The Evolving Economics of Bitcoin, Gold and Fiat Currencies

The Evolving Economics of Bitcoin, Gold and Fiat Currencies

An excellent article explaining bitcoins place in the world, its shortcomings and potential without divulging into speculative or irrational arguments. The base argument is that the deflationary aspect of bitcoin fixed money supply is hampering the ability to support deferred payments. 

Sometimes the only way to pay off debts, public or private, is to do so with money that is worth less than what it was worth at the time the loans were secured.  This is the Achilles heel of gold and bitcoins as currencies.  They are stores of value. Stores of value are deflationary and deflation is destabilizing.

To the extent that ICO regulation limits the creation of new currencies, one unintended by-product could be to restrict competition and to enhance the market position of incumbent currencies like bitcoin and ethereum. Libertarians often rightly accuse government regulation of protecting incumbents by raising barriers to entry.  There is no reason to think that cryptocurrencies will be an exception to this rule.

On the other hand, regulation could also give rise to, and bestow legitimacy upon, new cryptocurrencies that lack bitcoin’s main attribute and flaw: an asymptotically fixed money supply. A digital currency that replaces fiat currencies as a medium exchange cannot have a fixed supply. 

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