Bitcoin, the premier cybercurrency, is at an all-time high in price and an all-time low in volatility. In a new article, Bitcoin: Order without Law in the Digital Age, Kyle Roche and I compare Bitcoin to fiat money and show why and how it may succeed in the long run in becoming a currency relied on by millions. In this post, we focus on the flaws in fiat currency that may enable Bitcoin’s success. In the next we will describe how Bitcoin is succeeding.
In 1924, Georg Friedrich Knapp, the father of monetary theory, wrote that “[t]he soul of currency is not in the material of the pieces, but in the legal ordinances which regulate their use.” The state must instill confidence through law that its currency will retain value. And it is the uneasy relation between a state and its currency that gives Bitcoin the opportunity to grow. Citizens in some nations rightly distrust their currencies, precisely because they have little confidence in the legal ordinances and institutions, like central banks, that regulate their use. For instance, in the recent past nations, like Argentina and China, have undermined the value of their currencies and yet also tried to prevent citizens from using other more stable and reliable currencies to maintain the value of their assets.
Bitcoin provides many people in monetarily oppressive regimes with a better alternative.