The central banking system has a lot of negatives and this existing debt-driven system has got many people frustrated. Therefore, for many years, economists were in a search for a better economic system and they finally found it in 2008. After the 2008 crisis hit the entire world, a mysterious paper emerged which was written by a group called Satoshi Nakamoto. No one knows who these people are, but the paper was quite interesting.
This paper talked about a new economic system which was decentralized and unlike existing currency, it had appreciating nature. It is based on the blockchain system and the currency is called cryptocurrency. The most famous cryptocurrency is Bitcoin and because of the blockchain being so efficient and transparent, many people are turning towards it against the existing the currency.
This is alarming for the government bodies across the world. In India, a parliament committee has been established to study cryptocurrency, blockchain and its effects on the existing centralized currency system. The government is afraid that cryptocurrencies like Bitcoin will replace the regular currency and it will lose control over the supply of money. The mysterious creator of Bitcoin has declared that Bitcoin cannot be controlled by any government body and there will be a finite number of Bitcoins that will be produced in a finite period of time. The number of Bitcoins will never cross this limit.
A Bitcoin is created by miners which solve a mathematical problem every time. This is an extensive process which takes a lot of time. All the Bitcoin holders are informed that a new Bitcoin has been created and needs to be approved. According to the creators of Bitcoin, there will only be 21 million Bitcoins that will be produced. The last Bitcoin is estimated to be mined in the year 2136.
The rule of the market is that if something is finite and has growing demand then its value also goes on increasing. Therefore, the value of Bitcoins has risen over the past few years at a tremendous rate. Therefore, it has now become more of an asset rather than regular money as it was originally intended to be. Therefore, more and more people have started “investing” in Bitcoins which has created a Bitcoin bubble. It has become similar to gambling.
Blockchain, on the other hand, has been proven to be a great tool. It keeps records in a secure way. Until now, no one has been able to hack into a blockchain successfully. That gives you a pretty good idea as to how secure this system really is. Bitcoin, presumed as autonomy, has created fear among the governments that it may replace their existing currencies.
The way I think is that Bitcoins, though considered autonomous, aren’t really that. It is claimed that nobody controls it, however, the creators of Bitcoin do have a control over it. It is just another form of government. It is a monopoly and they promise a finite number of Bitcoins which increases excitement among the masses. Many more cryptocurrencies are emerging which is modifying the monopoly element. But if you think of it as a commodity and not as money then the analysis is quite simple.
A cryptocurrency has an exchange value and doesn’t have any use value. Therefore, it is kind of a fiat currency. So it has to be converted back into regular currency to be able to spend it every single time. It superior blockchain technology makes it safe from thieves. Cryptocurrencies aren’t anonymous, therefore, anyone can see all the transactions. It is just that the identity of the owners is cryptic.
It takes time to convert Bitcoin in regular currency. Though this issue may be solved soon in future, I don’t think cryptocurrencies will replace regular currency in the near future. You can think of this as gold, it has a lot of value but you don’t use it for regular payments. Therefore, the fear that cryptocurrencies will take over the regular currency is far-fetched. It won’t be possible as the issuers of Bitcoin are non-state actors and they are running a monopoly operation that isn’t right for the economics of a country. Bitcoin and other cryptocurrencies are just another industry that produces a commodity that has a store of value in the market. And the fact that it is controlled by a secret small group of people and has limited output doesn’t make it libertarian at all.
For cryptocurrencies to become libertarian money, it will have to allow free entry for any producer who is capable to issue it. And these tokes will have to compete with others to build trust. Once they build up enough trust, people might start using them as a means of payment rather than as an asset. The competition between these currencies is very important as it will benefit the masses and keep doing so. As I see it, the governments across the world have nothing to fear from cryptocurrencies. They are just like commodities with no use value. But there need to be some rules to protect the consumers and the governments must work on that.
If you didn’t understand something or have a different point of view, then feel free to share that with me in the comment section below. I will love to hear what you have to say.