Bitcoin (BTC) has been hit hard in recent weeks. From crash to crash, he hardly keeps his head above water. The “King of Cryptos” fell to around $18,500 at the end of June 2022. We are a far cry from the rich times when BTC was at its peak and peaked at $68,000. The question arises, and it is legitimate. Is bitcoin (BTC) the solution?
The fall of bitcoin (BTC) and cryptocurrencies
Cryptocurrencies fell rapidly. The stablecoins turned out to be unstable. Like with a big hangover, the blockchain universe is struggling to recover from its bad awakening. This is not good news for DeFi when the industry that was meant to replace traditional finance is now trying to centralize and raise funds to stabilize. Bitcoin in particular has suffered the worst reviews. It has always crystallized the detractors of cryptocurrency. We can quote quips in tuft. ” Bitcoin is a rat’s death signed Warren Buffet. “The super coders of the shadows Elizabeth Warren. ” destabilize nations Hillary Clinton. “Bitcoin looks like a scam launched Donald Trump. “Personally, I think bitcoin is worth nothing Jamie Dimon. We could go on like this for hours. ” A Ponzi scheme », « Energy waste », « It has no cash flow »…
The intrinsic value of bitcoin (BTC)
Let’s put all the muck dumped against Bitcoin aside. We have to go back to the basics. We must go back to basics, that is to say review the original idea and the objective of bitcoin. The first step in identifying the added value that bitcoin can offer us is to accept and recognize that there are problems to be solved. If no one thinks there are problems with the current status quo, then bitcoin will always be a “waste of energy” and a “Ponzi scheme”.
Numismatics and bitcoin (BTC)
Do you know the numismatics ? This is the name given to the science that deals with the study of currencies in history. Including coins, medals, tokens and medals. Indeed, the concept of money is not new and has been around since around 5,000 BCE, when the ancient Mesopotamians introduced the shekel as their currency. Numismatics can thus help us to better understand the problem. Beyond the Mesopotamians, many civilizations used shells or stones as currency. Finally, whatever the medium used, gold, silver, pewter, shells, stones, money reduces the need for creating trades and daily barter. We can’t barter all day, and we can’t hoard goods in our garages to store our earnings.
The usefulness of money and its evolution
Now that we have seen that humanity, and especially civilization, has always needed a currency, we can review what use bitcoin can have. Money is useful as a medium of exchange, as a measure of value or standard of deferred payment and store of value. Money must also have properties of fungibility, durability, divisibility, portability and rarity. This is how money is embedded in every part of society. Additionally, the “medium of exchange” function of money has evolved over the years with technology. We may have used coins or notes in the past, but today e-commerce accounts for 13.2% of all purchases. Visa, Mastercard and Paypal have capitalized on this payment infrastructure (digital and in-person) with 2021 revenues of $24.1 billion, $23.6 billion and $25.4 billion respectively. Visa and Mastercard have combined to facilitate more or less 70% of card transactions in 2021. With such sums, it is safe to say that digital payments have met a demand, they have solved an existing problem.
The success story of digital payments
We can even go further and talk about the fees of around 3% that these networks charge, or the global average money transfer fee of around 6%. There are a lot more issues to deal with here, but we’ll save that for another day. For now, we can confidently say that with Visa processing up to 24,000 transactions per second, there is inherent value in what card payment services have delivered. It’s kind of the same with bitcoin. We must explain the inherent value that cryptocurrency brings. We were able to explain here that, one, we need some form of currency, and two, digital payment networks facilitate the exchange and transmission of money, which brings value to society.
The FIAT currency problem
What form should our currency take? It’s a legitimate question… We have seen that there was a time when shells were used as money. And until 1971, the monetary system was backed by gold. Today, money is a FIAT system, with no underlying products supporting our monetary systems. But, is this a problem? Is fiat currency the best form of currency we should use to preserve the efforts associated with our work? Does FIAT best represent the monetary properties we are looking for in a form of money? We have already explained that the current system is unsustainable, and that it operates on the principle of debt. For more explanation, this YouTube video summarizes how our current monetary system works.
The FED, or the ECB, by buying up the states’ debt, which is eternal, prints everything. This is the major problem we face. By printing too much, we create inflation. So, for example, when the US government passed legislation for $4.2 trillion of spending in the CARES Act and Covid relief programs, we see an asset (in the form of an IOU) added to the Fed balance sheet. Is all this a problem? Should the 7-member Federal Reserve Board be able to issue $4 trillion in new money at will?
The FED and the ECB or bitcoin (BTC)?
That’s not all. Commercial banks also create money at will through our fractional reserve banking system. As explained in the video. The Fed sets the reserve rate (how many of a bank’s deposits must be in reserve with the Fed) and the federal funds rate (which translates to the percentage that commercial banks receive for deposits with the Fed) , all of which are passed on to consumers and businesses in the form of loans, mortgage rates, etc. It is exactly the same functioning as the ECB. In 2014, it lowered its deposit rates, as explained in the article linked above. When the FED sets a 0% reserve rate as it has throughout Covid, it has effectively given commercial banks the ability to create unlimited money. On this, the Americans were behind us Europeans thanks to our central bank in Frankfurt.
The answer: Bitcoin (BTC)
So back to the question… is this fiat money standard a problem? Is this the best we can do as a society to provide mechanisms for preserving wealth over time? If BTC is a “Ponzi” or a “rat poison”, I hesitate to speculate what our current fiat system represents…
Inflation… Always Inflation
It was supposed to be “transitional”… But now inflation has become the talking point of the year. Jeff Bezos and Elon Musk have both (in apparent agreement) tweeted on the negative effects of all our money printing on inflation, and this by debunking the stories of the Biden administration, Senator Warren and others. The very people who have long made statements explaining that everything is Putin’s fault, or better still because of “corporate greed”.
Conclusion: Is bitcoin (BTC) the solution?
First, let’s go back to our previous four conclusions. Money as a function has value (we need to be able to exchange goods and store value over time). Payment networks have value (we need to be able to transmit value across space and time, and quickly). Fiat money has problems. In particular because it is intrinsically inflationary, devalued each year and the rules of the game are modified at the discretion of a board of directors composed of 7 members for the FED. Ditto for the ECB, no one among those who will read these lines has decision-making power over the monetary policy of the ECB. Inflation is caused by money printing and harms society. It’s an invisible tax on those without assets, it centralizes power in the hands of a few (the central bankers) and it subverts democracy when we can print money at will rather than to make difficult decisions about raising money through taxes.
With all these arguments, in my opinion, it is undeniable that the decentralized nature of BTC offers us an incredible chance. We can be autonomous in our transactions. No middleman needed. It allows you to quickly settle transactions anywhere between individuals or professionals. Bitcoin (BTC) plays a similar role to gold, with the added benefits of digital and blockchain. Initially a store of value against inflation, in recent years it has become correlated with the real economy (notably the Nasdaq) for multiple reasons. the bear market has the merit of cleaning up the market and decorrelating it from the stock market. Bitcoin (BTC) will likely regain its function as a store of value against inflation after this.
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Student passionate about entrepreneurship and fascinated by the technologies behind cryptos! Yes, I am convinced that the two are intimately linked: blockchain and NFTs are revolutionizing many sectors and presenting unprecedented opportunities.