Stop trying to reinvent the monetary wheel with Bitcoin, argues Robert Skidelsky, a member of the British House of Lords and professor emeritus of political economy at Warwick University. In other words, boom and bust cycles are natural occurrences, and the incumbent financial system is the best humans can do, if only the sluggish economies could just get it together. The fact is that human societies have discovered no better way to keep the value of money roughly constant than by relying on central banks to exercise control over its issue and to act directly or indirectly on the volume of credit created by the commercial banking system. But let’s leave the Keynes versus Hayek debate for another article. Instead, what stands out like a sore thumb is not only the complacency and the knee-jerk reaction to defend the status quo, but doing so through ignorance of Bitcoin’s fundamental properties. Hence, the mere attempt to improve money is rebuked because all previous attempts have failed to come up with anything better than the paper mill that is today’s financial system. Let’s take a look at some examples of the erroneous statements made by the emeritus of political economy.
Second, since it’s already being accepted as a medium of exchange in many places online and across the globe for goods or services, then it’s de facto money. Furthermore, energy, coding skills, resources, and time spent on software and hardware development and production are just some of the components required to run and maintain the Bitcoin network. The more users in this network, the greater the value of Bitcoin will become, according to Metcalfe’s law. 2040, having delivered 21 million digital coins. Second, the problem was never with gold itself but the debasement of gold and thus the distortion of value.
This can’t be done even with digital fiat today, let alone physical cash or metal coins. What’s more, new layer-2 applications built on top of the Bitcoin blockchain, such as the Lightning Network, will enable the ability to send even smaller amounts off-chain. Hoarding’This would be exacerbated by any tendency to hoard bitcoins. Hoarding is a pejorative term for saving.
If there is no saving, then there is no capital. And there can be no capitalism without capital. In fact, some argue that saving actually leads to greater consumption in the long-run. A society which constantly defers consumption will actually end up being a society that consumes more in the long-run than a low savings society, since the low time-preference society invests more, thus producing more income for its members. Even with a larger percentage of their income going to savings, the low time-preference societies will end up having higher levels of consumption in the long-run, as well as a larger capital stock. Though the two are correlated, the latter is an integral feature of fiat currencies whose value is guaranteed to depreciate over time as more money is printed.
Sooner or later, the incentive for governments and central banks to print more money becomes irresistible to the detriment of the population. On the other hand, Bitcoin’s monetary supply is not only controlled but is fully transparent and known to all. Even the gold supply cannot be as accurately predicted. Whereas the 21 million digital units that will ever exist are a key property of the Bitcoin protocol that cements its digital scarcity. Put differently, the millions of people around the world who use Bitcoin today know the supply is capped, which results in more accurate price discovery for goods and services. It is also important to note that people who use bitcoin are doing so voluntarily to store their wealth and move their money.
This is nothing short of revolutionary since throughout history there was always some central authority, be it the state, the church, or a banking cartel, maintaining a monopoly over money by decree, and ultimately, by force. Comparatively, it is fiat currencies that provide no security against inflation. In fact, fiat currency supply is specifically designed to grow indefinitely as emission rate is controlled by a handful of unelected bankers through the artificial setting of interest rates. Rubber will meet the road as more people realize they can now opt out of this system by buying Bitcoin. The good news is that people now have a choice between trusting bankers or a voluntary decentralized monetary network with no one in charge. What other myths have you heard about Bitcoin? Disclaimer: The views and opinions expressed in this article are solely those of the author and do not necessarily reflect those of Bitcoinist.