Bitcoin Will Never Destroy Your Government’s Money
bitcoin on top of dollar and euro bills

Bitcoin Will Never Destroy Your Government’s Money

By MarkHelfman | Big Crypto | 13 Sep 2020


Imagine you had a choice: pay your taxes with money that always loses value or money that always gains value. Which would you choose?

You’d pay with the money that loses value. Why give up money that will be worth more in the future when you can give up money that will be worth less?

Now, imagine you had a choice of getting paid with money that always changes price or money that always stays the same price. Which would you choose?

You’d choose the money that stays the same price. Otherwise, you wouldn’t know how to price your labor or plan expenses. You’d charge $50 and end up with only $30.

Most people would make the same choices, even if they don’t consciously realize what they’re doing.

“Fiat” is not necessarily bad

To balance these conflicts, modern governments try to make money valuable enough that people want it, but not so valuable they won’t spend it.

They also try to make money easy for people to use — for example, with legal tender laws that force everybody to take the government’s money. Economists call this fiat, meaning “by decree” in Latin. The government says it’s money, therefore it’s money.

As a result, governments can buy things and manage their programs. Their people can have one common unit of account, useful for doing business with others and making long-term commitments.

Also, since governments control the money system, they can more easily manage their economies.

When prices rise too high, too quickly, they can cut the supply of money, keeping growth in check. When prices start to fall — or seem likely to fall — governments can boost the supply of money to encourage people to spend and grow the economy.

Bitcoin is not necessarily good

Unlike government money, bitcoin’s supply is scarce and fixed.

Some call this a key, essential feature. After all, when money systems get too loose, you get runaway inflation, inequality, and bloated markets that can’t effectively deliver goods and services.

This strength is also a weakness.

Under economies with fixed monetary systems, price crashes cause deep, destructive economic crises with horrible human costs. While this probably makes markets more efficient, people tend to react in bad ways — e.g., revolts, rebellions, and widespread hardship.

Also, humans tend to fight over scarce, limited resources.

When you restrict the supply of land, gold, property, and power, you get anger, jealousy, and hostility. Nobody ever waged a war over dandelions.

You can have your cake and eat it, too

Perhaps we need government money and bitcoin? A public money system that can expand and grow, a private money system that can keep governments in check.

That way, governments can serve their people with money systems that can change as needed to meet public challenges.

Meanwhile, bitcoin makes sure governments act responsibly. It gives people a fallback if their government’s money system fails.

When governments compete with the private sector and people can choose freely among all options, markets tend to deliver better outcomes for society. Not always, but usually.

Free markets. Competition. Choices.

Outside of monetary systems, we mostly uphold these things as virtues.

If we’re willing to apply those virtues to everything else, why not money, too?

Mark Helfman publishes the Crypto is Easy newsletter. His books, Consensusland and Bitcoin or Bust, explore the social, cultural, and business challenges of cryptocurrency.

Previously published on Voice.com.


MarkHelfman
MarkHelfman

I publish the Crypto is Easy newsletter. I also wrote "Consensusland: A Cryptocurrency Utopia" and "Bitcoin or Bust: Wall Street's Entry into Cryptocurrency." Find me on Quora, Medium, Hacker Noon, Blockchain News, Hive. Learn more at MarkHelfman.com/bio


Big Crypto
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