Money is an indispensable tool for our civilizations. Humans are required to make transactions with their peers if they want to be able to meet their vital needs. Money makes it possible to facilitate these exchanges by overcoming the problem of the double correspondence of needs. But when this essential instrument for our exchanges no longer fulfils its role, an entire civilization is threatened.
Bitcoin, the unit of account of the homonym monetary system, could be a much more interesting currency than what is currently offered to us by state powers. In this article, I'm going to show you why Bitcoin is a good currency.
What is good money?
A currency is first and foremost an asset. Theoretically, any asset, material or intangible, can be used as money. For an asset to take on this status, a social consensus must occur in order for a group of people to see it as such. In other words, money arises through a spontaneous market process.
In the past, money has thus been embodied in various protean assets. Some were natural materials such as stones, metals, shells, or salt. Others were agricultural products such as livestock, wheat, cocoa or tobacco. Finally, there were handmade products such as knives, weapons or even alcohol.
We can therefore ask ourselves how can we determine, in the most objective way possible, whether an asset would serve as a good currency.
According to Aristotle, money should fulfill three main functions. First, it must be a store of value. This is what will make it possible to shift purchasing power over time. If one chooses to freeze the value of one's work in this currency, one must be sure that one's future purchasing power, considered by a group of people, will be at least equal to its initial value.
Second, money must be a medium of exchange. In other words, it must be an intermediary in transactions in order to facilitate the movement of value in space and facilitate trade.
Finally, it must be a unit of account. It is a way to standardize and measure value. This makes it possible to keep accounts and to set up economic calculations.
For an asset that is a candidate for currency status to fulfill these three functions reliably and without dysfunction, it must have certain main characteristics:
Unfalsifiable and easily verifiable: it should be easy for an individual to verify the authenticity of the asset used as currency. And, it must be hard to falsify it.
Fungible: it must be able to be consumed through use. This characteristic ensures that an asset is interchangeable on an equal basis.
Transportable: this facilitates the movement of capital in the economy and the freedom of movement of individuals.
Divisible: this ensures that any transaction can be included in the monetary system.
Rare: it must make it possible to maintain value over time thanks to its rarity.
Incensurable: it should be able to be exchanged freely, without requiring the approval of a third party.
Easy to store: the individual must be able to save their money easily and securely.
Durable: the asset must not deteriorate over time.
What is the best currency?
Based on these assumptions, we can compare three popular forms of money with bitcoin: electronic state money, paper state money, and gold.
I take the trouble to differentiate electronic money from paper money since they have fundamentally different characteristics. Paper money represents notes and coins, and electronic money represents euros in a bank account.
Today, most state currencies serve their function as a unit of account, but they are not good stores of value. Their function as a medium of exchange is moderately well fulfilled.
Gold is indeed a store of value, but it does not fulfill its function as a medium of exchange.
Bitcoin, on the other hand, has all the characteristics that allow it to perfectly fulfill the three main functions of money according to Aristotle. It has the many advantages of gold, while maintaining the convenience of fiat currencies. It can be easily used on the internet, while maintaining the incensurability of physical currency.
In the same way that Gutenberg came to break the monopoly of the distribution of knowledge with the invention of the printing press, Satoshi Nakamoto came to break the monopoly of the management of money by the state.
This centralized management often leads to abuse and problems. In history, the majority of major currency catastrophes have been perpetuated by states. Today, following the numerous actions of central banks on state currencies, we find ourselves again in an economy where capital is poorly allocated. This leads to numerous problems: zombie businesses, unemployment, inflation, the use of commercial goods as a means of saving, over-indebtedness of states...
Evolution of the currency index in the broad sense (M3) within the OECD since 1980.
Friedrich Hayek, winner of the Nobel Prize in Economics in 1974, predicted the arrival of all these problems. In 1976, just after the United States broke the convertibility of the Dollar into Gold, Hayek published his book For real currency competition. In this book, he highlights the importance of removing monetary monopoly from the State.
For him, the question of this competition is not only a technical concept, but it is what will dictate the future of civilization. He argues that the monopoly of money creation by central banks undermines the proper functioning of the market and fuels government growth. He therefore believes that the future of free society is closely linked to the future of money creation.
We can then think that the State no longer really has a monopoly on money in Europe, since it is the ECB, an independent administration, that is in charge of managing it. That is not the case. The euro is still imposed as a mandatory currency in its area of influence, and it is the governments that have executive power to enforce the use of the euro.
What prevents the people today from freely having the currency that suits them is indeed this link between executive power and monetary power. “Counterfeiters” have always been hunted and punished. The power they are taking away from the state is too great. Thus, in the 18th century, this act was worth the death penalty. Today, counterfeiting is still being reprimanded with great force.
Bitcoin is a miracle. It represents the first free currency that managed to emerge and develop, despite state restrictions in this area. This was possible thanks to its distribution. The creator is anonymous and there is no central authority hosting the network. Bitcoin is nobody and everyone at the same time. There is no person to tap on to stop the machine.
Bitcoin then allows for the first time, anyone with a computer and an internet connection, to access a free and hard currency.
Currencies tend towards a
Some economists, even liberals, are fighting the idea of currency competition. They argue that it is not convenient for a people to live with several currencies. This is totally true, it is not desirable to use currencies different from your neighbor. However, currency competition does not necessarily involve the cohabitation of currencies.
The individual, if he is free to choose, will always turn to the currency that suits him best. The best currency will emerge naturally, and it will build consensus around it. It will then become logical for each person to choose only one. So in a free system, currencies naturally tend toward one.
Gresham's law is a mechanism often put forward by critics of currency competition. But, according to Hayek, if men were free to exchange the currencies they wanted at the rates they set, then good money would naturally take precedence over the bad. This can be illustrated in periods of inflation: people who are able to do so will always choose to get their savings out of the wrong currency to buy foreign currencies, financial assets, or even everyday consumer goods.
We are currently in a period of inflation, and Bitcoin allows everyone to get out of a failing currency to protect their hard-earned savings on the hardest currency of all: Bitcoin.
Bitcoin is a superior currency. No other currency in the world could be rarer than this one. Although there are still some frictions and areas for improvement, the fundamental properties of rarity and incensurability imposed by users are already present.
The use of bitcoin as a currency ultimately refers to logical and almost natural reasoning. As an individual in a society, I must use a currency to store the value of my energy over time and enjoy this accumulated value at a later time. Do I prefer to use a currency that is constantly losing value, and therefore in purchasing power for goods and services? Or do I prefer to use a rare currency, which will surely give me better purchasing power over time?
It is actually more likely that a majority of individuals will choose the second option. It is more likely that a majority of individuals will choose Bitcoin.
