Digital currency may be the most effective way the world has ever seen to increase economic freedom. If this happens, the implications are profound. It could lift many countries out of poverty, improve the lives of billions of people, and accelerate the pace of innovation in the world.

This is why I co-founded a digital currency company. I believe it is the highest leverage activity I can be doing right now to improve the world.

In this post, I’ll attempt to explain what economic freedom is, why it is important, and how digital currency can change it.

What is economic freedom?

Economic freedom is a measure of how easy it is for members of a society to participate in the economy. It has a number of factors, such as:

  • How easy it is to start a business
  • Whether property rights are enforced (can you keep what belongs to you)
  • Free trade with other nations
  • Regulation of labor and business
  • Stability of the currency
  • etc

Several organizations exist that score and rank the countries of the world by how economically free they are. The data shown below is published by the Heritage Foundation and Wall Street Journal. Here are the top and bottom ranking countries from their 2016 list.

Countries ranked by economic freedom. Source

By looking at the names on the two lists you can start to get a sense of why economic freedom may be important, but here is another way to look at it.

Why is economic freedom important?

Economic freedom correlates with a number of positive outcomes in society.

Some you might expect, like higher per-capita income, life expectancy, and literacy. But economic freedom also correlates with some things you may not expect, like:

  • Better income for the poorest 10%
  • Improved environmental protection
  • Fewer wars and violent conflicts
  • Higher self-reported happiness of citizens
  • Less corruption and bribery

The red bars show nations with less economic freedom, the green bars those with more.

Source

When I first read this I was surprised more people didn’t know about it.

Correlation, of course, does not prove causation, so we must be careful not to jump to too many conclusions. Societies are very complex, and what works in one place may not necessarily work in another. Still, it raises an important question: if the world had more economic freedom would we all be better off?

Digital currency’s impact on economic freedom

In the past, if you wanted to change economic freedom you had to run for office, lobby the government, or give speeches. If you spent one year in every country of the world working toward this, it would take you 196 years (and you probably wouldn’t move the needle much in each country).

But with the proliferation of smartphones, there is now a way to rapidly bring digital currency into almost every country in the world.

And what digital currency enables matches up very well with the properties of economic freedom.

  1. It makes it easier to start a business
    Anyone with an idea can have customers around the world in just a few hours. It reduces the friction of accepting payments, and helps companies expand globally.
  2. It enforces property rights
    Many people today are unable to safely store wealth without it being stolen or confiscated. Digital currency will allow anyone to be in control of their own money (see brain wallets). In this sense, digital currency will “bank” the unbanked of the world.
  3. It promotes free trade and globalization
    Digital currency excels at cross border transfers. It breaks down barriers for people in different countries to trade with each other (for example to get a loan, or hire someone to complete a job).
  4. It enables freedom of contract
    With Ethereum smart contracts, the hurdle has been lowered for people to enter agreements, regardless of where they live or whether they can afford a lawyer.
  5. It encourages people to leave low scoring countries
    People will find it easier to emigrate if they can take their wealth with them and use it in a neighboring country. Digital currency makes every country’s economy interoperable. With lower switching costs, countries will improve.
  6. It reduces corruption and bribery
    With fewer gatekeepers and intermediaries to start a business, there won’t be as many places to apply pressure or curry favor.
  7. It provides access to stable currency
    Digital currencies are more volatile than the dollar or euro today, but their volatility has decreased every year (and are now approaching the levels of some fiat currencies). In the coming years, digital currency will be more stable than many of the 180+ fiat currencies in the world.

Today, digital currency is still in early stages. But as with many technologies, when it tips the result can be dramatic.

Digital currency has a number of applications emerging today (prediction markets, micro-payments, smart contracts, remittance, games, etc). But I think digital currency could “tip” in at least one developing country by 2020, where it accounts for the majority of transactions in that economy. From there it could spread rapidly.

Conclusion

Over the past 20 years, the global average economic freedom has gone up by only 3 points (from 57% to about 60%). Things are moving in the right direction, but far too slowly.

Source

With the invention of digital currency, I believe we can dramatically increase the economic freedom of the world, perhaps raising it as high as 75% in the next 10 years.

Economic freedom is one of the great meta-problems of our time (right up there with A.I., quantum computing, and cheap renewable energy). If we can create more economic freedom in the world, it will serve as a giant economic stimulus package for the world, accelerate innovation, reduce wars, make the poorest 10% better off, overthrow corrupt governments, and raise happiness.

For the first time in history, just a couple hundred people can have a material impact on the economic freedom of the world by making a new technology accessible to the masses. If this mission is of interest to you, please get in touch with us.

Thank you to Rose Broome, D. Scott Phoenix, John Yi, Erin Coppin, Adam White, Dave Farmer, Dan Romero, Fred Ehrsam, and Nathalie McGrath for reviewing drafts of this post.

Footnotes

  1. A meta-problem is a problem where if you solve it, you automatically solve an entire class of problems.
  2. The U.S. has fallen from 7th place in 2008 to 11th place in 2016, primarily due to increased government spending after the 2008 financial crisis.
  3. For more on this topic, see our mission and vision.
  4. A better measure of global economic freedom might be the score of each country multiplied by the size of its population. With this measure, it would be possible to raise global economic freedom when people emigrate to higher scoring countries, even if their home country does not improve.From:
    https://medium.com/the-coinbase-blog/how-digital-currency-will-change-the-world-310663fe4332#.tuxm3i7oe