*work in progress
Bitcoin, the digital cryptocurrency that is getting the banking system’s ‘knickers in a knot’ for everything from its perceived secrecy, security and relative anonymity, to it’s disruptive payments technology, the Blockchain, makes many of us think the monetary revolution has finally arrived.
Sorry to break it to you, it hasn’t arrived — yet.
Bitcoin resembles it’s arch-rival Fiat Money (national currencies) in several important ways:
- Issuance: Fiat Money is created through issuance of debt. Bitcoin is issued through the mining process and valued primarily through conversion of Fiat to Bitcoin.
- Roles: Fiat Money and Bitcoin share the dual roles of money as a Store of Value/Wealth and Medium of Exchange. By design they seek to accommodate all functions of money in one form. This is important, I’ll explain at the end of this list.
- Wealth Pyramid: The Ratio of Wealth to Poverty in the current international monetary system is 88:1. In Bitcoin, the top 100 of 35,000,000 addresses hold nearly 1,600,000,000 of a total capitalization os 8,100,000,ooo. This is also a very unequal ratio.
Bitcoin differs from Fiat in one important aspect:
- Currency Stability Controls: The fiat system has a few mechanisms for controlling the value of currency, interest rates being the primary mechanism. Bitcoin does not have a stability mechanism. It’s basically the same as circulating shares in a company as money. The function of Bitcoin as a Unit of Account fluctuates in value wildly, driving future cryptocurrencies toward Fiat Denomination.
The Bitcoin Dilemma
The dilemma stems from Bitcoins similarity with Fiat in being both a store of value and medium of exchange. In the Complementary Currency movement, we sought to separate these two functions into two or more different currencies, which is basically why we call them “complementary”. In the crypto ecosystem, this is best represented by Freicoin, which charges a holding fee on the currency to incentivize circulation over hoarding, which makes it an unattractive investment currency, as noticed on coinmarketcap where it’s sitting at around 65th place. The dilemma with Bitcoin then is whether to save it, expecting the value to rise, or to spend it because it’s so easy and that’s what should be incentivized to flatten the pyramid.
What’s coming up around the corner? Bitcoin and other cryptocurrencies denominated in Fiat values, putting control over currency stability in the hands of the bankers and machinery of banking.
Ridiculous! Why would Bitcoiners just go stab their currency in the back like that?
Now for some headlines to back me up:
July 9, 2014
Dollar Backed Digital Currency Aims to Fix Bitcoins Volatility Dilemma
Founded by Brock Pierce, a former Disney child actor who is now a prolific bitcoin investor, along with ad industry entrepreneur Reeve Collins and software engineer Craig Sellars, Realcoin is the latest in a wave of so-called Bitcoin 2.0 ventures…
5 July, 2014
“Bitcoin-backed Dollars” and How the Blockchain could Enable a Billion Unbanked to Enter the Middle Class
24 June, 2014
“The End of Bitcoin Volatility?” The Soft Launch of Bitreserve
Bitreserve is founded by Halsey Minor, who also founded CNET.
Friends, these are not small-fry startups jumping up and down trying to gain attention and hopefully a slice of market share. These are projects being started by the founder of CNET, and a Bitcoin Foundation board member, among others!
The revolution in Money, the explosion of the emerging monetary ecosystem happens when the functions of money as a Store of Value and Medium of Exchange are separated. This was the case from ancient times, when Precious Metals and items were Stores of Value and only rarely and for large purchases as mediums of exchange while on the other hand Warehouse Receipts representing food and goods in actual storage were circulating as money.
Read “Debt: The First 5,000 Years“.
Then, once this has been achieved and we have a plethora of currencies around us to choose from, to use for specific purposes and according to certain incentives and to strengthen certain personal or community bonds, these currencies will have mildly fluctuating Units of Account that will remain stable over the long term. This being achieved by two main mechanisms, being issued as interest-free credit, and demurrage, a charge on the holding fee of money.
Money or items that are designed to function as a Store of Value, what Bernard Lietaer calls “Yang” currencies probably won’t be eliminated, just as there are still remnants of the Monarchy in some countries. But what will change is money as a currency, and Bitcoin will be merely a jumping board for people to join the emerging multi-currency monetary system.