What would happen if Bitcoin was money? It would disappear.
Bitcoin (BTC) is a cryptocurrency. People who are interested in BTC consider it as newly created internet money which cannot be controlled by any central authority. I strictly disagree that BTC is or could be money. BTC will never become money. On the contrary, I claim if we started to use BTC as money, it would disappear.
In this article I am going to explain the following: 1) BTC is not a currency. BTC is a cyber-commodity. If BTC is not a currency, could it be monetary (cyber) commodity, like gold used to be money long ago? 2) I claim that BTC will never become commodity money as well. Irrespective of the fact that we can pay with it. I will prove that if we considered it as money, (as thought experiment) it would disappear. We will see that BTC would not be able to get purchasing power as such. There is no motivation for mining without purchasing power. In order to grasp why BTC will never become money by definition we need to see how a commodity money, gets its purchasing power; as such and by itself. 3) This will be demonstrated at the example of gold and at the situation of what is going on in the sector of gold mining if it is necessary to add an additional ounce in the market. This relative flexibility of adding gold allowed gold become money in the past and precisely this kind of non-flexibility prevent BTC to be (cyber) commodity money.
BTC is not a currency.
BTC is definitely not a currency. Actually, it is ontologically wrong to call it currency. USD or EUR is currency. Currency is expression of commitment, liability of a central or commercial bank. Currency in the form of a banknote or record in current bank account is actually a bill of exchange issued by a bank — if we hand it in or transfer it from one bank account to another, we immediately get delivery of goods or service. Currencies are a typical product of the banking industry. They are IOUs, liabilities, expression of debt. Banks do not produce money but currencies. It is necessary to consider sill as money per se so called commodity money, i.e. gold and silver. Gold or silver is not IOU and it can act as money outside of the banking sector; it can provide the very same functions as currencies do. But we do not use this money much anymore. Why we do not use commodity money and why we use currencies more is another issue out of the rage of this article.
From this perspective BTC is a kind of a new technological asset. It is not definitely a currency. By its nature. Like we said before currency is liability. BTC is nobody’s liability. BTC is an internet asset, a cyber-commodity, rather than currency. After reading this text you will see that it can never become a new (cyber) commodity money. Irrespective of whether we can use it for paying or not. We can pay with anything. With airline miles, points collected in any shop network, or anything else what we produce, e.g. we can pay also by means of work. Nothing listed above is considered as money. At the same time it does not matter whether we can pay with the given stuff slowly or quickly, whether it is user friendly or not. These are only technical details. Money and currencies are not only about making payments.
Can BTC serve as money? The short answer is no, it cannot. It cannot get purchasing power as such — and this is exactly what causes a problem.
For explanation, let’s suppose that currencies, such as USD or EUR, do not exist. Only BTC remains; other crypto-currencies can exist as well, the reasoning is similar. At this point a big problem occurs for BTC. A problem linked with a question: “What purchasing power have BTC as such?” Identifying purchasing power itself is not easy at all. If we did not have currencies, such as USD or EUR, and if we had only BTC, we need to know its purchasing power. Why? If miners (i.e. Bitcoin miners securing BTC network) did not know the value of BTC (i.e. its purchasing power), economic motivation for mining would cease to exist. There would be nobody keeping the BTC network alive / secure. Subsequently, BTC as native token of this network would cease to exist as well. If miners do not know purchasing power of BTC, they do not know whether they are in profit or in loss, and they face a problem whether to enter the sector of mining or not. Without knowledge of purchasing power they lose economic awareness. Why?
The miner is in profit when his costs are lower than yields. That is clear. However, this implies that the miner knows the price of electricity, hardware and other overheads in BTC. The miner can see his sales (i.e. the number of BTC gained from mining based on new BTC and fees). The problem consists in determining costs. Today it is not difficult to determine them. Because BTC has its value in USD. The calculation is simple. But we have established precondition that we would not use USD or any other currencies. Well, how does the miner know his BTC costs? How does he know whether he would gain sufficient amount of BTC covering his costs plus profit? The short answer to this question usually is that the price of electricity would be generated in the market process, i.e. via demand and supply. I demand electricity and offer BTC in return and someone else supplies electricity and demands BTC. However, the problem is how to determine purchasing power of BTC. In other words, how much BTC is 1kW of electricity? The problem is that BTC value (as a reversed price level vis-a-vis other assets) or exchange ratio of BTC and kW arises necessarily once the exchange is done. Not before. And if it arises when the exchange is done, we must explain why the electricity producer wants to exchange BTC for electricity. This is what finally determines how much BTC 1kW electricity is worth. Well, how to determine how much electricity, hardware or other costs 1 BTC unit is worth? Again. Without converting it into USD!
