Summary 

Many of the world’s most pressing problems are linked to how money is created and distributed.

Money today has two critical flaws:

1. There’s no physical limit to how much money can be created.
2. People’s savings and transactions depend on the responsible behaviour of banks, governments, and other financial middlemen.

These flaws have far-reaching consequences:

• Debt spirals: when major institutions default on their debts and crash the economy, governments can simply bail them out by creating and lending them new money. However, these additional loans create bigger debts that stifle growth and cause bigger crashes later.
• Inflation: excessive money creation erodes the wages and savings of billions worldwide.
• Inequality: new money flows to banks and wealthy investors first, letting them capture scarce assets and drive up prices for everyone else.
• Spending without accountability, as governments use money-creation to quietly fund wars and other controversial ventures.
• Financial extortion, surveillance, and censorship by oppressive regimes and predatory intermediaries. 

Bitcoin is a new form of money, designed to offer a way out of these problems. Unlike conventional money, it has a fixed supply, allows people to take sole custody of their funds, and isn’t controlled by any government or bank. The result is an alternative monetary system that could reduce global inequality and weaken the financial stranglehold of even the most authoritarian rulers.

I recommend that Effective Altruism and similar organisations consider supporting the Bitcoin cause, by:

• funding independent Bitcoin projects,
• promoting Bitcoin-related discussion, and
• analysing Bitcoin’s suitability as a vehicle for investment in long-term altruistic causes.

1. Modern (fiat) money and its problems

Today’s monetary system has been in place since 1971. Before 1971, most major countries used gold as money. Gold was an effective form of money because gold is scarce: as it has always been difficult and expensive to mine, there was no danger that anyone would dilute the value of your savings by flooding society with new quantities of gold.

When people started using bank notes for convenience, these notes were simply cheques that entitled the holder to a certain amount of gold at the bank. This meant that for every dollar, pound, franc etc. that existed, there was (in theory) an equivalent amount of gold held somewhere.

However, governments were eventually tempted to print more bank notes than they could back up in gold. When this overprinting became apparent, several major nations rushed to the US (which was holding most of the world’s gold reserves) to have their notes exchanged for gold before it ran out. President Nixon responded by severing the link to gold: bank notes would no longer be certificates of ownership; they would become the money itself.

As a result, we now live in an era of fiat money: government-issued money that can be created in theoretically unlimited amounts because it’s no longer tied to anything finite.

This system already shows signs of being unsustainable.

1.1. Debt spirals

The ability to create money without limit turns routine debt defaults into snowballing economic crises.

In most countries today, money is created almost entirely in the form of loans. This happens through two types of institution:

• Commercial banks: the places that hold your savings. When banks give loans, the money isn’t taken from elsewhere; it’s created on the spot.
• Central banks: government institutions that control a nation’s currency. They create money to lend to commercial banks or the government.

While lending isn’t inherently bad, there is always a risk that people will default on their debts. Every few years, a critical mass of people and businesses fail to repay their lenders, crashing the economy with a chain reaction of bankruptcies. 

Economic crashes are not unique to the modern era. What is unique, however, is how governments use money creation to delay and worsen the problem. Rather than face political backlash from letting bankruptcies run their course and allowing bad debts to be written off, governments instruct their central banks to create and lend even more money to bail out the defaulting parties. 

In other words, each rescue operation by the government amounts to paying off old loans with bigger loans, adding more debt to the system than they relieved. This guarantees the next crash will be larger, requiring an even bigger bailout, and setting up an even larger crash after that. Meanwhile, banks are incentivised to lend more recklessly, knowing they can keep the profits during the good times while relying on the government to rescue them when things go wrong.

The massive debt burden strangles the economy even between crashes: as more of society’s income is needed just to pay the interest on a growing mountain of debt, less money is available for jobs, wages, or public services (Figure 1). This is a major reason why economies like the US, the EU, and Japan are chronically sluggish today.

1.2. Inflation

The fact that money today can be created easily and without limit is highly unusual. Throughout history, every successful form of money was naturally difficult to produce more of: gold had to be mined, silver extracted from ore. This scarcity protected people from inflation – that is, it prevented anyone from creating so much new money that it diluted the value of what people already held.

