Bitcoin, as I have argued, is a store of value that is now more attractive than bad fiat currencies and is likely to become even more attractive over time. It is an innovation that replaces trust in government with trust in a decentralized order— an order run by the miners—who verify transactions over a transparent blockchain. The interests of these miners are well aligned with holders of bitcoins, because the miners are partially compensated in bitcoins. It is this alignment that has sustained Bitcoin’s trajectory to ever higher valuations—a more than tenfold increase in this calendar year alone.
Bitcoin’s market order is strengthening because other markets are arising to improve the function of the underlying market. Yesterday the Chicago Board of Trade provided a futures market in Bitcoin, just it has for other commodities, like gold and oil, and as other exchanges have for fiat currencies.
Bitcoin, the premier cybercurrency, is at an all-time high in price and an all-time low in volatility. In a new article, Bitcoin: Order without Law in the Digital Age, Kyle Roche and I compare Bitcoin to fiat money and show why and how it may succeed in the long run in becoming a currency relied on by millions. In this post, we focus on the flaws in fiat currency that may enable Bitcoin’s success. In the next we will describe how Bitcoin is succeeding.
In 1924, Georg Friedrich Knapp, the father of monetary theory, wrote that “[t]he soul of currency is not in the material of the pieces, but in the legal ordinances which regulate their use.” The state must instill confidence through law that its currency will retain value. And it is the uneasy relation between a state and its currency that gives Bitcoin the opportunity to grow. Citizens in some nations rightly distrust their currencies, precisely because they have little confidence in the legal ordinances and institutions, like central banks, that regulate their use. For instance, in the recent past nations, like Argentina and China, have undermined the value of their currencies and yet also tried to prevent citizens from using other more stable and reliable currencies to maintain the value of their assets.
Bitcoin provides many people in monetarily oppressive regimes with a better alternative.
The Power and Independence of the Federal Reserve is an informative and provocative history of the Fed and its remarkable evolution over a hundred years’ time: a complex institution, in a complex and changing environment.
Very importantly, author Peter Conti-Brown has included the Fed’s intellectual evolution, or the shifting of the ideas that shape its actions as these ideas go in and out of central banking fashion. This account makes readers wonder what new ideas and theories the leaders of the Fed will adopt, reinforce by groupthink with their fellow central bankers, and try out on us in future years.
Never having read a textbook of economics in my life, I am at the mercy of newspapers for my knowledge of the dismal science. And by means of the intellectual equivalent of the Chinese water torture, I have come to the conclusion over many years that fiat money brings with it enormous psychological problems, not to say moral corruption. My conclusions are unoriginal, of course; I could have reached them in a few hours if only I had read a few texts. No doubt re-inventing the wheel is wasteful of time and effort, but it brings with it a certain pleasure not to be had from merely reading what others have invented before.