Bitcoin and the Theory of Creative Destruction

[d5000]

Reading about this years Nobel laureates I stumbled upon the the theory of Creative Destruction. It is an old theory published first in 1942 by Joseph Schumpeter and explains how innovations replace older technologies, creating value on the way, and thus ensuring the survival of capitalist economies. This year the Swedish Rijksbank Prize for Economic Sciences went to Philippe Aghion and Peter Howitt who have applied the theory on the development of modern societies through technology.

I thought Bitcoin fits quite well into this very basic model, and thus I'm wondering if it was already discussed here.

Bitcoin comes as a "new type of money", i.e. as a financial innovation. Can it "creatively destroy" its predecessors? And what are its predecessors? Fiat money, or other kinds of assets?

Schumpeter's theory says basically that the essentials of creative destruction is a new combination of production factors (like capital and labor). For example, AI is an example where certain kinds of labour (e.g. writing and graphic design) can be replaced by capital (investment in computing power), leading to a "recombination" of these production factors. Graphic design studios for example have to adapt, e.g. concentrating on high quality design or offering AI-assisted low quality design, or they will probably die. Both alternatives are less labour and more capital intensive, so the whole sector will change, but in the end they will deliver more value.

How fits Bitcoin here? Many people for example think that Bitcoin could replace banks, which would be essentially such a process of "creative destruction". I don't think it will replace them entirely (risk scoring and loans are very difficult to replace, for example), but IMO it can lead to some of banking's services, like SWIFT for international transfers, certain payment services, but also (if Bitcoin stabilizes) retail and company bank accounts. Bitcoin is far less labour intensive than banks, so the process would be similar to the way AI replaces or "enhances" some creative industries in the present.

It's interesting though that Bitcoin seems to be also less capital intensive than banks: while there are investments in mining and also in development of services (who sponsor Bitcoin development too, e.g. in the case of Blockstream), banks have even higher capital requirements, think of all the office space they occupy. So Bitcoin really could boost productivity in the financial sector and be perhaps even more revolutionary than AI.

In the case of fiat money, I think it is questionable if Bitcoin can replace it. Fiat's "innovation" was to adapt money supply to real economic growth without the "limits" of an asset like gold. I can perfectly imagine a "Bitcoin standard" society, but in this case I think there would be replacements to fiat -- and if we think of a crypto-only economy, this would be a strong altcoin sector with continuously growing total money supply.

There are several details to discuss here but I don't want to get the post too long, so I leave this for the discussion. I will also try to look into the work of this year's Nobel laureates to know if their adoption of Creative Destruction can be applied to Bitcoin.

[348Judah]

In the case of fiat money, I think it is questionable if Bitcoin can replace it. Fiat's "innovation" was to adapt money supply to real economic growth without the "limits" of an asset like gold. I can perfectly imagine a "Bitcoin standard" society, but in this case I think there would be replacements to fiat -- and if we think of a crypto-only economy, this would be a strong altcoin sector with continuously growing total money supply.

There are some common similarities that we may be able to apply and compare fiat to Bitcoin existence, but we should know that they entire pattern of introducing Bitcoin does not aligned with what we already have with fiat, but if it happens as intended, it's either we have both to exist and each individual will have to decide on which one they wanted and how they are going to make it more applicable on their demands.

Talking about the value of bitcoin, the incessant printing of fiat currency and inflation altogether, we should be able to arrived at a conclusion which permits that the more we continue with the way of using fiat, there's obvious reasons not to have a change from what has always been, but bitcoin serving an alternative will make everything balanced on an equal rights and access towards a decentralized network, whereby the Bitcoin value continue to increase over time instead of continuing mining without limit, everyone will eventually have Bitcoin even after the 21 million has been completely mined, because it will always increases in value instead of continuous mining as they do with fiat.

[Hypnotizer]

Bitcoin comes as a "new type of money", i.e. as a financial innovation. Can it "creatively destroy" its predecessors? And what are its predecessors? Fiat money, or other kinds of assets?

