![Swan](https://hackmd.io/_uploads/Hy2NGN30R.jpg) ## The Financialisation of Everything: Balancing Fiat Governance, Cryptographic Scarcity, and dreams of a New Creative Economy #### **Introduction** We are in the midst of a financial revolution. Blockchain, AI, and decentralised finance (DeFi) are transforming how value is created and exchanged, promising efficiency and inclusion while also introducing risks, particularly black swan events—rare and unpredictable disruptions. As economic activity shifts into digital realms, these risks intensify due to the complexity and speed of the financialised digital economy. This paper explores how inflation, rising interest rates, Bitcoin’s fixed supply, and the attention economy are reshaping the global financial system, accelerating inequality, and sparking social division. It concludes by proposing an alternative cryptocurrency model that balances creativity, governance, and decentralisation. --- ### The Shift to the Digital Economy For decades, the financial system has been grounded in centralised control: central banks set interest rates, governments regulate, and financial institutions manage capital flows. Now, blockchain and AI are decentralising finance, lowering transaction costs, and creating new asset classes like cryptocurrencies. By the end of 2021, the market capitalisation of the global cryptocurrency market reached **$2.2 trillion**, up from **$200 billion** just a year earlier. This tenfold increase highlights the speculative, high-growth nature of this new asset class, but it also underscores the systemic risks associated with a decentralised financial ecosystem. Bitcoin, as the leading cryptocurrency, plays a central role in this transformation. Its **fixed supply cap of 21 million** makes it distinct from traditional fiat currencies and positions it as a deflationary asset. This fixed cap is seen by many as a safeguard against inflation but also introduces challenges related to speculation, wealth concentration, and broader financial stability. --- ### Jevons Paradox in the Digital Age In the 19th century, *Jevons Paradox* posited that as technological advancements increase efficiency in resource use, consumption often rises instead of falling. This applies to today’s digital economy. As blockchain and AI drive down the costs of transactions, they encourage more consumption—particularly in speculative markets—resulting in inflated asset values and increased risk. Bitcoin’s **fixed supply** amplifies this dynamic. As a deflationary asset, Bitcoin's scarcity attracts investors who view it as a hedge against inflation. Yet, this very scarcity drives **speculative bubbles**, as seen in Bitcoin’s dramatic price surges and crashes. For example, the price of Bitcoin rose from **$10,000** in mid-2020 to an all-time high of **$64,000** in April 2021 before crashing back to **$30,000** within months. This volatility, partly driven by Bitcoin’s fixed supply, reflects the speculative nature of the digital asset markets. The collapse of **Terra/Luna** in May 2022, which saw over **$60 billion** in market value wiped out, further exemplifies how decentralised financial systems can rapidly destabilise when trust breaks down. Bitcoin's immutability and fixed supply, while limiting inflation, also introduce deflationary risks and make it a breeding ground for speculation. --- ### Inflation, Interest Rates, and Bitcoin’s Fixed Supply Cap The rise of blockchain and AI, combined with Bitcoin’s unique properties, is reshaping inflationary dynamics and complicating traditional monetary policy tools. #### **Bitcoin as a Deflationary Asset** Bitcoin’s fixed supply cap of 21 million means it is inherently **deflationary**. As demand for Bitcoin increases, its scarcity becomes more pronounced, driving up prices. Unlike fiat currencies, which can be expanded by central banks to manage inflation, Bitcoin’s supply is capped, creating a store of value that many investors view as a hedge against inflation. For example, during the COVID-19 pandemic, the U.S. Federal Reserve increased the money supply by **40%** in 2020 to combat economic slowdowns, triggering fears of inflation. Bitcoin surged as a result, with its price increasing from **$10,000** to over **$60,000** in early 2021 as it was perceived as a safeguard against fiat currency debasement. However, Bitcoin’s deflationary nature introduces risks. In a deflationary environment, holders of Bitcoin are incentivised to hoard rather than spend, anticipating that its value will increase over time. This **hoarding behaviour** could stifle economic activity, leading to liquidity shortages if Bitcoin were to become a more dominant asset in the financial system. #### **Impact on Inflation and Interest Rates** Bitcoin’s fixed supply also presents a challenge for central banks. In traditional fiat economies, central banks manage inflation through monetary policy tools like adjusting interest rates or expanding the money supply. However, **Bitcoin operates