It is not a trivial issue to derive how much electricity or hardware a unit of BTC is. Whether mining is worthwhile or not depends on that. If you find it easy, you are likely to consider it still from the perspective of USD or EUR. However, forget contemporary currencies determining prices today. Purchasing power of BTC must be derived as such. Shall it be derived from e.g. laboriousness of how much work was necessary for manufacturing hardware or electricity, for building a data center of the BTC miner who supplies new BTC and gains fees for transactions? Or, shall it be derived from a consumer basket or a price index of assets? Or, shall it be derived from an exchange ratio of BTC vis-a-vis other crypto-currencies relating to BTC? Or, shall its purchasing power be determined from value expressed in USD in the past?
The first option — laboriousness — has already been economically refuted. It is a theory assessing the value to an asset on the basis of work, i.e. labor theory of value. David Ricardo, or partially Adam Smith, represented it; Karl Marx is also linked with the theory — he explained in its context that value of commodities did not result from work — generally, but it resulted specifically from the sale of work of workers to capitalists, while only work of the proletariat was productive. Today the whole theory serves for demonstration of what is wrong about this labor theory of value; this theory has been outdated by the theory of marginal utility and the theory of subjective value. This is not the way how to explain purchasing power of money, even it is seems intuitive to many people. It is wrong path.
Well, can purchasing power of BTC be derived from an asset index or a consumer basket? From this point of view instructive criticism of e.g. Hans Herman Hoppe, on the basis of Ludwig Mises’ work, explicitly shows that this is not the way. Hoppe writes the following in his work “How is Fiat Money possible”:
„…here is first the fundamental problem that the purchasing power of money cannot be measured and that the construction of price indices — any index — is scientifically arbitrary, i.e., as good or bad as any other. What goods are to be included? What relative weight should be attached to each of them? What about the problem that individual actors value the same things differently and are concerned about different commodity baskets, or that the same individual evaluates the same basket differently at different times? What is one to do with changes in the quality of goods or with entirely new products?“
So, how about deriving purchasing power from its exchange ratio vis-a-vis other crypto-currencies? (We should not forget the precondition that people stopped using USD and EUR and they use only crypto-currencies). The argument is easy here. We do not have to tackle the problem. We just transfer it to another crypto-currency and over again. We are simply running in circles.
How about deriving purchasing power of BTC from the past, e.g. from USD? Does it mean that if the price of e.g. electricity was expressed in USD and converted into BTC we cannot go on applying the given ratio? From the economic point of view there is a problem again. Economically, the past is lost forever. Prices are always new exchange ratios of an asset (e.g. electricity in our case) and of money relating to always new and new market conditions. The prices we can see in the past is historic data relating to the past market conditions, not today. That is not the way again.
If the miner does not know what the purchasing power of BTC as such is, he is not motivated to mine. BTC would fail as money. No one would secure the network. Well, does purchasing power of BTC as such exist? Can BTC get it? When wondering about these questions, a meaningful question could crossed your mind: “If gold could make it, can BTC succeed as well?” After all, people call BTC as digital gold. They think that BTS as digital gold should be even a bit better considering that BTC is more divisible and easier to pay with. If you have thought about it like that, it is a good procedure. So let’s have a look at how gold got its purchasing power. On the basis of that we will see where the real problem of BTC is.
How did gold get its purchasing power?
As I show in other papers, which should be read in the context of this article, gold could be money. Gold is absolutely different from Bitcoin. Even though some people try to call Bitcoin as digital gold. Gold is not BTC. Gold is not rigid and it is only relatively rare. Since gold is not rigid and since it is relatively rare, our ancestors could use it also for mediation of debt exchange because they knew how to express correctly interest rate by means of gold. Gold was money just because debt exchange between the creditor and the debtor in time could be relatively well mediated.
It is precisely success / failure of debt exchange expressed in gold which brought purchasing power to gold. Purchasing power was associated with the fact that the debtor bought some capital goods based on the gold provided from the creditor first. Then he productively transformed capital goods into new products. If he sold them successfully, which was implied by demand for his manufacturing activity later in time, he was able to pay both principal and interest. This way purchasing power of gold was maintained. In this example of successful economic project the purchasing power increased. Or, vice versa. If the debtor failed and did not pay the debt, purchasing power of gold relatively decreased; promised economic project was waste of resources.