Modern policymakers do what they can to stop inflation from getting out of hand, but this sort of economic planning is extremely difficult, even assuming your intentions are good. The number of major inflation episodes has exploded as we’ve moved away from the gold standard, destroying savings and upending societies around the world.

• Almost every year, a double-digit percentage of countries grapple with inflation that will cut the value of their currency in half over five years. The start of this trend coincides with the shift towards fiat money (Figure 2).
• At the time of writing, at least 2 billion people are living in countries that are experiencing double- or triple-digit CPI inflation. This is up from 1.2 billion in early 2021.

1.3. Wealth inequality

New money is not distributed evenly.

Because money is created through lending and bailouts, it naturally enters the economy through the financial sector rather than being distributed directly to citizens. This gives large banks and connected institutions a massive, arbitrary advantage: simply by being close to the money spigot, a select group gets to enjoy the benefits of this new wealth first, before it has had time to circulate and drive prices upwards.

The consequences for everyone else can be devastating. Financial institutions and their customers naturally use this influx of cash to buy up scarce, valuable assets like housing and stocks. This artificially drives up the price of those assets – enriching the wealthy people who already own them, but pushing them beyond the reach of the average wage-earner (Figure 3).

Ultimately, the working class and the global poor are left bearing the hidden costs of this newly created money, while seeing very few of the benefits.

1.4. Lack of accountability

Money creation gives governments a way to finance controversial activities (such as war) surreptitiously through inflation. Instead of imposing taxes and therefore having to justify their expenditure to voters, governments can quietly print and spend what they need, leaving their population to deal with the economic consequences years down the line. Their citizens, in turn, become emotionally and politically disconnected from their government’s actions, the true costs of which are no longer visible.

• World War I was famously drawn-out because the participating nations resorted to printing paper currency far beyond what they could back up in gold.
• Despite its frequent military activity, the US has not levied any war taxes since 1967 (during the Vietnam War). Instead, it has preferred to rely on cheap borrowing made possible by a combination of money-printing and interest-rate manipulation. This has allowed the US to spend over USD 6 trillion on its “credit card”/ “forever” wars in the Middle East and Asia since 2001 – a bill that would equate to over USD 47,000 per household if the US taxpayer had been asked to finance these ventures directly.
• Analysing a century’s worth of data, US Air Force veteran and legal scholar Sarah Kreps found that wars funded by money-printing are 20 per cent more popular than wars funded by taxation. In other words, money-printing blinds voters to the cost of war – and therefore makes them less inclined to pressure their leaders to shorten or avoid conflict.

1.5. Humanitarian issues

Modern money does not provide a realistic means for people to take direct custody of the value that they create. Instead, responsibility for one’s savings and transactions must be outsourced to banks, payment platforms, and other intermediaries.

However, each of these financial middlemen is a potential avenue for extortion, surveillance, and censorship – especially for the majority of the world's population that lives under authoritarianism. The institutional barrier to entry also means that many people are cut off from the financial system entirely. 

• Former UN Secretary General Ban Ki-moon declared in 2012 that corruption “prevented 30% of all development assistance from reaching its final destination”. In one Oxfam study, researchers could only verify that 7% of the USD 28 million meant for Ghana between 2013 and 2015 had arrived safely.
• In 2020, migrant workers and refugees sent USD 700 billion home to support loved ones (with USD 539 billion of that going to low- and middle-income countries). However, approximately 6% (or USD 42 billion) of that was consumed solely by exchange rates and tariffs – that is, by frictional costs associated with having to go through local institutions. This is a significant amount for those who don’t have money to spare.
• According to organisations such as GiveDirectly and the World Bank, direct cash transfers are one of the most effective ways to deliver aid. However, over a quarter of people in developing economies do not have access to the financial system.
• Only 7% of global transactions are still carried out with cash (the only private way to transact with fiat money). That number is expected to shrink rapidly, reducing people’s financial privacy to nearly zero.
• The user data amassed by online payment platforms WeChat and Alipay (which have over a billion users) reportedly inform government-mandated social-credit scores that regulate people’s everyday behaviour. These systems are based not just on finances, but also on political opinions, identity, and social interactions.

