Summary: Deflation (or so I heard) is considered harmful because it stifles growth. Central banks have been fighting it to keep economies healthy. Cryptocurrencies can be designed to be deflationary. If the market capitalization of cryptocurrencies becomes big, central banks may have no way to contain the deflation. This may be catastrophic in many ways – but might it also slow AGI development and buy safety research more time?
I’ve been wondering what the “crypto endgame” may look like. Crypto may just turn out to have been a bubble or may continue for decades unchanged at its current limited level of significance. But we’re probably sufficiently prepared for those scenarios already.
Instead the crypto market capitalization might take off at a superlinear pace. Bitcoin is currently on rank 14 among the world’s currencies and holds 0.7% of the aggregate value of all of them. All cryptocurrencies together hold about 1.1% of the world’s monetary value.
The crypto space is rife with network effects. Or it is one huge network effect. These are wont to show superlinear growth if they show any growth. Superlinear growth often doesn’t last long enough to be significant, but in other cases it does. So maybe crypto’s market capitalization will grow by an order of magnitude or more within a few years, so before AGI is developed. That might happen if more more companies follow the examples of MicroStrategy or Tesla and invest their spare cash into a cryptocurrency. Phil Bonello, director of research at Grayscale, also mentions a scenario in which governments start buying crypto and thereby force all other governments to follow suit. I don’t know the reasoning behind that, so I don’t know how forcible that effect will be, but it doesn’t seem to be hard to come up with plausible growth scenarios. (At least if you’re incentivized to come up with them the way Grayscale is.)
Some cryptocurrencies, notably Bitcoin, are designed to be deflationary. If companies across the board find that they generate greater profits by investing all their spare cash into deflationary cryptocurrencies rather than reinvesting into their own production, innovation may stall. (Isn’t that one of the typical reasons why deflation is considered harmful?)
So that brings me to my questions:
- Conditional on the cryptocurrency market growing by another 1–2 orders of magnitude in the next five years or so, what happens to the global financial system and the world economy? (Might this future look like a cyberpunk dystopia where a rich elite retires on their capital gains, and anyone who didn’t enter the period with enough capital has very few avenues to sell their labor and so lives in poverty?)
- And might this stalled innovation also carry over to AGI in that technology companies will find it more profitable to invest into cryptocurrencies rather than compute or staff, thereby buying safety research a few more years or decades to solve ethics, decision theory, and international coordination?