It is necessary to realize that purchasing power of gold is actually a reversed price level of goods bought for gold. The monetary economic system works as a system of two layers. The bottom layer is the layer of goods, while the top layer is the layer of money. Their mutual relationship creates a price level. Either we consider the system as prices of all goods in gold, or we regard it as price of gold expressed in all other goods that we economically exploit, i.e. it is an inverse price level. This view needs a little imagination, however, if you use the parallel of two interrelated layers, the idea should be clear.
The idea of the economic system as a system of two layers is very helpful. The bottom layer includes all savings, which part of them are transformed by human decision into the capital and consumable goods, e.g. electricity (as we have already mentioned), data centers, halls for mining BTC but also millions of other assets. Money, i.e. gold, serves for the second — top layer. The top layer expresses debt relationships, i.e. providing principal in time t and returning the principal and interest in time t+1 (e.g. expressed in gold). Depending on what is going on in the top layer processes in the bottom layer are triggered. Agreement expressed in the top layer, which is the layer of thoughts-plans (since it is agreement of two people in time), determines ex ante agreed accounting debt standard, which is expressed in gold in our case, between at least two people lasting at least from the moment of the agreement in time t till the moment of paying off the debt in time t+1. Since this economic standard lasts towards the future, it is transferable to other people in the economic community and it can be understandably communicated. Transferability means that my agreement can be settled also by another agreement in case that the third party owes me something or money. It is debt that arose as well as my debt but in another point of time. It is clear and comprehensible to other members of the community who and what (i.e. gold or something else) owes to whom. Because the given relationship, commitment, lasts. It is perceived in the same way in time. It means that it has a personally invariant character in terms of time and men. Commitment will always be commitment yesterday, today and tomorrow and it is possible to understand what it is by me, you, and by anyone else. It is enforced by rules of the economic community. This is how a monetary network effect develops — for that reason people imply that money, or gold in our case, will be repeatedly exchangeable in the future. In this illustrative case it deals of the period lasting at least between time t and t+1. As this principle keeps repeating, its use expands not only among other members of the economic community but also further in time.
From this agreement, or from continual flow of repeating agreements in the top layer, which are concluded again and again, we derive also current prices of produced and existing goods. Prices of goods are determined by debtors (or who work for debtors) who buy capital or consumable goods (in the bottom layer) for provided principal, which creates the price level of goods they need for their economic projects. They certainly buy real and existing goods that were created somewhere in the past in formally identical or similar way.
This is the way how (our above mentioned) electricity gets its value in gold and gold gets its value in electricity. The producer of electricity demands gold because he made a commitment to pay off his debt in gold in the past. And the amount of gold he is demanding for electricity power is derived from his calculation to pay off at least the principal and interest. He had to use some capital resources made in the past for construction of his power station that he agreed to pay off. From this perspective it is all about a rerunning and in principle infinite production-consumable process controlled on the basis of what is agreed in the top layer of relationships. Debt exchange agreed in the top layer of relationships contains however one important phenomenon. Interest rate.
Interest rate is agreed in this top layer of economic relationships. From this point of view interest is agreement of two parties — agreement of the creditor and the debtor. E.g. 6% interest rate expresses that until the debtor provides the creditor with a minimum reward of 6% expressed in money in time t+1, then the creditor will not provide principal in time t. This type of relationships is depicted in the top layer of relationships. In principle the same is happening in the bottom layer. Once the deal is given in top layer, we are transferring specific assets in lower layer. So, the “movements” in the bottom layer have only another kind of form compare to top layer. Let´s say that our debtor wants to construct a power station. For construction he needs machines, material and other capital assets manufactured in the past and “waiting” for their use in the economic system (i.e. from this point of view they are savings) — bottom layer. The owner of these earlier manufactured savings (machines, material for the power station) is waiting today to see whether he made a good decision in the past under similar conditions — he also had to pay off a debt agreed in the past within the top layer of relationships. What is agreed in the top layer reflects in the bottom layer by a kind of “economic movement” of goods and services. Interest rate determines under which conditions the savings manufactured in the past will further be used in the economic system. And we express these mutual relationships and agreements by means of money.
