Are people expecting bitcoin to be a currency of a major economy?
https://ift.tt/sULt2HQ
I’m not very involved with crypto or bitcoin. I have analysed it from an economic standpoint and have some pretty good reasons why it won’t be a major economy currency
1. The inflationary government action argument holds , but replaces it with volatile price levels determined by natural money demand.
2. The comparison of BTC and ‘fiat’ currency fundamentals argue on two different theories of money. BTC on the bartering savage and Fiat on credit theory. The former of which does not take into account the role of the state and understands society better.
But I may be missing the point, is the potential future use of the currency really the reason people hold BTC?
I’m happy to expand on my arguments and learn from you all
Edit: I think clarifying my points to direct critique is a good idea:
my conclusions why BTC never be a major currency:
1. the moral hazard removal from central banks will be successful, but is it the main issue? for example what about price level stability?
2. The theoretical basis for BTC requiring trust to operate relies on the **theory of the bartering savage** whereas fiat money relies on the **credit theory** of money, a more socially viable theory (imo)
​
This is long af I understand, but I want high-quality rebuttals and critiques 🙂
#1 exert from an essay I’ve written on medium, link below
Bitcoin’s decentralisation protects users from inflation. Fixing supply, beyond the reach of any authority, removes the capacity to print money to pay off debts. Given the examples of Zimbabwe and Weimar Germany, these concerns are valid. Procedures taking money supply out of reach of governments have been implemented for most of human history. Metallic currencies were used for this exact reason, a government could not simply create more gold or silver. So how is the fixed supply of money fair in the real world?
Using the example of silver in Britain in the 1690s, comparable with Bitcoin as there is no centralised monetary infrastructure.
Britain, in a war with France, was spending more silver on imports for the war effort than silver was coming in from exports, deteriorating the amount of money in the country. Recognising this, the people of Britain began to informally inflate the currency by ‘clipping’ coins. The debate was had whether to support the people’s inflation and formally produce lighter coins or to stay true to the *natural (*lower) supply of silver and crackdown on the inflated coins.
The decision was made to stay true to *natural* supply. The result was a catastrophe. Money supply decreased, but the production of the economy did not, resulting in deflation as prices had to fall to equate money supply and output. Real fixed costs rose and business activity plummeted. Money was simply clashing with the economy.
The British government in response to this fluctuation ultimately had to abandon the currency for gold. To protect against this kind of devastation again Britain switched to a gold standard (paper notes) and created the Bank of England. **Both of these innovations made money more flexible** and able to support the economy. The gold standard introduced notes which could be converted on command into gold, Together with the Bank of England, centralised and facilitated an influence on the money supply through the managing of credit creation. The BOE could manipulate the rate it lent to member banks (bank rate), which they then lend to the public, influencing the amount of money in circulation. Making credit cheaper, or expensive to increase or decrease the growth of supply.
This example highlights the dangers of a fixed money supply. Fixing the money supply may reduce a moral hazard with a government body, but leaves the price levels open to fluctuation in response to changes in demand for the currency. If the money is too rigid, it cannot react to changes in the real economy.
​
#2
To begin an assessment of the sustainability of transactional demand for Bitcoin, we must first investigate the nature of the value of modern money. BTC advocates generally view the value of money as solely derived from the expectation of acceptance of the currency in transactions. Asserting that the fundamental concern of currency is ‘trust’ in its credibility. Leaving the door open to new currency regimes if ’trust’ can be shifted from currency X to currency Y. This motif of value is based on ***the barter theory of exchange***, seeing money as a simple **medium of exchange** facilitating more trade. From this theory, modern money is simply an evolution from cavemen trading seashells for raw meat and sharp stones. *Everyone who believes this is calling you a caveman*
However, the more complex and less well-known ***credit theory of money*** is able to describe modern money more completely. The credit theory of money views money as simply *credit* (or debit receipts). If you purchase/sell goods you are borrowing/lending into the economy. This theory does not dethrone the bartering of exchange theory, as credit is simply a promise to pay cash, but it does introduce a very important factor, **expectations about the future**. Expectations can explain why one would hoard money in recessions as expectations about the future become uncertain, which the bartering theory cannot. Importantly, money demand is influenced by the expectation of future use.
The origin of money consistent with credit theory is called **chartalist theory**, giving a much more descriptive and natural story. Chartalism’s main point is that the **state** commandeers goods in exchange for debt receipts. The state can then decree that taxes be repaid by those receipts. Taxes provide a barrier to the introduction of other currencies and provide a medium of state involvement in an economy. A state’s need to purchase goods and the economy’s obligation to pay taxes to reinforce the use of the common currency. Making the currency orbit the economy more robustly.
How is this a more descriptive origin story? Say a ruler has to raise an army, he can issue the soldiers receipts of debt as payment, since everyone can pay their taxes with these receipts, he and the rest of the economy accept the receipts as payment. Since economies such as Egypt and Mesopotamia were tributary economies, the power of a ruler imposing tribute and requiring the use of their economy (the two uses of money) seems more accurate than two cavemen trading peanuts.
So will bitcoin ever be a currency of a major economy? Bitcoin lacks the harmony of chartalist dynamics that describes how modern money orbits seamlessly around an economy, making the adoption of bitcoin add complexity and risk with little extra utility. Viewing money as solely a medium of exchange, derived from the barter theory of exchange, poorly defines money and leaves taxation dynamic unchallenged. Concluding that the argument for **bitcoin as a currency is not achievable unless states are supportive and begin to denominate taxes in the cryptocurrency**. However, given the hostile stance towards bitcoin of all the major authorities, this is unlikely.
​
​
[https://medium.com/insiderfinance/btc-for-bread-or-dough-ce5233d3c02f](https://medium.com/insiderfinance/btc-for-bread-or-dough-ce5233d3c02f)
View Reddit by Zakkky – View Source
Cryptocurrency
