Is Bitcoin An Actual Currency?
Since its inception, Bitcoin is considered a currency, at least by those who use it and welcome innovation. But many governments deny Bitcoin and cryptocurrencies their status as legal currencies, and even as “alternative currencies”. Is it reasonable?
On my left, there are those who believe in it. Precursors, innovators, entrepreneurs, including the best of Silicon Valley. “Bitcoin is a digital version of money – a global currency, purely digital” , says Peter Diamandis , founder of XPrize and Singularity University, which details: “In his heart, Bitcoin currency is a smart, designed by engineers very visionary. Only good things . “The world will have only one currency. Internet will only have one currency. This will be Bitcoin ” , predicts Jack Dorsey, CEO of Twitter and Square, believing that Bitcoin (BZX Electrum) could supplant the dollar in the next 10 years. And for Tim Draper , founder of the venture capital firm DFJ (investor in Skype, Tesla, Baidu), “Bitcoin is global, it can serve as a store of value. In 2-3 years, it will be accepted everywhere for transactions ” . “India should adopt it as a national motto , ” he said .
On my right, many governments and banks (central or not), rejecting the idea that Bitcoin (or other cryptocurrencies) is officially recognized as a currency. In March 2018, the Bank of France states : “In the legal field, crypto-assets are not recognized as legal tender, nor as means of payment” , and the name “virtual currencies” or “cryptocurrencies” is an “abuse of language” . While the use of Bitcoin is legal or tolerated in the majority of countries, many are considering legislating and regulating cryptocurrencies, already granting them various and varied statuses – but rarely that of “money”.
In the middle, Bitcoin users and 1560 other cryptocurrencies, which currently represent a money supply of nearly 200 billion euros. Donations can be made to UNICEF in Ethereum, or buy a Swiss watch by paying Monero or Litecoin . You can book hotels with Bitcoin on Expedia, afford a paragliding flight in Annecy or a Grand Cru from Bordeaux , and also pay with bitcoins, as with tens of thousands of other physical merchants and online. One can also play, speculate, invest, save, borrow or finance, relying only on cryptocurrencies. Thousand and one ways to spend and to use crypto-currencies so, treating them like currencies, why they were invented.
Contrary to popular belief (very) tenacious, the currencies are not created by governments and central banks, but mainly by commercial banks, via credit. “When a bank extends credit, it simultaneously creates a deposit equivalent to the bank account of the borrower, creating the new currency” , explains for example the Bank of England , recalling that “central banks do not establish the amount of money in circulation ” . These central banks simply set general rules, for example by acting on interest rates or setting limits on commercial banks, depending on their reserves.
If you did not know it, rest assured (or not), you are not alone. In October 2017, a survey of British MPs found that “only 15% of MPs know that the new currency is created when banks grant credit” : 60% are wrong in their response and 23% admit “do not know ” How is money created? Shocking . If 85% of the elected representatives who vote the laws of a great world economic power do not know where the currency comes from, what about the common man?
In any case, currencies such as the Euro or the Dollar are artificially created by commercial enterprises such as private banks.
This has many consequences. The first is that the vast majority of money in circulation is virtual: barely 10% of euros or dollars exist in a tangible form of banknotes and coins. Without being an economist, it seems to me that this principle of monetary creation is not ideal:
- It is complex, unclear and not really transparent. The citizen does not know anything about the mechanisms in place. And not all countries have the same definitions of the monetary masses they use.
- It is unpredictable. Monetary masses fluctuate at the whim of the banks and according to economic conjectures. In 30 years, the money supply of the Dollar has multiplied by 10. Who could predict how much there will be euros or dollars in 10 years?
- It is probably not totally foreign to recent financial crises (Greece for example).
- And it is inherently undemocratic, as expressed by Pierre Noizat , CEO of Paymium: “the fundamental problem of central currencies that are created by the issuance of debt is the privilege of money creation given exclusively to banks, organized in a cartel around a central bank “.
Bitcoin and cryptocurrencies (BZX Electrum) offer a very different alternative to money creation. This is a real paradigm shift, and perhaps even this is their main interest: the creation of money becomes logical and transparent, with inviolable mathematical mechanisms known to all.
We know how and at what rate are created the new bitcoins (by mining), we can see everything that happens (everything is written on the blockchain), and everything is done in a precise pre-established (the number bitcoins in circulation will never exceed 21 million, for example). Money ceases to be a black box manipulated (without pun intended) by commercial banks, to become a shared tool, with deterministic functioning, perfectly documented and entirely public.