Why Bitcoin Isn’t the Future of Finance
Central banks will build the future they want, online and off, with their own digital currencies.
Last year, the United States printed more money in one month than in the first two centuries after its founding. Meanwhile, across the pond, the European Central Bank (ECB) continues to print money at breakneck speeds.
With money printers working overtime, making the move to a decentralized digital currency like Bitcoin, which is built on the principle of a finite supply, seems logical. Alas, ever since Richard Nixon did away with the gold standard 50 years ago, logic has been largely abandoned.
No, the next step in our monetary evolution involves CDBCs, or central bank digital currencies. Not very sexy. Not particularly innovative. But highly efficient. Unlike Bitcoin, CBDCs are centralized in nature, which means they are issued and regulated by a singular entity, i.e. a country’s central bank. CBDCs operate on a principle of practicality; Bitcoin, at this moment in time, does not. Many fear it never will.
Have you tried to purchase anything of significance with Bitcoin? Of course not. For a currency to flourish, practicality is a key ingredient. Unlike Bitcoin, which seeks to replace physical cash, CBDCs will complement physical cash. The transitioning from physical cash to CBDCs will be slow and steady. Not very exciting, but extremely practical. Bitcoin calls for a revolution, but CBDCs call for an evolution. Evolution takes time.
Another reason why Bitcoin probably isn’t the future of finance involves its volatility. In a stable, reliable economic structure, there’s little room for volatility. As I write this article, Bitcoin is headed for its worst week in well over a year. Those in the know very much believe that the crypto market is ripe for a crash. Even if a flash crash doesn’t occur, serious regulation of the crypto market is imminent. In the U.S., there’s even talk of an 80 percent crypto capital gains tax. The problems for Bitcoin are very much existential in nature. A crypto collapse is a distinct possibility.
With China, the U.S., and the E.U. all likely to roll out digital currencies in the very near future, the idea of Bitcoin and CBDCs coexisting in harmony is a highly delusional one. The former is built on the idea of removing central banks from the economic equation. CBDCs, on the other hand, are built around the authority of central banks.
Considering central banks control the narrative, why bet against the current framework? After all, the house always wins.
Today, at least 86 percent of central banks around the world are engaged in CBDC research. Countries like Sweden, with its e-krona, and the Bahamas, with it sand dollar, have already tested their own digital currencies. Meanwhile, in the U.K., the Bank of England is reportedly exploring options, too.
Once rolled out internationally, CBDCs will be interoperable, meaning people will be able to use different currencies (pay, exchange, etc.) with relative ease.
Most importantly of all, CBDCs will allow central banks to monitor all transactions made, thus enabling governments to monitor their citizens even more closely.
With authoritarianism on the rise around the world, CBDCS are simply another cog in the wheel known as surveillance creep. Advancements in surveillance technology are making anonymity a thing of the past, and CBDCs will ensure governments have even more control over our lives. Bitcoin, on the other hand, wants to remove power from government. The idea, though extremely laudable, has little place in reality.
Even if governments weren’t actively working to undermine Bitcoin’s ascendancy, Bitcoin has another enemy—Bitcoin itself.
Firstly, Bitcoiners are notorious HODLers. For the uninitiated, a HODLer is someone who stubbornly holds onto their Bitcoin, refusing to sell at any cost. In 2010, a man from Florida paid 10,000 Bitcoins for two pizzas. Today, those Bitcoins would be worth close to $80 million. This was a teachable moment, and a painful one for the Floridian.
Ever since, for well over a decade, Bitcoiners have been warned to HODL, HODL, HODL at all costs. In other words, do not, under any circumstance, use your Bitcoin to purchase products. Bitcoin may very well be a store of value, but it’s certainly not a currency. After all, if the only way of becoming filthy rich is through the “hodling” of Bitcoin, how on earth can it ever become a currency, never mind a global reserve currency?
For Bitcoin, the problems don’t end there. Consider the fact that the crypto giant is actively being used to finance terrorism. Last year, the U.S. Department of Justice revealed the many ways in which Bitcoin was (and still is) being used to finance at least six international terror-funding operations. Bitcoin also appears to have jihadist connections. Furthermore, according to an article in Foreign Policy, written by Corrine Redfern and Seulki Lee, cryptocurrencies, including Bitcoin, “are increasingly being used to fund child sexual exploitation.”
Although the idea of a digital, decentralized global currency is certainly a noble one, Bitcoin, in its current format, simply won’t be allowed to exist. With the majority of governments developing CBDCS, centralized currencies appear to be the future of finance. Governments, as Edward Snowden taught us, love surveillance. As someone who has invested heavily in Bitcoin, both financially and psychologically, I write these words with a heavy heart. This “bull” is quickly becoming a “bear.”
Speaking of bears, Henry Kissinger once said, “who controls the money controls the world.” Right now, central banks control the money. Don’t expect that to change any time soon, if ever.
Bitcoin is an idyllic concept, but governments, the arbiters of economic reality, are busy making other plans. Millions of people have faith in Bitcoin, but faith has little place in the monetary machinations of central banks. As Nietzsche famously said, “a casual stroll through the lunatic asylum shows that faith does not prove anything.”
John Mac Ghlionn is a crypto researcher and essayist. His work has been published by the likes of bitcoin magazine, New York Post, South China Morning Post, and the Sydney Morning Herald.