It’s common knowledge that mankind has used many different things as money, which comes and goes as adoption of one monetary standard eventually replaces another. This is the rule rather than the exception.
However, society’s choice of money is not arbitrary as there are certain attributes which seem preferable to others. Gold scores highly on these attributes which is why it has endured as a monetary standard for millennia. Today, at the turn of the decade, it’s time to assess whether bitcoin will assume the monetary throne for the next period of human history.
To do this, one must first understand bitcoin’s qualities. For starters, bitcoin possesses all the characteristics of not just good money but of extremely good money. It is not just marginally better than alternatives but is in a league of its own.
Bitcoin is provably scarce – there are only 21 million and there can never be more. Anyone with a computer and internet access can tell you the exact supply in circulation today and how many there will be 10 years from now – let’s see any central bank attempt such a feat.
While being scarce, bitcoin is also easily divisible, such that one bitcoin can be separated into 100 million pieces and reorganised at will. The divisibility of such an asset already wins over both fiat and gold.
Bitcoin is also durable, such that a single bitcoin exists merely as a ledger entry backed by thousands of computers around the world. Certainly, you’d be unable to use bitcoin if the internet was down, but this is also true of your credit cards.
Bitcoin is also fungible, which means that every single coin is worth the same as next one, and every bitcoin wallet can attest to its legitimacy or otherwise. Unlike gold, bitcoin cannot be mixed with tungsten and counterfeited.
However, one of bitcoin’s greatest attributes is its portability. You can send it anywhere on earth for incredibly low costs and move it across borders. In fact, it has no concept of borders, no weight, smell or physical body that can be blocked or seized. It is the only form of money that can be reliably moved across distances without trusting a third party. Case in point, bitcoin is the only money that does not require permission from anyone but the owner.
Finally, bitcoin also possess an attribute which will one day be viewed as essential for good money: programmability. Bitcoin can be programmed to mimic all sorts of economic activity, often enough without a middleman or human arbitration of any kind. Such trustless programmability is, in fact, impossible with fiat, and in a digital age will come to be recognised as one of its most important qualities.
Let’s turn our attention to the today’s money. Indeed, why should anyone care about cryptocurrencies when we already have a fiat system? It’s true, fiat works quite well; it has heads of states and government buildings printed on it or some other insignia, so you know it’s valuable. It’s also backed by paper, which can be burned for heating in winter – a major point for intrinsic value.
However, a sceptical observer should know that fiat money is ultimately a scam, inappropriate for an open free market. As Erik Voorhees once said, you cannot have a free market when the most important good – money itself – is centrally planned and controlled. Indeed, fiat money and a market economy are mutually exclusive ideas.
Just like oil and water, they can be mixed under pressure but will slowly separate over time. Indeed, the average lifetime of any given fiat is less than 50 years, with the US-dollar becoming fiat in 1971 – the clock is ticking.
Suffice to say that most fiat leaves a lot to be desired. First, it is not scarce but systematically created out of thin air with zero limits on supply, nor can supply even be known – only guesstimated. Fiat is willed into existence by bankers and politicians because printing money enriches the printer at the expense of everyone else holding the previously printed money. This phenomenon is known as inflation or currency debasement, which is what’s happening amidst this corona virus epidemic.
Fiat also struggles with durability, which is to say that your fiat only lasts for as long as your bank permits and even then its value still decays. A bank can delete your fiat at the click of a button – ask any Argentinian or Venezuelan how durable it is. With fiat, your wealth is at the mercy of a third party – is this an attribute you find attractive?
Finally, fiat is not as portable as bitcoin. Should you try to send an international transaction, you’ll find that you cannot after 5pm. Perhaps you could try tomorrow morning, provided it’s not Sunday. When successful, you’ll discover that it takes three to five days for a wire transfer to arrive, not to mention that you often have to physically go to the bank where you’re expected to fill out a form on paper while someone types it back into a computer.
Despite all the naysayers, bitcoin is the best money currently in existence
Indeed, it is faster to tie money to a barbell and send it to Tokyo than it is to send an international wire. Do you really believe this archaic system is going to out-compete bitcoin in an open marketplace? One also cannot forget that should you attempt to donate to a relief effort in Venezuela, your transfer will be censored. On top of that, if you’re sending an arbitrarily defined suspicious amount, your payment will be blocked as you get ready for questioning or outright confiscation.
Ultimately, these poor characteristics exist simply because fiat money is an appendage of the state with no reason to serve market participants. Its attributes merely serve to siphon off wealth to the state through debasement. Remember, fiat means value by decree not by merit.
Gold is great and there are clear reasons why everyone should own some. However, gold is a heavy physical commodity that cannot be efficiently used as money at scale. If you doubt this, just imagine trying to run payroll with physical gold coins.
Still, let’s entertain the possibility of a scalable gold currency. In order for it to work, it must be warehoused by a company after which digital credits are issued against that gold. Such credits could hypothetically work if there wasn’t one major problem – centralisation. A digital gold payment service requires some form of custodial solution] and thus forces users to counterparty risk.
This is a fatal flaw as if one such counterparty ever grew to scale, a government could shut it down, switch off its servers, arrest its principles and seize its assets. This happened with E-gold and Goldmoney, both of which were forced to limit or close down online operations.
Given this reality, private money cannot scale and thus can never surpass fiat because a government won’t allow it. As such, gold is impractical for modern day commerce.
Bitcoin will win because despite all the naysayers, it is the best money currently in existence. Since it is decentralised, it cannot be stopped. The transition doesn’t happen all at once; nobody will instantly switch from fiat and banks to bitcoin and blockchains, but rather bitcoin will simply come to be used as an occasional alternative to fiat.
Individuals will find times and places where it is easier, cheaper, safer and faster to use bitcoin to store or transfer wealth over using a credit card. For the over two billion unbanked people on earth, the choice will be easy.
In spite of the continued failings of the legacy financial system, bitcoin now empowers people with full financial sovereignty. With just a $50 smartphone and internet access, anyone can send and receive money anywhere in the world at near zero cost, and there is nothing you can do to stop that. Indeed, bitcoin is one of the most powerful tools of individual empowerment ever created and it’s only getting stronger.
Today, fiat exists today solely on the momentum of tradition. Older generations will cling to it for some time but they and their ways are dying as their wealth decays in front of them, to be debased by the very people they vote into parliament. Fiat money will fall in time and it will be remembered as another of history’s examples of mass delusion, which in hindsight appears so obviously foolish.
Needless to say, crypto is not a panacea but opens the floodgates for real competition in the realm of money. As it restructures the financial system, bitcoin will find its way into every crack and every crevasse of economic activity on a global stage, and future generations will see it as inevitable as the collapse of serfdom and for the very same reason.
Christopher Attard is the founder of www.chrisoncrypto.com