of which is the fact that software is penetrating all walks of life due to the huge efficiency advantages that digital applications have over their physical counterparts. Software only needs to be developed once; the copy of the data is practically free afterwards and can therefore be delivered to a worldwide target group. It also reduces costs for users. Marc Andreessen was right: software is eating the world.

The lagging financial sector

But one sector does not really want to get rid of its anachronistic image: it is the financial world. It is true that the majority of financial transactions in this country are already processed electronically. However, if we look beyond the horizon of the Global North, towards Sub-Saharan America or Latin America, things are less rosy. Cash is still the number one means of payment in large parts of the world, but the number of bank accounts is alarming. The World Bank estimates that around 1.7 billion people worldwide belong to the “unbanked population”, that is, they do not have a bank account.

Anyone who does not have a bank account must receive money through services such as Western Union and Co. It is time consuming, dangerous and, above all, expensive.

The fact that sending money in the 21st century is nowhere near as easy as sending email is an indictment and is ultimately down to a lack of competition.

competition with traditional currency

But the competition is spreading: it’s called Bitcoin. The #1 cryptocurrency has all the advantages of software over its physical counterpart: it’s faster and more secure than cash services – but above all it’s open and decentralized. Anyone can voluntarily participate in the Bitcoin network; the more apps there are and the easier it is to get started, the more Bitcoin will be used.

Besides the efficiency and cost advantages that digital currency has over physical banknotes, BTC has a very important marketing argument on its side: price growth, also known as “Number go Up Technology” (NgU technology). Because even if it is not enough to be a currency, BTC is already perfectly suited as a digital store of value.

This is a crucial aspect, especially in countries like Argentina, Venezuela, Turkey and Lebanon. Because if Bitcoin measured in US dollars has already increased by around 264% year over year, measured in Argentine peso, it is still 393%.

In eleven years of existence, the average annual growth has been around 200%. With a total increase in value of several million percent since its genesis, Bitcoin is the most successful asset in human history.

The dematerialization of gold?

From the perspective of permabullist Bitcoiners like Michael Saylor, the dematerialization of gold is only a matter of time. In the podcast with Stephan Livera, the CEO of MicroStrategy says:

“I come to the conclusion that cryptocurrencies are around 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 devoured by Bitcoin.

What Michael Saylor describes here as “best” can be further specified. Properties that make a good store of value can be broken down into a few key aspects such as scarcity, transferability, divisibility, durability, and recognizability. In almost every aspect, Bitcoin beats gold by far. For example, BTC is much more divisible than gold (who wants to pay for a coffee with gold crumbs anyway), it’s unforgeable – anyone with a full node can verify transactions and therefore “l ‘authenticity”. It is also much easier to transmit because it is data that can be sent at the speed of light.

Bitcoin transaction more efficient than gold

If you want to send physical gold in large quantities across the Atlantic, you have to accept enormous costs. A BTC transaction, however, is set in digital stone after just one hour.

The only thing digital gold lacks is its history as an established store of value; Bitcoin does not have a millennial history as a form of currency. However, it is clear that a new form of currency will not be able to impose itself worldwide within a few years.

Whether and when Bitcoin Gold can completely dethrone cannot be reliably estimated. But if all areas of life are represented in the digital space, why not money?

Warning

This article was previously published in our magazine BTC-ECHO in July 2021. It has been reviewed and adjusted accordingly for republication.