Bitcoin is flawed as money on a systemic level for two reasons often regarded as strengths. The first flaw is that it’s a technology, and the second flaw is that it’s a threat to government-controlled money. Both make Bitcoin unlikely to succeed.
First, that Bitcoin is a technology itself is problematic, because technology is impermanent. If Bitcoin is to be money, it must store value reliably over time.
The reliability cannot be a hope but a near certainty that you can rely on the money to retain its purchasing power over decades unattended, without concern for changes that can result in loss of value. The ability for a form of money to have relative permanence regarding purchasing power over time is critical, as otherwise it cannot be relied upon to store value.
But Bitcoin is a technology, and technology changes. It evolves, and what was new ten years ago is often not even old but obsolete today.
To bet on Bitcoin long-term is to bet that technology won’t progress, for people do not stay with old technology but migrate out of it. The Bitcoin Blockchain is not even scalable; it can only potentially be made so with “add-on” solutions, akin to programs to make Windows 95 faster.
NEW TECHNOLOGIES CHALLENGE BITCOIN
More efficient, scalable distributed ledgers have already been created, like Hashgraph, the equivalent of an entirely new, more advanced operating system. But whether it’s Hashgraph or another matters less than that technology is already evolving, and to bet on Bitcoin as sustainable money for decades ultimately means that a first-generation technology will be the final generation used.
Sony was first in portable music until Apple; MySpace was the first social network until Facebook. No one uses the first computer now anymore than they use the first cell phone. First-mover-advantage only remains an advantage so long as the first mover is not inferior, and Bitcoin will inevitably reach that point, if it hasn’t already.
That Bitcoin can be an exception to this pattern is unlikely.
The second systemic flaw is that private cryptocurrencies are a threat to government power via their monopoly on money. A human law throughout history has been that power seeks to remain in power and does whatever necessary to retain it. Whether dictatorships, monarchies, or the American “deep state,” those in power have done what was needed to keep it.
THE LIBERTY DOLLAR EXAMPLE
A telling example for Bitcoin is what the U.S. government did to the Liberty dollar, a private precious metals-backed currency created in rebellion of the Federal Reserve in the 1990s. The founder was forced to shut it down with six-months house arrest after being threatened with long-term imprisonment; a government prosecutor called the currency a “unique form of domestic terrorism….to undermine the legitimate currency of this country.”
This reaction was not a product of the time but a symptom of what occurs when any competitor threatens to destabilize the control of power by those in power.
This is not isolated to governments but extends throughout society. Corporations spend money to eliminate competitors, to the point that anti-trust laws are necessary to prevent the natural drive towards monopolies. But business competitors cannot be eliminated with certainty, due to variables like innovation.
Regarding the control of money, governments do not have this uncertainty. Governments can create the laws they want, print money nearly unchecked, and employ law enforcement or the military to get what they want done. All these tools have historically been used to maintain power.
While the reach of Bitcoin is further than the Liberty dollar’s, what it takes to destroy Bitcoin is not.
Unlike threats in business, eliminating Bitcoin largely comes down to cost – spending a certain amount (estimated now at $30 billion) to take control of 51 percent of mining power to rearrange ownership of Bitcoin, and thus destroy confidence in it as secure money.
This means that governments can guarantee their monopoly with certainty if Bitcoin or any other cryptocurrency gained enough traction. To think they won’t when they need only print the money to do so is to believe that governments will relinquish their control of money and thus their power willingly, which has little precedent. TJ
What must be understood but what crypto people evade facing directly is this: when a money is created in opposition to a power that can destroy it at a definable cost with near total certainty, that that power will do so must not be hoped against but counted on if the threat ever became large enough.