Bitcoin indeed can `creatively destroy’ it’s predecessor which are fiat in terms of currency use and gold, silver or stocks in terms of investments and the predecessor that will probably experience the ultimate destruction is the fiat money because many people back then before the creation of bitcoin consider fiat currencies as their primary store of value(to easily save and spend)…precisely most people especially in the rural areas that don’t have direct access to the stock market, banking system or gold and silver to store their values consider storing their values  in fiat currency because it is probably the easiest option available to them and then the currency end up losing its value due to inflation. Bitcoin on the other hand offers decentralized and borderless network that doesn’t limit anyone from using it and it being appreciative over long period of time makes it perfect for the people in the rural areas to store their values instead of  storing it  in fiat.

When bitcoin will eventually go mainstream those rurals will store their values in bitcoin, when they fully understand the system and how it works. They will only keep their spendable money in fiat

Even currently I might say bitcoin has creatively started destroying fiat money especially in the scenarios as I mentioned above.

[EluguHcman]

Reading about this years Nobel laureates I stumbled upon the the theory of Creative Destruction. It is an old theory published first in 1942 by Joseph Schumpeter and explains how innovations replace older technologies, creating value on the way, and thus ensuring the survival of capitalist economies. This year the Swedish Rijksbank Prize for Economic Sciences went to Philippe Aghion and Peter Howitt who have applied the theory on the development of modern societies through technology.

I thought Bitcoin fits quite well into this very basic model, and thus I'm wondering if it was already discussed here.

Yeah I saw one similar topic earlier today that discusses about Benner's Theory & Bitcoin which Bitcoin has come to existence as evolution to potential volatile asset following the specified theory.

Back to the discussion... Before Bitcoin came to existence in 2009, there has been speculations that there will be a currency that will be in used by everyone and it was dma skeptic how this can be possible when the traditional currencies is there and monetary is at it high regulations where every countries imposes their own policies.
But as today's has come that era with Bitcoin being usable by anyone and can send fund through it digital system across borders with a very low fees.

So it digital accessibility, use cases and potential values got it (Bitcoin) an oversight as one of those evolution and modernized monetary values

[Mrbluntzy]

The adoption of creative destruction theory is gradually working with Bitcoin but not completely, there are some factors that you have already listed such as loans, risk and elimination of Fiat money.

In some country like mine, we already know that there won't be a total elimination of Fiat money and can not be replaced completely with Bitcoin because there are localities in my country that has big general markets where the traders are mostly older men and women and some younger uneducated ones too who are selling some of the locally most wanted food materials in those markets.  
       These sets of traders wants payment to be made to them in cash, not even via mobile bank transfer or the use of credit or debit cards on point of sales terminal but they demand for cash, they feel they are more safe with receiving cash and then going to the bank to make deposits of the cash received from payment but that's if they want to, and they are also ready to visits the bank or ATM to collect cash too if they want to. They have not passed the stage of relying on Fiat money so it will be very difficult and would take so many years to completely convert this people. I know that it's not just in my country that we have this kind of people.

Speaking about the adoption of creative destruction in using AI for text writing or graphics design, this is something that its importance is widely seen in the industry of graphics, data search and test writing, and the adoption of AI in that industry is not really a big deal for the government to approve of it.
          Meaning that it is not the same thing as Bitcoin which has to do with finance and requires so much scrutiny by the government before bringing forth a strong system that supports the motion of Bitcoin to replace banks and Fiat money. Bitcoin will become more centralized if there is Bitcoin bank where people will go and entrust their coins holding.

 But already (lately), so many people are preventing their selves the stress of using banks for some foreign transactions and they are now using Bitcoin for most of their transactions. Some businesses too in some countries are accepting Bitcoin payment and in terms of asset investment, many people have shift to Bitcoin investment. That was why I first said that the adoption of creative destruction theory is gradually working for Bitcoin because we can see how people are making use of the Bitcoin for transaction and also holding it as investment instead of using other things.

Or, do Bitcoin have to completely eliminates Fiat money, eliminate banks and be adoption by everyone as an asset of investment before it will be seen that theory of creative destruction has taken place?