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Will Bitcoin ever take out Fiat?

Photo by Dmitry Demidko on Unsplash

Cryptowallets and Layer 2 protocols, NFT’s enabling artists to create their own tokens and innovative Blockchains spawning out of every type of known digital asset. The bandwagon for this new economy seems to be gathering steam fast. Leading this revolution from the front is the poster boy of Blockchain and Cryptocurrency — Bitcoin

The arrival of cryptocurrency is almost akin to discovering a lost city of gold. There is too much to take, so much promise, poisonous snakes slithering between the shiny metal and last of all, the herculean task of getting it all out into the real world. Clearly — a task for treasure hunters.

Treasure Hunters or Crypto-Miners are what we would call them in today’s world. When Nakamoto first conceived of the idea that has now burgeoned into an industry, it was with the intention of replacing Fiat Currency. Yes !! Displacing the paper currency we call money which makes the world go around in ways that we have come to take for granted.

But bringing down an empire is not a task that can be accomplished overnight. There are vested interests spread out so widely with tentacles that hold the system in place. Hell !! Even when the pandemic was raging in 2020 across the globe, financial markets were in some countries rallying to new highs. Talk about a misplaced reality!

To top it all, Bitcoin touched new highs in this period of uncertainty. Investors who normally head to the exit during periods of economic depression and move their funds into less riskier asset classes seem to have thrown their hat into the ring for both the meme stock and crypto rally pushing Bitcoin up to insane levels.

The fact that Bitcoin has now clearly turned into an asset class makes it even more difficult for it to be considered as a replacement for any type of global currency. Currencies primarily need to be stable to be tradeable. Most sovereigns back their currencies up through interventions in the open market thereby keeping the exchange rate within a certain band. This is needed primarily for internal economic stability.

In 2006 the Asian Currency Crisis erupted after an overheated real estate bubble in Asia followed by the inability of Asian lenders to repay their debts in US dollars saw hedge fund managers such as George Soros betting against them. There was blood all over the Asian markets even as currencies fell in value rapidly as they had to repeg their value against the dollar. The debt overhang took years to work itself out, but as bad as it was — there were governments around to rescue their economies (albeit with depleted resources).

Globally, currencies tend to fluctuate within certain bounds. A quick glance at the G20 countries below show that over a large part of the past decade (apart from a few outliers — Argentina and Mexico), exchange rates have remained relatively stable over time.

This stands in sharp contrast to Bitcoin fluctuations.(1st graph above). International trade cannot be conducted using a store of value that fluctuates erratically and is occasionally sensitive to media statements made by flamboyant space-faring entrepreneurs.

What if there was a way to ensure that the price of bitcoin could be restricted within a certain range? This would then call for overseers on the platform, like Central banks in a government that carry out this activity. Nonetheless, the presence of such an entity/individual/agency on the platform would in itself defy the very purpose of the creation of such a platform.

Attempting something like this would call for bitcoin minors or a ragtag band of caffeinated geeks to collaborate together and possibly come up with a mechanism by which they could mine blocks at the rate they want to in order to exert some control on the platform. Regardless, this again defeats the purpose as minors expend their hard-earned equipment in a proof-of-stake version of the blackjack game to keep the bitcoin rewards coming in for every block they mine.

Bitcoin was indeed built to run on auto-pilot and tampering with any of the blocks is technically proven to be impossible (although it may have been done in the past). The very fact that the same platform is used for dark web and ransomware transactions shows its robustness. It should therefore come as no surprise when El Salvador made bitcoin legal tender on 7th September 2021. (of course the manner by which this announcement was made was ridiculous)

Meanwhile as protests rage in El Salvador over the introduction of Bitcoin, Tether tethers on the brink of collapse while blockchains of different forms take shape all over the planet. The technology may be making waves, but the currency is yet to deliver. The game is now afoot!



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Mario Rozario

Mario Rozario

Runner at Dawn: Trainer by Day: Reader by Night: Dreamer at Midnight..