Economist reveals bitter prospects
Economist reveals bitter prospects if Bitcoin ever becomes a global success
Jon Danielsson, a lecturer at the London School of Economics, argues that Bitcoin and fiat currency cannot co-exist. Danielsson claims: the concept of Bitcoin as money makes no sense.
More than that, if it ever catches on, he foresees a world of great inequality – something that, he suggests, contradicts the egalitarian principle.
„Fortunately, as Bitcoin becomes more successful, the perverse consequences and internal contradictions will become more visible, so Bitcoin and other cryptocurrencies will be discarded long before we get to that point. At that point, the price of Bitcoin will go to zero.“
Bitcoin continues to cause controversy
A record-breaking month saw Bitcoin reach $58k for the first time in its history. Although a drop this week has roiled the market, it is important to note that the fundamentals remain solid.
If anything, they are getting stronger, as evidenced by the flurry of interest from Immediate Edge institutions in recent weeks. Or more recently, Coinbase’s S-1 filing, which many predict will add an element of legitimacy to the cryptocurrency.
Yet, despite its successes, Bitcoin still attracts its share of hatred and scepticism. Perhaps to a lesser extent, having almost tripled in value since December.
People who had previously dismissed it as worthless fall into two camps. Those who reassess and are willing to learn more – and those who cling to outdated ideas and principles by re-emphasising their scepticism.
Danielsson falls into the latter camp. Like many economists who study Bitcoin, Danielsson views the leading cryptocurrency through an „old-fashioned“ lens. This overlooks several fundamental principles.
For example, comparing overnight money (M1) to Bitcoin has no basis. Few merchants accept Bitcoin directly because it is too slow and expensive to trade. However, service providers such as BitPay offer a brokerage service to convert cryptocurrencies into fiat at the point of sale.
Its inefficiency as a medium of exchange should not diminish its overall value. Just as retailers do not accept gold, it makes no sense to then say that gold will go to zero on this basis.
Danielsson paints a hypothetical situation in which Bitcoin succeeds in eating up the market capitalisation of all the world’s assets, fuelling an even greater split between the haves and the have-nots.
No satisfactory answer can be given to this scenario. However, in such a situation, the world would be a very different place and Bitcoin should not be blamed for those who refuse to adapt to change.
Bitcoin is an emerging technology that does not fit the classic definitions of money in economic theory. As a decentralised and permission-free network, its venture is far more significant than the mere exchange of value, as is the case with money.
Perhaps the bigger question here is why is demand for Bitcoin skyrocketing and more and more people buying Bitcoin? Answering this question will shed light on how people feel about the status quo.