The wars in Ukraine and Israel, the emerging trade conflict with China, the Taiwan issue, uncontrolled migration, the rapidly materialising consequences of climate change - these developments, which are detrimental to us, present us with huge and, above all, costly challenges. In addition, the USA is a global political superpower that may withdraw from the global stage, clearing the way for others. The existing world order could change rapidly. As if all this is not worrying enough, our governments are not doing their homework. The indebtedness of many Western countries continues to escalate.
All signs point to a storm
Since 2008, our global economy has been on the brink twice with the financial crisis and the coronavirus pandemic. Twice, we only escaped the crash thanks to wickedly expensive rescue programmes. In 2008, the subprime crisis in the USA led to numerous bank failures around the world. Around the globe, the financial and banking world was gripped by the fear that the next bank would collapse and then trigger the meltdown of the international financial system in a cascade of further collapses. This seriously threatened the functionality of the payment systems, the lifelines of all economic activity. Governments rescued the threatened banks with a great deal of taxpayers' money and ultimately averted a total collapse. The banking crisis then escalated into a sovereign debt crisis in Europe. Greece was on the brink of national bankruptcy. The end of the euro was also feared. Once again, financial stability was under threat and taxpayers once again had to help out with huge sums of money. From 2020, coronavirus raged in Germany, not only costing many lives, but the pandemic also dragged the global economy into a severe crisis. Historically speaking, these were two severe exogenous shocks for national economies within a short space of time. Huge sums of state money were spent on the rescue and economic stimulus programmes that became necessary in order to compensate for the negative effects … and the next crisis will come, that is as certain as the Amen in the church.
Today, a look at the bare figures does not bode well. In 2019, when the first upheavals occurred, Greece had a national debt level of 130% of its gross domestic product. Nothing could be done to counteract the recession that was emerging at the time. Tax revenues collapsed, state bankruptcy loomed and there were fears that the eurozone would break apart. Last year, Italy already had a debt ratio of 140%. France reached 110% in the same year. And all of the political parties in Paris want to take a big swig from the bottle for their clientele. Retirement age down again, social spending up - but as the French coffers are empty, more and more debt is being incurred - and this is socially and politically desirable.
The level of harmless national debt is disputed among academics. However, it is undisputed that if a high level of debt is compounded by further economic distortions, such as a deep recession or the aforementioned exogenous shocks, a highly indebted country will stagger towards national bankruptcy more quickly than one with sound public finances.
Italy's and soon France's very high debt levels therefore seriously limit their ability to act in the next crisis. And we have seen this. The 2008 financial crisis and coronavirus tore huge holes in national budgets, which were mainly financed with new debt. It is questionable whether the public finances of the two countries will still be able to withstand the next, perhaps even bigger, shock.
If these two heavyweights of the eurozone get into payment difficulties, there is a risk of a downward spiral that could end in an uncontrolled break-up of the eurozone. Economic decline and collapsing financial and supply stability would be the fatal consequences. The currencies of the economically stronger countries would appreciate sharply, while the currencies of the weaker countries would depreciate accordingly. The balance sheets of European banks would be severely shaken up. A severe economic crisis and bank failures would be inevitable. Non-cash payment transactions could be massively disrupted or even come to a complete standstill.
Bitcoin as a stabilising factor in the global economy
The likelihood of such a scenario occurring is certainly debatable, but it is by no means absurd. If it were to happen, an alternative payment system that is independent of both the financial sector and state actors would be a key factor in stabilising the economy. The exchange of goods could continue even if the banking sector and payment systems were to fail completely; payment would be made with Bitcoin.
However, Bitcoin does not yet offer the functionalities required for an effective payment system. The processing times in the blockchain are too long for a mass payment method, the throughput is limited and the transaction costs are too high. In this respect, another technical application is needed that is already available today. The Lightning Network, a so-called layer 2 of the Bitcoin blockchain, closes precisely this gap. In addition, there are also services based on Bitcoin with precisely this objective. BitBucks, for example, is a low-cost payment system based on Bitcoin that works in real time. With a smartphone and downloading the app, followed by the legally required identification, the access requirements are extremely low. Within the app, users can transfer their previously deposited Bitcoin to other app users free of charge and in real time. The transaction is processed by a licenced German crypto custodian.
The advantage of Bitcoin in combination with the Lightning network or an application such as BitBucks is obvious. In the event of a currency crisis, high inflation and the failure of non-cash payment services, merchants could easily use these services and would therefore be able to accept payments immediately. The purchase of everyday goods in shops or online would be just as possible as payment processing in wholesale. The perfect prerequisites for quickly establishing a functional payment system.
Saving in order to be prepared for bad times has always been good advice. Even without being particularly anxious, I think the probability of a serious macroeconomic crisis is high and, as a family man, I don't want to be unprepared. In this respect, it makes sense to hold part of your savings in bitcoins. As an individual crisis precaution, for example, Bitcoins can be held in the amount required to cover living expenses for three to four months. During this period, it should be possible to restore the functionality of collapsed payment systems. This means that in the event of a serious disruption to the payment systems, the company's own ability to pay can be maintained for a sufficiently long time. While each participant in the Lightning Network generally has to store their bitcoins on their own responsibility, BitBucks uses a supervised representative of the German financial market to do this. So there is no reason why you shouldn't be prepared just in case.