outside this framework**, making it harder for policymakers to control its inflationary or deflationary effects. For example, the **Federal Reserve’s** decision to raise interest rates by **3.75%** in 2022, its most aggressive rate hike in two decades, was intended to curb inflation in the real economy. Yet, this policy does little to address speculative activity in Bitcoin and other cryptocurrencies, where inflationary pressures are driven by scarcity and investor demand rather than macroeconomic factors. As more capital flows into Bitcoin and the broader DeFi space, traditional monetary tools may become less effective at managing inflation. Central banks face the dilemma of rising asset prices in digital markets, like Bitcoin, that are decoupled from the real economy. --- ### Wealth Inequality and Bitcoin’s Concentration #### **Concentration of Wealth in Bitcoin** Bitcoin’s fixed supply contributes to **wealth inequality**, particularly as early adopters and institutional investors accumulate a significant portion of the total supply. It is estimated that **2%** of Bitcoin wallet addresses control over **95%** of the total supply, a level of wealth concentration that mirrors inequality trends in traditional financial markets. This concentration is exacerbated by the fact that as Bitcoin’s value increases, it becomes less accessible to everyday investors. While fractional ownership allows smaller purchases, the psychological and financial barriers to entering the Bitcoin market at high prices deter broader participation. This further concentrates wealth among early adopters and the “crypto-elite.” For example, in 2021, **10%** of Bitcoin holders owned over **80%** of the total supply, creating a feedback loop where a small number of investors disproportionately benefit from price appreciation. As Bitcoin’s fixed supply cap is reached and mining rewards diminish, this concentration of wealth is likely to become even more pronounced. #### **Inaccessibility and Social Division** Bitcoin’s rising price, driven by its fixed supply, also contributes to **social division**. Those who can afford to invest in Bitcoin are more likely to see their wealth grow, while those excluded from the digital asset market face widening economic disparity. This division mirrors the broader inequalities present in the real economy, where access to financial tools and digital literacy determines participation in wealth creation. As Bitcoin adoption grows among institutional investors, such as hedge funds and corporations, the concentration of wealth in digital assets could exacerbate social tensions between those who benefit from the digital economy and those who remain reliant on the traditional economy. --- ### The Attention Economy and Social Division Beyond the speculative nature of digital finance, the **attention economy**—where human attention is commodified—has intensified social division. Platforms like social media, digital streaming, and content creation networks have monetised attention, turning it into a financial asset. This has created a digital economy where those who can command attention—whether influencers, celebrities, or platforms—acquire disproportionate economic power. Blockchain has accelerated the financialisation of attention by tokenising content creation and engagement - this is **Web3's dystopian creation**. Some platforms reward users with tokens for their activity, turning engagement into a tradable asset. Yet, the rewards for the average user are minuscule compared to the profits amassed by platform owners and large influencers. #### **Cognitive Inequality** This shift is deepening **cognitive inequality**. Those with the skills to navigate the digital economy and leverage attention for profit are becoming the new elite. For example, top content creators on YouTube, TikTok, or Instagram can earn millions, while the vast majority of users see little to no financial return. This creates a feedback loop where those who can best capture attention consolidate wealth, leaving others economically marginalised. A report from **Influencer Marketing Hub** revealed that the influencer economy is now worth **$16.4 billion**, up from **$9.7 billion** in 2020. The rapid growth of this market underscores how attention is becoming one of the most valuable—and unequal—assets in the digital age. --- ### A Vision for an Alternative Cryptocurrency: Human Creativity at its Core As we explore the rapid financialisation of everything—where value is increasingly detached from traditional economic fundamentals and driven by digital assets, attention, and speculative markets—the question arises: is there another way? Could we design an alternative cryptocurrency that fundamentally shifts how value is created and accrued, moving beyond scarcity-driven models to something more rooted in **human creativity** and **cultural contribution**? While current digital currencies like Bitcoin rely on artificial scarcity and a fixed cap to create value, this