Investing.com – Love it or hate it, the . While enthusiasts rave about an alternative monetary system that is neither controlled by a government nor a central bank, opponents speak of a worthless object of speculation that can never replace the established financial system.
Crypto advocates keep referring to the moribund fiat system, in which new notes are constantly being printed, causing currencies like the dollar and euro to continually lose value.
They argue that this cannot happen with the , which is limited to 21 million units. But it is this supposed advantage that will be fatal to him. If fiat currencies disappear, as bitcoin maximalists hope, then BTC’s last hour will have come.
Alasdair Macleod demonstrated in his last article that bitcoin will never be used as a means of payment by the general public. This does not mean that the value of BTC, measured in fiat currencies, does not temporarily increase when confidence in fiat currencies decreases.
But in the end, it fails just as much and does not become the success story that many dream of. Dreams that hodlers mainly feed, while keeping their stock of BTC like a treasure. And this is where the first serious problem appears.
A means of payment is required for the purchase and sale of goods and services. But if no one wants to wake up from their beautiful dream and spend the hoarded BTC, these will not be available for the economy. The resulting liquidity crisis would be fatal.
Macleod explains that while the increase in value makes hodlers happy, the prices of BTC commodities would drop so quickly that trading would come to a halt, as people would only buy the bare necessities. A world in which bitcoin replaces fiat currencies as a means of payment will inevitably lead to mass poverty.
Another problem is that any monetary system goes hand in hand with a functioning credit economy. For industrial production, factories have to be built, while progress is based on expensive developments and research, which is often only possible with credits.
Before any economic project, an entrepreneur must know profitability. This includes not only input costs, but also the final sale value of the product. However, if no one knows how much the value of bitcoin will increase, it is almost impossible to determine the profitability of a loan and to assess the resulting risk. No one would invest more in the real economy.
Bitcoin cannot offer the functions essential to a means of payment, which none of the BTC advocates seem to be aware of, according to Macleod. It is not only the practical application cases that cryptocurrency cannot cope with, but also the legal aspects that stand in the way of BTC being able to replace fiat currencies.
These are possession and ownership, which are by no means two words for the same thing.
If you lend a book to a friend, the book becomes the friend’s property, but remains yours. If you visit your friend and he is not at home, but you see the book on the veranda, you can simply take it away, because you still own it.
The situation is totally different if you lend 100 euros to your friend. Because with money and consumer goods like food and drink, there is always a transfer of ownership. Legally, you only have one outstanding debt.
If you go to your friend’s house again and you don’t meet him, but you see his wallet on the veranda and you take the 100 euros there, then this is a theft.
The same goes for criminal activity, which is especially important in the context of the bitcoin scam, money laundering, etc. as Macleod writes.
If your car is stolen and the thief sells it, you remain the owner and do not have to compensate the bona fide buyer. This one sits on the damage.
But if a pickpocket steals your money or your bank account is hacked, you only have one right of recourse against the thief – your property rights are extinguished.
Unlike banknotes, a bitcoin can be clearly assigned to an owner via the blockchain. But this force turns out to be a serious drawback in our legal system.
If you buy a bitcoin that is proven to be linked to a criminal act, the ownership of that BTC was never transferred to you and you risk confiscation without any compensation for the damage suffered.
Fiat currencies are certainly experiencing a growing problem of trust, but who can trust a means of payment that you never know if you really own?
The idea that cryptocurrencies can replace fiat currencies stems from the fact that no one has really understood that there is a difference between money and credit.
Macleod points out that notes issued by central banks are not money, but credits with counterparty risk. And since bitcoin does not qualify for a functioning credit economy for the reasons mentioned, it can never replace the dollar, euro and yen.
Real money exists only in the form of coins minted in , and . These are the only ones not subject to counterparty risk.
Bitcoin is therefore neither money nor an adequate means of payment to replace fiat currencies. It’s just a blockchain – an innovative technology that serves to store information.
This is why bitcoin will disappear if the concept of fiat currencies and central bank digital currencies (CBDCs) fails, Macleod concludes.