2. How tractable is this issue?

What makes this issue potentially tractable is the existence of a proposed solution that requires only development and scaling.

Bitcoin was created amidst the Global Financial Crisis, specifically to address the problems listed above. Whereas conventional money consists of centralised and local currencies with unlimited supply, Bitcoin offers a type of money that is:

• decentralised: no single entity has the power to manipulate the money supply, to seize your assets, to exclude you from the network, or to censor your transactions;
• global: it isn’t confined to any particular jurisdiction;
• finite: the number of bitcoins in existence cannot be inflated beyond 21 million; and
• digital: it exists purely in computer software, and has no physical form.

Bitcoin is modelled largely on gold: since the asset itself is finite, there is no risk that one’s savings will be diluted by an open-ended increase in the number of bitcoins. Furthermore, there is no central authority that is motivated to devalue Bitcoin in order to manage debt cycles, or to fund wars or corporate bailouts. 

However, while gold’s physical bulk led to its eventual centralisation and representation in paper form, bitcoins are massless and transmissible electronically – they are designed to replicate gold’s sound monetary properties in digital form.

2.1. How Bitcoin works

Every financial system requires a ledger: a master list of accounts and transactions that declares who owns what. In our conventional system, this ledger is maintained by central authorities: commercial banks track your personal savings, while central banks track the national money supply. Because these institutions have exclusive control over the ledger, they have the power to freeze accounts, censor transactions, or create new money by adding numbers to the list.

Our conventional financial system also works in layers. At the top are everyday networks like Visa, which process millions of small transactions quickly. Below these are slower, highly secure settlement layers (like FedWire in the US, or SWIFT globally). Banks use these base layers to bulk-settle the transactions made in the layers above, updating their master ledgers.

Bitcoin uses a similar layered structure, but without needing a central authority.

2.1.1. The Blockchain (base layer)

The Bitcoin blockchain is the ultimate settlement layer - the ledger that records every Bitcoin transaction ever made. However, because Bitcoin is decentralised, it does not rely on a single authority to hold this ledger. Instead, the blockchain is copied and distributed across tens of thousands of independent computers (called “nodes”) worldwide.

Whenever a user wants to make a bitcoin payment, they broadcast their proposed transaction to this global network.

2.1.2. Mining and Proof of Work

The Bitcoin network includes participants known as “miners”, who listen for proposed transactions, bundle them into “blocks”, and race to add them to the blockchain. 

Adding a block is a massive cryptographic exercise requiring large amounts of electricity and computing power. This is an intentional security feature, known as “Proof of Work.” Under this rule, if there are competing versions of what the ledger looks like, then the network trusts the version that took the most computational work to create. Therefore, to fake a transaction or rewrite the ledger, an attacker would have to continuously out-compete all the honest miners combined – which they could only do if they controlled a majority of the network’s computing power. This makes Bitcoin practically impossible to hack.

The first miner to add each block is rewarded with newly created bitcoins, alongside small transaction fees paid by the users. Crucially, the number of bitcoins awarded to miners is hard-coded to decrease automatically over time, mathematically guaranteeing there will never be more than 21 million bitcoins in existence.

Bitcoin’s monetary policy is thereby enshrined in code; no CEO, politician, or central bank can change it.

2.1.3. The Lightning Network

Because Bitcoin's base layer prioritises absolute security and decentralisation, it processes transactions relatively slowly. It is designed for high-value settlements, similar to a global wire transfer or moving physical gold.

For everyday purchases, Bitcoin uses a secondary layer called the Lightning Network, which facilitates instant transactions for virtually zero fees. It does this by allowing two parties to exchange bitcoin separately from the main blockchain, broadcasting the final balance to the base layer only once they are finished. Just as Visa batches millions of small retail purchases before settling up with the banking system at the end of the day, Lightning allows the world to use Bitcoin for daily commerce while keeping the base layer as a safety net.

2.2. How Bitcoin could provide a better form of money

2.2.1. Creating a fairer and stabler global economy

Bitcoin gives people a way to opt out of failing fiat currencies, in favour of a money that is resistant to long-term devaluation. In doing so, it could help to shrink the asset bubbles (such as those in real-estate markets) that commonly result from people’s attempts to escape inflation.

