It all started with these words: Bitcoin: A Peer-to-Peer Electronic Cash System
With those words – Bitcoin was born.
To add more context, here’s the first paragraph from the Bitcoin whitepaper:
Abstract. A purely peer-to-peer electronic cash system would allow direct online payments from one party to another without needing a financial institution.
It's challenging to overlook the term 'cash' in Bitcoin's foundational document.
Fast forward about 15 years since the whitepaper was released – Bitcoin is globally recognized. However, it's not functioning as cash.
The Asset Trap
Bitcoin wasn't initially designed for wealth creation through rising prices. This design was intentional – price surges validate the current financial industry. When people buy Bitcoin expecting it to increase in value, they reinforce the existing fiat system.
These days, Bitcoin and other cryptocurrencies are seen as an asset class. The public desires to own these assets for the potential financial gains, yet the increase in their value leads to a situation where no one wants to use them for their original purpose – as cash.
Now everyone, from big corporations like MicroStrategy to casual investors, are accumulating BTC. Given this widespread behavior, it's understandable why the SEC might see cryptos as assets. Even the world's largest asset managers, like BlackRock, are treating cryptocurrencies as holdings.
Some might say people will always hoard money. However, in Bitcoin's case, this 'cash' is sparingly used.
Crypto Assets Create Hurdles for Use as Digital Cash
Cash forms the foundation of any economic system – unlike assets.
Cash determines the value of assets. You don't buy groceries with a piece of property. The idea sounds absurd. If you want to purchase something, it's usually done with cash or its digital form, which ideally was Bitcoin’s intended role!
Instead of cryptocurrencies like BTC, ETH, or XRP becoming the spendable money they aimed to be, they have morphed into highly leveraged assets, tied to flows of global liquidity. The crypto sphere resembles a wild west of today's investment world full of potential fortunes and pitfalls.
Mismanagement by central banks has led to a flood of fiat money fueling almost every investment sector. It makes sense why more people are turning to cryptocurrencies, although many miss out on embracing the tech's primary role.
Cryptocurrencies were supposed to serve as digital cash – not as investment commodities.
Frozen Supply
While fiat currency can be printed indefinitely, Bitcoin has a fixed supply. This similar constraint applies to many other popular cryptocurrencies, although some might expand in terms of quantity over time. The critical issue is cryptocurrencies, when treated like assets, fail to be used as a currency.
What might seem purely academic – like inflows into crypto ETFs – reduces market supply. Without a central crypto bank, lower availability leads to greater price volatility, especially as more deem it an 'asset'.
Though fiat currency returns are enticing, it's unlikely anyone will opt for cryptos as money. Investments might be lucrative amidst the dramatic price changes, but they aren't the currency for daily purchases like coffee.
Bitcoin's whitepaper never envisioned making people rich in fiat earnings. Yet, today’s crypto markets are exactly that – a playground for speculators.
Growing Security Concerns
As profits soar, the potential misuse of blockchain’s transparency is often overlooked. Maintaining a financial history open to everyone isn't the protection most would desire.
Cash provides privacy in the physical domain. Although laws encourage transaction disclosure, actual cash remains anonymous. Bitcoin, not having a tangible form, lags behind fiat in this regard.
The emergence of crypto mixing technologies looked promising for privacy.
Governments clearly see that mixers enhance crypto privacy, making those linked to such platforms targets for prosecution. In the digital age, true anonymity seems contrary to governmental objectives, particularly as digital payments prevalently drive the finance industry.
Stablecoins: Representing the Drawbacks of Both Systems
Amid the notorious volatility of cryptocurrencies, those needing stability in the crypto domain often look to stablecoins. Tied to fiat currency, stablecoins wield significant influence in international payments.
For countries trading outside the US financial system, stablecoins instead of US dollars . Imagine the convenience!
The less talked about downside of stablecoins cannot be ignored. For example, USDT's ties to the USD. Tether buys huge amounts of US debt to support its product value. As more USDT circulates, Tether consequently acquires more US debt.
Demand for USDT equates to demand for US debt, which continues to grow.
Moreover, stablecoins offer easy tracking and the potential for account freezing. As digital currency might be used as a governmental control tool, stablecoins could serve as a prototype for a digital money control grid .
CBDCs Are Coming
How did a decentralized cash network transform into Tether amassing US debts in bulk? Perhaps the banking powers had a role...
Tether CEO Paolo Ardoino frequently reassures the public that Tether is super tight (in other words) everything is compliant with US regulations – implying safety in using USDT!
Governments prefer controlling finances, so for privacy enthusiasts, Paolo’s comments on Tether might not be all that comforting.
A notable concern is stablecoins providing leverage for central bank digital currencies (CBDCs), leading to the diminished use of cryptocurrencies as money. With cryptos perpetually volatile and more like assets at the liquidity margins, Bitcoin might never realize its P2P cash system intent.
Consider if major banks like JP Morgan could truly be seen as equal peers.
The HODL Silver Lining?
For those seeking fiat-based profits in crypto ventures, the future looks promising. With inflation, crypto values are poised for steep climbs amid the fiat influx.
However, the downside of this crypto surge brings about repetitive letdowns in financial systems. Society isn't ready for widespread economic failures, currency devaluation, or societal chaos. When fiat collapses, the repercussions are severe.
While savvy crypto investors might afford luxury vehicles and homes, fleeing a crisis-ridden city is another matter. Wealth carries value in a thriving community; without this structure, it merely... rich a target .
Bitcoin’s inception was about energizing decentralization. Creating a world economy where equals can interact. Yet today, it's often seen as a possession locked away for the affluent, waiting to use it in dire conditions.