If the owner successfully sells his manufactured goods (i.e. electricity in our case) in time t+1 for gold, he will pay off principal and interest (i.e. he settles relationships in the top layer in gold) and secure purchasing power of the returned gold. What would happen if he did not pay off the debt? This would mean that he could not sell electricity because e.g. there was no demand for it or e.g. his productivity is much smaller than other electricity producer. However, to produce electricity he “spent“ / purchased capital goods (in time t) that (as we have mentioned) were created in the past (in time t-1). So if he is not successful to pay off debt, purchasing power of gold, which certainly has not get lost from circulation, would relatively decrease. It would decrease by at least economical loss caused by a non-productive economic activity — machines, materials and other capital assets would have been used for production of power station and electricity that nobody wants. Purchasing power of gold would relatively decrease at that time. The bottom layer goods were not used correctly and the loss is displayed in top layer. An entrepreneurial mistake would arise. However, if our manufacturer of electricity is successful, returned gold will relatively increase its purchasing power.
So, purchasing power of gold was derived from how people succeeded to express and service debt, i.e. principal and interest, in the commodity of gold, in the past. Choosing a commodity for money related to the relative flexibility of the given commodity. Relative flexibility means how quickly/slowly it was possible to add/take away an additional unit of gold in/out circulation. You will see later that this adding or taking away is crucial for correct expression of change in interest rate. Gold has never been (and will never be) rigid. This is what allowed people to reflect debt and interest rate by means of gold, i.e. to express agreed debt relationships in the second top layer of assets. Similarly as in all other markets also in the case of money flexibility of reaction to change in supply and demand for money, which mediates new debt exchanges, is beneficial. If this natural flexibility is in any way influenced or limited, whether on the side of supply or demand, correct allocation of resources is affected.
Gold Mining and Change in Demand for Gold as Money Reflection of Interest Rate.
Reflection of interest rate is a term that many people cannot grasp. This is where the key argument hindering BTC from becoming money is. So, be more alert. Today we express interest in money. Someone may find interest as a monetary phenomenon. It is not. Interest is a separate value phenomenon of exchange in time. What does it mean? Interest is not derived from a sum of savings, it is not a capital function, it is not derived from money. It is a phenomenon of agreement. Agreement in our top layer. We just express it in money. And the good which express it more correctly than other one will be chosen as money. The best possible expression of this agreement needs sometimes flexibility to add a new monetary commodity unit in circulation or to take it away flexibly and not to manufacture it at the same time. We can perceive the fact that interest is a separate phenomenon of exchange and that it is not a phenomenon of money by imaging interest outside of the monetary economy. Interest will exist there as well. It means that interest in not dependent on money. If I lend someone a hoe in spring and the person returns it to me in autumn (principal) and adds 10 apples (interest), then I express interest for lending the hoe in apples. I ask for interest because I could not use the hoe from spring to autumn; I could not satisfy my needs with it. We can see that interest is not a phenomenon of money. It exists also outside of the monetary economy. The same applies if we imagine the situation in money. I lend 100 ounces of gold in spring and someone returns me 110 ounces of gold (100 principal, 10 interest) in autumn. Also in this case interest is reward for not being able to use 100 ounces of gold from spring to autumn. In very simple terms interest relates in principle to impossibility to use an asset in time in exchange for the possibility to use more assets in the future to satisfy my needs (in a non-monetary economy these are e.g. our apples, or in the monetary economy I can afford to buy more assets for interest than I could afford to buy only for the principal).
When does the gold miner add a new unit of gold into the economy? As well as the BTC miner the gold miner faces the problem that if gold is money, then gold determines prices (or prices are derived from gold). The miner cannot see the movements of purchasing power of gold (its value) that would imply change in demand for gold, which affects change in profit margin. However, in case of gold the miner gets information about higher demand for gold indirectly. Information about demand and the need to add a new unit of gold in the market is formed in the financial sector. It results from the fact that interest rate, which informs about higher/lower demand for a new debt exchange in time is discovered in the financial sector. So, what is going on then?
Suppose that interest is at the level of 5% for our purposes. Its decline to e.g. 4% will trigger increase in demand for new (as well as old) money in the financial sector in case that there is demand for older monetary balance from the side of a marginal gold holder and a marginal entrepreneur. We have to realize that older demand and supply used to be satisfied with higher interest rate (5%). Thus, participants who want to perform new agreement about debt in the financial sector, “ask” for an additional new unit to smoothly mediate debt exchange as such.