Moreover, Bitcoin aims to create a monetary system that is more befitting of today’s digital and borderless economy. As a global form of money that runs natively on the Internet, it could help people to move more freely around the world, creating more equal competition for labour, and giving workers more of the value that they produce. Wealth would then accumulate in countries that export labour, supporting local businesses and infrastructure.

A Bitcoin-based economy would also likely see the decline of big banks – especially those deemed “too big to fail”. As they lose their special relationship with governments and their control over people’s money, banks and other financial corporations would need to provide useful services, instead of relying on bailouts.

2.2.2. Disincentivising wars

If Bitcoin were to replace fiat currencies as the preferred form of money, it is likely that wars would no longer be financed as easily as they have been for the past century. With governments unable to simply print and borrow more bitcoins behind the scenes, military ventures would likely face greater public scrutiny, and become even more of a last resort than they are today. 

2.2.3. Making international development more effective

Bitcoin transactions do not require handling or approval by third-party institutions. As a result, they make it possible for people to receive aid money directly, circumventing potentially corrupt or obstructive middlemen. 

• When the Maduro regime blocked foreign aid shipments from entering Venezuela in 2019, relatives and human-rights groups abroad were nevertheless able to send millions of dollars into the country in the form of Bitcoin payments. 

Bitcoin could also promote greater financial inclusion. In a world where smartphones outnumber bank accounts, it provides a way for people to save and transact without needing to seek permission – all that is required is an Internet connection.

2.2.4. Undermining authoritarianism and promoting self-sovereignty

Bitcoin allows one to take sole custody of one’s money: your funds are yours alone, usable and accessible from anywhere, simply by means of a password that can be carried in your head. Dictators who refuse to make democratic concessions could therefore face mass capital flight, as their most productive citizens leave for more favourable societies – this time taking their money with them.

2.2.5. Undermining mass surveillance

While the Bitcoin blockchain (the online ledger containing all Bitcoin transactions) is public, payments are made only pseudonymously, and do not require the sort of personal information (e.g. name, bank account, or address) that governments, corporations, and merchants sell or leak on a regular basis. 

Further developments to Bitcoin (such as the Lightning Network, Taproot, Graftroot and Schnorr Signatures) are already making it cheaper and easier to send bitcoins privately.

2.3. But why Bitcoin specifically?

At this point, it’s necessary to differentiate Bitcoin from the rest of the crypto universe that was spawned in its wake.  Given all the alternative cryptocurrencies (“altcoins”) and blockchain-based products out there, why should we pay special attention to Bitcoin?

2.3.1. Most other cryptocurrencies serve different purposes.

At the time of writing, there are over 20,000 cryptocurrencies in existence.

Nearly all of them can be dismissed at the outset, on the grounds of being useless, irrelevant, or simply scams: many people have realised that inventing your own money/technology and convincing others of its utility for five minutes can make you rich. Some altcoins were even launched as a joke.

A few remaining cryptocurrencies are arguably helpful or at least well intended, but specialise in entirely different uses from those of Bitcoin, and therefore operate according to different rules.  Taking a look at some of the biggest altcoins (in terms of market capitalisation) currently out there:

• Ethereum (along with similar platforms such as Solana) is designed to support various software applications that also make use of blockchains.  This is where you’ll hear terms like “decentralised finance” (DeFi), “non-fungible tokens” (NFTs), or “Decentralised Autonomous Organisations” (DAOs).

There’s been some debate over just how useful these applications will be, and whether it even makes sense to use blockchains in this way.  It has also been suggested that, even if such uses prove legitimate, they could simply be incorporated into the Bitcoin system in due course.  Whatever your view, the point is that these kinds of cryptocurrency aren’t competing with Bitcoin on global monetary reform – which means that their altruistic potential is significantly different.

• Stablecoins are cryptocurrencies that (in theory) have their value pegged to that of a stable reserve asset.  Tether and US Dollar Coin, for example, are popular stablecoins that are both programmed to be worth 1 USD, always.  This offers some respite to people in developing nations who need a way to keep their savings safe (both from the local authorities and from domestic inflation), but who can’t accept the price volatility that is inherent to Bitcoin at this early stage.

