Many crypto-enthusiasts who look forward to the day when Bitcoin becomes the world's premier currency. But is that likely to happen (ignoring technical limitations)? And would it be a good thing?
The Euro has some lessons to teach. One size does not fit all. The Euro exchange rate has generally been too high for Southern European states meaning their exports are too expensive and uncompetitive. The exchange rate on the other hand has been beneficial for Germany, keeping their exports artificially cheap. If Bitcoin was a world currency, the situation would potentially be worse. Vast swaths of the world that use Bitcoin exclusively might find that the exchange rate with the rest of the world did not suit their economic circumstances, triggering deflation. Bitcoin may save Venezuela from hyper-inflation, but then keep it in recession.
Banks lend out more money than they have. If a banks takes a deposit of £100, it will lend out that £100 multiple times. It will charge interest on those loans, typically at a rate higher than that given to the depositor. Those loans are engines of growth, used to create factories, finance new business etc. But a bank cannot lend bitcoins it does not have without "debasing" bitcoin and without a centralised banking structure to avoid catastrophes; the absence of which is supposedly bitcoin's raison d'etre. Bitcoins could be used as collateral for loans however.
There is a fixed supply of bitcoin. Milton Friedman would argue that the control of money supply is one of major levers of control of the economy, and abdicating control of money supply is abdicating control of the economy. Currently it is possible for governments to "print money" to address disasters such as the 2007-2008 Credit Crunch and the unfolding the Corona virus crisis, something not possible with a bitcoin economy.
Bitcoin has also proved not to be a good store of value. It has dropped dramatically in the face of the Corona virus.
Apparently up to 50% of bitcoin trading is still for nefarious activity. See sex-drugs-and-bitcoin-how-much-illegal-activity-financed-through-cryptocurrency. Much of the remaining activity is speculative, with traders indulging in pump-n-dump schemes that would be illegal in any other arena.
So is bitcoin a good thing at all?
Bitcoin could impose constraints on popularist socialist governments like those in Venezuela, by allowing the general population access to a second, competing stable currency. But it is also possible that such governments could take steps to frustrate access. Ultimately the answer to bad governments is to change them.
Bitcoin promises to provide banking (like) services at lower costs, particularly to those who may otherwise be denied such services. But it has many competitors. The jury is still out on this one.
Of course, there are specific use-cases where Bitcoin makes sense (e.g. gaming) . But the question must remain unanswered.
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