This is important. So, let´s sum it up once again. Change in interest rate is not dependent on the amount of gold in the market. It is dependent on the debt agreement. Amount of gold is supplied in the free market, after interest starts to decline. Not earlier. Interest is not value of money; interest is expressed in money. Interest is a part of the deal about the debt. In principle if interest rate decreases the owner of capital resources (i.e. existing savings, assets) is wiling for some reasons to allocate his resources in such economic projects that earn lower interest rate than they did before decline. In monetary economy money serves only for mediation of this economic agreement and in contemporary mature markets the whole act is mediated by financial institutions, i.e. by entrepreneurs specializing in exchange of assets in time — financial institutions. In case of a free banking sector, without political interventions, financial institutions discover interest rate also in the competitive process in this market. They are looking for due rate. And they make identical entrepreneurial mistakes as well as any other entrepreneurs in other markets. And it is a competition, as anywhere else, which improves the whole process and makes it more efficient and proper.
Increased demand for additional exchange expressed as decline in interest increases demand for a new unit of gold. It is exactly this what changes relative profitability of the marginal mine (which did not supply the market with any gold before) supplying the market with a new unit of gold in comparison with the previous state of affairs. That is because its costs will relatively decrease. Simply we can imagine this as follows. Let’s suppose that purchasing power of gold is maintained by financial specialists in relation to the past economic process the result of which is current successful economic process. So, gold does not lose its purchasing power. Debt mediated by gold in the past was settled. If interest rate in the community is 5%, then a mine which can supply the market with more than 105 ounces of gold at a cost of 100 ounces of gold is profitable. Mines producing less than 105 ounces of gold at a cost of 100 ounces of gold are not productive and not mined. That is because gold mined in the past is still in circulation. 5% interest rate implies that the owners of existing gold are willing to lend their existing gold mined in the past for 5%. If they lend gold to the owner of a gold deposit, who uses the borrowed gold for mining, then the owner of the gold deposit must produce at least more than 105 ounces to service his debt. However, if interest rate declines to 4%, all marginal mines, which produce more than 104 ounces of gold at a cost of 100 ounces of gold, become profitable. This relatively enhances intensity of total supply of gold in the market.
Supplying the market with an additional monetary unit results in demand for an additional loan exchange causing equilibrium because otherwise the owners of older gold (mined in the past) could speculate about higher interest rate determined in gold. E.g. they would ask for 5%, while the market estimates that 4% is all right. However, the holders of existing gold cannot do it because a new unit of gold from the marginal mine would be added in the market. In principle the holders of gold are kept in check by their competitors — gold miners. They cannot afford to do anything. And this is good for balanced market conditions.
On the basis of the right estimate of implementation of additional loan exchange with lower interest, future purchasing power of monetary unit in the market results. It is no coincidence, therefore, that for mediation of debt in time people used to choose something that is relatively rare and that expresses importance and complexity of the given estimate. Gold. In the event that on the basis of new implemented marginal debt exchange is successful, which we discover later on, a new added additional monetary unit of gold mediated successful allocation of capital resources in the economic process; value premium (i.e. growth of purchasing power) is assigned to monetary unit; in case of failure there is value discount (i.e. decrease in purchasing power). It simply depends on success/failure of agreement about debt in the top layer of relationships under (or behind) which is using real goods from lower layer.
The situation is contrary in case of growth of interest rate; interest rate growth implies that additional loan exchange can occur only under higher interest rate conditions. In principle the owner of capital resources (i.e. savings) is willing for some reasons to allocate these resources only in such economic projects that earn higher interest rate than they did before the increase. At this point a mine, which can e.g. produce less than 106 ounces of gold at a cost of 100 ounces, leaves the market in case that interest rate grew in the market, e.g. from 5% to 6%. Then remaining gold mining ensures that the owners of older gold do not push interest rate above 6% but that interest rate is correctly reflected at 6%.
As we can see adding and taking away monetary units, gold, into / out the market, depends on development of interest rate. At the same time it is secured that the holder cannot do what he wants with existing gold. Purchasing power of gold, i.e. what we buy for gold, is derived from what types of economic projects concerning debts gold mediates in the top layer of relationships. Thus, we can see an interconnected mechanism where an economic activity producing some assets is derived from debt expressed in money; and if the economic activity is successful / un-successful impacts purchasing power of money. And again and again, in principle ad infinitum. The only thing that changes is that some activities are no more performed on individual basis but on entrepreneurial, institutional basis where mankind coordinates the top layer of relationships by means of the banking and financial sector. And this is the reason why the banking sector must be free as much as possible and there must be competition. If not, the whole monetary system is imbalanced.