Again, however, such altcoins have little relevance to Bitcoin’s long-term objective – the aim of Bitcoin is not to express fiat money as cryptocurrency; it’s to escape fiat money altogether.

• Ripple is also primarily a payment network, but one that acts as an intermediary between banks.  It confirms transactions using a consensus mechanism operated by bank servers.

This has nothing to do with Bitcoin.

So, if you’ve only ever heard about “crypto/blockchain” in the collective, or if your main exposure to cryptocurrency has been through speculative gambling, then it may not have been apparent why the various cryptocurrencies out there actually exist, and how they differ from one another.  However, if the aim is to work out which is best placed to solve the fundamental problem of fiat currency, then one can’t simply treat them as interchangeable – there’s a huge amount of diversity, for better or worse.

2.3.2. Bitcoin benefits from its network effect.

That said, Bitcoin has seen its share of copycats that ostensibly seek the same objectives as Bitcoin, while claiming to offer improvements in the form of minor tweaks to the original protocol.  For example,

• Bitcoin XT, Bitcoin Classic, Bitcoin Unlimited, Bitcoin Cash, and Bitcoin Gold are "hard forks" (i.e. alternatives derived from the original Bitcoin code) that use different block sizes from that used by Bitcoin.  (The block size refers to the standardised size of each discrete data segment in the blockchain.)
• Litecoin is essentially an imitation of Bitcoin, but secures transactions with a different cryptographic algorithm (Scrypt as opposed to SHA-256), and caps its supply of coins at 84 million as opposed to Bitcoin’s 21 million.

However, none of these alternatives has achieved anything like the lasting success of Bitcoin.  Of the hard forks, only Bitcoin Cash (currently the 29^th-biggest cryptocurrency) has any kind of relevance, while Litecoin has dropped to 21^st place after falling out fashion years ago.  Bitcoin, on the other hand, has held between 40 and 60 percent of the total cryptocurrency-market capitalisation for the past five years (it used to be above 80 percent when fewer cryptocurrencies existed).  This has kept it between 2 and 5 times the size of Ethereum (the second-largest cryptocurrency), and far bigger than any altcoin that is designed for the same purpose as Bitcoin.

The reason for Bitcoin’s dominance is simple: the power of any social network (such as a language, social-media website, or currency) lies not in how difficult it is to create, but rather in the number of people who have opted in to the system.  This is especially true of cryptocurrencies, where the security of the network (i.e. the amount of computing power that a malicious actor needs before they can manipulate transactions) grows with the number of participating nodes.  Therefore, for any competitor to oust Bitcoin as a decentralised store of value, it would need to be radically better to the point that a critical mass of people would voluntarily abandon a network containing decades’ worth of investment, infrastructure, and security, all of which was responsible for guaranteeing the value of their own assets.

Another issue is that it is difficult to fully replicate Bitcoin’s decentralised structure.  It’s impossible to point to any person or group that has significant authority over the Bitcoin network in the long term: the pseudonymous founder(s) of Bitcoin stayed around only long enough to hatch the idea, before vanishing for good.  However, with Bitcoin now having established itself as the leading cryptocurrency, any competitor would need to amass significant resources and personnel in order to build and promote their new system, which would only undermine the narrative that it is a truly decentralised network free from top-down influence.

So, why should we consider Bitcoin specifically as the antidote to fiat money?

It’s by far the most (and perhaps the only) promising candidate. Why would you not?

3. How neglected is this issue?

Global adoption of Bitcoin is still relatively low, but increasing quickly.  Much of this is undoubtedly due to mere price speculation, but there are also regions where Bitcoin is gaining public favour for its empowerment of the financially disenfranchised (e.g. in Nigeria, Cuba, Russia, Afghanistan, and Palestine).  I think this indicates a need for more people who can accelerate and guide its development.

The Human Freedom Index includes consideration of “access to sound money”.  However, as far as I am aware, the Human Rights Foundation is the only charity/non-profit that actively promotes financial sovereignty and the role of Bitcoin in achieving it.