scarcity-based model can lead to speculative bubbles, wealth concentration, and social division. In contrast, an alternative cryptocurrency could centre on **human labour, creativity, and cultural impact**—placing **creativity and innovation at the heart** of its value proposition, rather than scarcity alone. #### **Cultural Collateral as the Foundation of Value** This proposed cryptocurrency would function as a **store of value** not through limited supply, but through **cultural collateral**. Instead of relying on cryptographic algorithms to enforce scarcity, it would mint tokens based on **human creativity** and **cultural contribution**. Artists, musicians, writers, and other creators would pledge their original works as collateral in the form of non-fungible tokens (NFTs). These NFTs would represent not just ownership of a digital asset, but the real-world cultural impact and significance of the creator’s work. Unlike Bitcoin’s static cap, this alternative system would feature an **elastic supply model**. New tokens would be created as cultural works are pledged, allowing the currency to grow in tandem with the depth of human creativity. This makes the currency inherently dynamic, with value tied to the **cultural evolution** of the society that adopts it. #### **Incentivising Innovation, Not Hoarding** In Bitcoin’s deflationary system, holders are incentivised to **hoard** their assets, anticipating future appreciation due to scarcity. This can stifle economic activity, as the incentive to spend or invest diminishes. In contrast, an alternative cryptocurrency based on **human endeavour** would reward **creativity and innovation**. Creators would mint tokens by contributing their work to the network, and value would accrue not from holding onto the tokens, but from the ongoing **cultural impact** and appreciation of the pledged works. This currency would incentivise a **continuous cycle of creation**, where the more creators participate, the more value is added to the system. Unlike Bitcoin, which encourages accumulation due to scarcity, this alternative model would foster a more participatory financial ecosystem, where value is directly linked to **human expression** and **intellectual contribution**. #### **A Currency for the Attention Economy** In an age where **attention is a commodity**, and social media platforms monetise human engagement, this new cryptocurrency could align with the evolving attention economy. Instead of allowing centralised platforms to extract and monetise attention, creators would receive tokens directly for their influence and engagement with their audiences. This would represent a **decentralised monetisation** of attention, where individuals can directly benefit from their creative output. In such a system, artists, writers, and influencers would pledge their works or digital presence, and the network would issue tokens based on their **cultural significance** and **social influence**. This model could redefine how value is assigned in the digital economy—shifting it from speculation on scarcity to the **actual contributions** of individuals and communities to collective culture. #### **Long-Term Value and Social Consensus** While Bitcoin’s value is rooted in its fixed supply, this alternative model’s value would emerge from **social consensus** around cultural significance. As more creators pledge works and these works gain influence, the currency’s value would increase. This dynamic would make the currency adaptable to changes in societal values, much like how cultural artefacts, art, and intellectual property appreciate as they gain historical or cultural significance. The currency’s value proposition would be more **subjective** than Bitcoin’s scarcity-driven model, but it would reflect the evolving nature of human creativity. As cultural works gain prominence and become part of the collective social consciousness, they would drive the currency’s value. This creates a **fluid and flexible value structure**, one that evolves over time rather than being locked into a fixed narrative. #### **A More Inclusive and Human-Centred Digital Economy** This alternative cryptocurrency would offer a more **inclusive** model of financialisation. By linking value directly to **human creativity**, it would democratise access to wealth creation, allowing more individuals to participate in the digital economy through their creative works. This could help mitigate the **inequalities** currently seen in Bitcoin and other cryptocurrencies, where early adopters and large institutional players dominate the market. In this system, value is not determined by who owns the most tokens or has access to early mining opportunities but by who contributes the most creatively and meaningfully to the network. By making **cultural impact** the driver of value, this model decentralises not just money but **influence and creativity**, making it a better fit for a world where value is increasingly defined by human ingenuity.