Why decentralized Crypto-currencies will never become a thing
Bitcoin breached $6000 today and investors are agog over what they see as another step in bitcoin’s inevitable rise to the sky. Cryptocurrency news portals are on overdrive, lavishing praise on the revolutionary technology driving Bitcoin and how it’s the biggest thing since sliced bread (or internet if you will). Speculators will tell you that bitcoin is on the rise, has always been and past precedents prove that the trend isn’t stopping anytime soon. Technophiles invested in bitcoin would tell you that the blockchain, the underlying technology powering bitcoin can never be shutdown by any authority and so bitcoin is immune to any attempts to shut it down. At every turn, you are told that the amount of bitcoins that could ever exist is fixed and when people all over the world adopt it what with the world’s economy only growing all the time as it will, bitcoin’s value will soar to the moon and you can make a killing. Now, it is true that the blockchain technology is truly revolutionary as it does away with the need for a trusted third party to validate transactions or records of any sort and enables a fool proof, secure decentralized ledger that could solve many real world problems. But, does the blockchain’s utility mean that a currency based on the blockchain should thrive too? It’s entirely absurd and without basis in logic to suggest that if blockchain catches on, bitcoin will make it big too. These are distinct entities, bitcoin, a currency running on the blockchain and the blockchain, which is the underlying technology, a distributed ledger of sorts. Here are reasons why bitcoin and other decentralized cryptocurrencies will never catch on.
- Governments will never let it become big
The moment bitcoin (bitcoin or any decentralized cryptocurrency)becomes a threat to any government’s control over its own money, it would be outlawed. Now, libertarian bitcoin evangelists would tell you that bitcoin can never be shut down. True. But also equally true is the fact that governments have absolute control over fiat money. This means no access to cryptocurrency fiat exchanges and that’s enough in itself to make prices plummet overnight and scare off bourgeoisie. Also, governments have every power to force businesses to not transact in bitcoins. So bitcoin (or for that matter, any other decentralized cryptocurrency) would be forced to go underground to its old roots of being crime money.
2. People couldn’t care less
China, the most populous nation on Earth is under a soft dictatorship and people couldn’t care less. The CIA runs massive surveillance programs but people couldn’t care less and in fact, democrats would now even profess love to spite Trump. Social media sites mine your personal data for unscrupulous gains, but we couldn’t care less. People don’t care about the central bank minting money as long as the economy’s robust. When the economy does go bust at the end of a market cycle, governments are going to just start a new one. People grumble as they lose their jobs and as they see the economy shrinking but governments will find a way through as they kick start the next market cycle by pumping money into the economy. And people have short memories. As long as a government doesn’t disrupt people’s lives on a large scale which any state in its right mind won’t, people will obey governments. So, don’t expect the public to storm the streets when governments take out bitcoin. Rather than people crying hoarse over state excess, it’s more likely that government propaganda units (mainstream media) will make people laud the crack down on ‘drug lords, Russian agents and crackpot saboteurs’.
3. Bitcoin fails the test as a currency
As most see it as an investment akin to Gold and as a purported deflationary ‘currency’, bitcoins are in short supply relative to fiat money and prices fluctuate wildly, even now, before the government ban into the future. The hype is predicated on a worldwide adoption of bitcoin as sole transaction medium and growing number of goods and services that can be bought with bitcoin. Both are pipe fantasies that states and the financial elite of today would crush. Also, for the sake of argument, bitcoin would slow down the economy as a deflationary currency . It won’t permit too much growth as people would start holding onto it, bringing down liquidity and when the economy crashes, people start spending again. Thus, it doesn’t solve the market cycle problem but only makes things chaotic and more messy. Definitely not a better alternative to fiat.
4. Governments will co-opt the blockchain
Wherever it benefits them, governments will adopt blockchain technology to come out with their own cryptocurrencies. Russia for instance, is coming out with the Putin coin (Cryptoruble).
As JPMorgan CEO Jamie Dimon said, to much ridicule and jeering from the bitcoin community, bitcoin could find utility in broken moribund economies as a store of value, facilitating transactions where the state apparatus is defunct. Even then, at bloated prices and with the undue advantage early investors have in being able to sell off what they got for nearly free, people would do much better to create their own cryptocurrency in dire circumstances. The event is certain, bitcoin is slated for doom. What matters is that you time it well and get out before you get burnt.
Disclosure— I own some bitcoins which I intend to sell off before bitcoin crumbles, or just go down with the ship if I can’t, it’s money I can afford to lose.