I have seen very little interest in this topic within Effective Altruism.  This essay is only the second detailed post on Bitcoin that I can find in this forum (the first one having been published just over a week ago).  In my own conversations with EA members, the general reaction to Bitcoin alternates between polite interest and outright scepticism.  Given that Bitcoin is a potentially transformative development that is most likely here to stay, I think it is time to study this issue seriously.

4. Suggestions for Effective Altruism and members

4.1. Supporting Bitcoin projects/organisations

A common institutional approach, both within Bitcoin and in similar technical fields, has been to fund independent contributors to open-source Bitcoin projects.  Examples include the grant programs by Spiral, OpenSats, and the Human Rights Foundation.

The Summer of Bitcoin is another example worth considering: it’s a global online internship program that introduces university students to open-source development of Bitcoin applications.

That said, I am not aware of any efforts to analyse the cost-effectiveness of such projects.

At an individual level, one could consider working for a Bitcoin-related company (Bitcoiner Jobs is a popular website for such opportunities).  I would recommend considering any role that improves the performance, robustness, or accessibility of the Bitcoin network; software engineers are in greatest demand, but there is also a significant need for operations and communications staff.

4.2. Bitcoin as a means of long-term investment for altruistic causes

One potentially important cause mentioned by 80,000 Hours is the search for an investment vehicle that could fund altruistic causes in the long-term future. What better place to start than by examining an asset that is designed to be the ultimate long-term store of value? 

Of course, there can be no certainty about how well Bitcoin will survive contact with the future. On the other hand, it’s done remarkably well since 2009. If it continues on this trajectory, and succeeds in establishing a new global reserve currency (or something similar), then its potential future upside dwarfs what one risks losing by adding it to the portfolio at this (still very early) stage in its adoption curve. A relatively small investment now could yield a massive altruistic payoff in several decades. 

4.3. Education and discussion

Above all, what this topic needs is more awareness and understanding.

An important step that Effective Altruism could take immediately is to initiate informed discussion of Bitcoin on the 80,000 Hours podcast with Rob Wiblin.  The first guest I recommend inviting is

• Lyn Alden: an engineer and financial analyst who has written many detailed articles on the the workings of Bitcoin, as well as on the macroeconomic context that makes it so compelling right now.  Here is one of her more entry-level talks on one of the world’s most popular Bitcoin podcasts.

I also recommend interviewing

• Alex Gladstein: Chief Strategy Officer of the Human Rights Foundation.  He can tell you about the problems encountered by the billions of people around the world who don’t have access to acceptably stable currencies.  He can also tell you about the many people who already use Bitcoin in order to safeguard their financial sovereignty.

Appendix: responses to common criticisms of Bitcoin

1. “Bitcoin is too volatile”

• “Bitcoin is not too volatile” (Parker Lewis)

2. “Bitcoin uses too much energy”

• “Bitcoin’s energy usage isn’t a problem. Here’s why.” (Lyn Alden)
• “Bitcoin does not waste energy” (Parker Lewis)

3. “Bitcoin is a Ponzi scheme”

• “Bitcoin: addressing the Ponzi scheme characterization” (Lyn Alden)

4. “Bitcoin cannot scale”

• “What is the Lightning Network? (Explained Simply)” (99Bitcoins)
• “A look at the Lightning Network” (Lyn Alden)
• “Bitcoin is not too slow” (Parker Lewis)

5. “Bitcoin is deflationary”

• “Deflationary spiral” (Bitcoin Wiki)

6. “[Insert name of altcoin] will oust Bitcoin”

• “Analyzing Bitcoin’s network effect” (Lyn Alden)

7. “Bitcoin could be banned”

• “Bitcoin cannot be banned” (Parker Lewis)
• “Why you shouldn’t be worried about a Bitcoin ban” (Robert Price)

8.  “If you lose your private key, you lose your bitcoins forever”

• Then take care not to lose your private key.  Alternatively, use custodial wallets: services where your private keys are held by an institution, similarly to how you might entrust your savings to a bank.  Multi-signature wallets also allow you to spread your risk between several keys or people.  That said, the option to take sole responsibility for your savings is the fundamental point, and the problem is that it's not currently available to people who need it.

See the Bitcoin Wiki for more rebuttals.