The Economic Origins Of Cryptocurrencies – OpEd

By Deborah Palma

The launch of Bitcoin in 2009 represents one of the most disruptive phenomena in financial history, establishing a unique link between computer science and an economic tradition opposed to the mainstream. To understand Bitcoin’s importance, it is not sufficient to analyze its cryptographic architecture alone; it is essential to delve into the intellectual roots that shaped its existence, primarily found in the Austrian School of Economics.

The conceptual origins of Bitcoin date back to 1871, with the publication of Principles of Economics by Carl Menger. Menger is known for resolving the paradox of value (also known as the diamond–water paradox), demonstrating that value is neither intrinsic to goods nor derived from the labor required to produce them, but rather a subjective attribution based on marginal utility. This analytical framework is the foundation of Austrian monetary theory: money is not a creation of the state, but the product of the gradual development of the market.

Menger demonstrated that money emerges through a spontaneous process when individuals in a barter economy encounter the difficulty of achieving a double coincidence of wants. To facilitate exchange, market participants begin to adopt goods with higher liquidity. Throughout history, tradable goods such as salt, cattle, and precious metals were evaluated, until gold and silver prevailed as the most functional media of exchange due to their physical attributes of durability, divisibility, and scarcity. Bitcoin is the digital representation of this economic evolution, emerging not by government decree, but as a voluntary choice by individuals seeking an asset with superior monetary properties.

Menger’s conceptual framework is further developed through the study of marginal utility as applied to money. The value attributed to an additional unit of currency declines as an individual’s cash balance increases, which affects the demand for money holdings and, consequently, the purchasing power of money in the market. Bitcoin, characterized by an inelastic and programmatically fixed supply, enables individuals to plan over the long term, counteracting the loss of value caused by inflation, as occurs with government-issued fiat currencies.

In 1976, Friedrich Hayek published The Denationalization of Money, in which he argued that the state monopoly over money issuance should be abolished in favor of free competition among private issuers. Hayek believed that the market would naturally select the most stable and reliable currencies, punishing inflationary issuers.

Bitcoin represents a technological advancement that governments cannot prevent, and that offers a global financial infrastructure alongside the traditional financial system. Unlike Hayek’s original proposal, which involved private banks issuing competing currencies, Bitcoin removes even the private issuer, consisting instead of an open-source protocol with decentralized governance. This architecture prevents Bitcoin from suffering the same abuses of power that Hayek observed in central banks throughout the 20th century.

The technical implementation of Bitcoin is a product of the cypherpunk movement of the 1980s and 1990s. This group advocated strong cryptography as a means of protecting individual privacy and resisting state surveillance. Projects such as David Chaum’s e-cash and Wei Dai’s b-money attempted to create digital money but faced challenges such as centralization or the double-spending problem—that is, the use of the same bitcoins in multiple transactions.

The decisive catalyst for Bitcoin’s launch was the 2008 financial crisis. Austrian Business Cycle Theory (ABCT) explains that economic crises are caused by artificial credit expansion and low interest rates, which lead to malinvestments and asset bubbles. When these bubbles burst, governments typically resort to quantitative easing (the creation of new money) and bank bailouts, harming savers while benefiting insolvent institutions.

Bitcoin’s volatility is repeatedly misinterpreted as a flaw, when in fact it is the necessary price-discovery mechanism of an asset evolving from a technological hobby into a global store of value.

Unlike stocks, Bitcoin does not generate cash flows or dividends to anchor its fundamental value. Its price is derived purely from its marginal utility as a medium of exchange and a scarce store of value. Because its supply is fixed and absolutely limited, all adjustments to changes in demand must occur through price.

The maxim “Not your keys, not your coins” is the cornerstone of individual sovereignty within the Bitcoin ecosystem. Leaving bitcoins on a centralized exchange under third-party custody undermines the original purpose of the technology: the elimination of counterparty risk.

Jesús Huerta de Soto, in his analysis of the banking system, identifies fractional reserve banking as inherently fraudulent and the primary cause of economic instability. When an exchange retains only a fraction of its clients’ deposits and lends out the remainder, or uses them for proprietary investments, it creates artificial credit expansion.

The collapse of FTX in 2022 is the definitive example. The exchange used customer funds to finance the operations of Alameda Research, creating a multibillion-dollar deficit. Centralized exchanges behave like the deposit banks that failed in the past, operating without the transparency that the Bitcoin protocol itself provides.

The possession of private keys allows individuals to exercise full control over their wealth, without the permission of governments or financial institutions. This aligns with Murray Rothbard’s view of self-ownership and absolute private property rights as the foundation of liberty. In Bitcoin, security is guaranteed by mathematics and cryptography, not by trust in individuals or regulators.

Bitcoin represents the culmination of humanity’s pursuit of sound money, free from the distortions caused by central planners. Its significance lies in the restoration of individual sovereignty and in promoting an economy based on savings and real capital, as opposed to the uncontrolled consumption and debt encouraged by the fiat monetary system.

Bitcoin offers a response to the dilemma of inflation and economic cycles. Volatility is the price of a truly free market in the process of maturation, and self-custody is the only way to ensure that the benefits of this institutional disruption remain in the hands of individuals. As Satoshi Nakamoto signaled in the genesis block, Bitcoin is the necessary alternative to a banking system perpetually dependent on bailouts, serving as the foundation of a new monetary paradigm based on transparency and individual responsibility.

In light of the above, the transition to a “Bitcoin Standard” is not merely a technological transformation, but a shift in the economic model that favors long-term orientation, productive investment, and civilizational liberty. A commitment to private custody and a clear understanding of Bitcoin’s principles are essential for anyone seeking to participate in the Bitcoin ecosystem in a secure and consistent manner.

• About the author: Deborah Palma is a Brazilian writer who holds a bachelor’s degree in Business Administration from UNINASSAU. She has published articles with Instituto Millenium, Boletim da Liberdade, and IFL Brazil, and writes for the Damas de Ferro Institute.
• Source: This article was published by FEE