And now back to BTC and our key argument.
Rigidity of BTC hinders the above described from being flexible, which gold is by contrast. First, BTC is added on average every 10 minutes in a precisely established way and later on it will not be added any more — after the year 2140. The BTC as cyber commodity is fully in-flexible. The BTC marginal miner cannot flexibly react to potential changes in interest rate. By the definition of the BTC system as such. We can explain it also this way:
1) Rigidity of BTC is a problem for mediate exchange in time (debt) expressed in BTC as such (not re-calculate in USD or EUR). As you could see interest is a phenomenon of debt exchange agreed in the top relationship layer expressed in money. We choose money also on the basis of how flexibly we can mediate debt with it. If we consider BTC as money, a holder of the existing mined BTC while lending of BTC could speculate about higher interest rate than the interest rate discovered by the market compare to the situation of using other money which is relatively more flexible. As you could see, in case of sound money (e.g. gold) this potential threat of the holder to try to increase interest artificially is eliminated by adding a new monetary unit into circulation by the marginal miner of gold. In case of gold the interest rate is correctly reflected. In the case of BTC such flexibility is not possible by definition of setting the whole BTC system. Since we need to use debt exchanges — they provide us time and based on time we build more effective production structures (i.e. we need time to build plants, proceed R&D, build automation processes, etc., i.e. everything increasing production effectiveness) — and interest is part of these exchanges and BTC cannot reflect it correctly; BTC will never be voluntarily selected as money.
2) The second way how to realize this problem is through the subsequent hypothetical idea. Let’s imagine an extreme situation where all BTC owners lend all 21 million existing BTC after the year 2140. Let’s overlook that some of them might have got lost, or the fact how likely this scenario could be — it does not change the sense of the argument. If all people (creditors) lent already mined BTC at the same time, there is no way how to return to creditors what has been borrowed plus positive interest. Only then zero or negative interest could be considered, however, this would discourage creditors to lend BTC.
In other words using BTC as money would literally destroy time production structures which otherwise increase effectiveness of asset production in the economic community. BTC would negatively affect economy in very similar way as hyperinflation currencies. Hyperinflation currencies have identical bad monetary policy as well as BTC does. Only setting is contrary. While hyperinflation currencies cause breakdown of production structures from the side of creditors — owners of capital goods (creditors do not choose hyperinflation currencies for mediation of debt exchange, so that is why production structure breaks down); rigid BTC would cause breakdown of production structures from the side of debtors (potential debtors — entrepreneurs — would not choose rigid BTC for mediation of debt exchange, so that is why production structure would break down). Crazy monetary policy of the central bank in case of hyperinflation can be replaced only by “crazy” monetary policy in the event of Bitcoin.
The article explained that BTC is not a currency and that it cannot be commodity money. Unlike gold BTC cannot have purchasing power as such. We cannot use it for mediating debt relationships. However, we do not have to concern about the scenario that BTC disappear because of this. BTC and any other crypto-currency is “only” technology based on a transparent and shared (not managed by anyone) ledger. It is a quite interesting feature that mankind will exploit in some way. Maybe for a creation of new kind of free banking with more competitive free currencies with less influence of political bodies. But this is another issue. The price of an accounting unit/token of this technology = BTC, or another maybe better technology (Maidesafe??) will always be derived from money or banking currencies. Of course, it will depend on how useful this technology will be for mankind. Derivation of token value from money and currencies will allow this technology to exist and to maintain its interesting characteristic properties, such as decentralization, constancy of record, or its very existence. BTC works today and it will always work only because the value of its token is derived from USD or another currency. Only for that reason it can be now used for payments (because it transfers the value of USD) and only for that reason miners secure the network.
Let’s forget that BTC is new money or that it is the best money mankind has ever invented. It is not and it will never be money. By its nature.
See also appendix to this article. We will describe and pretend that BTC can get its purchasing power on the basis of faith (as thought experiment). We will do it because various economic-charlatan theories claiming that money becomes money on the basis of people’s faith in existence of exchangeability of money in the future. Wrong theory does not help. The future of BTC as money would be identically negative. BTC would disappear. Appendix is accessible here.
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Matúš Pošvanc, the original version was published on August 18, 2018. The article was modified, complemented and finally edited on August 27, 2019. Translated into the English in November 2019.
Published at Mon, 04 Nov 2019 19:59:37 +0000