Many people, not least supporters of bitcoin cash, have a different and in my opinion incorrect perception of what it is that gives bitcoin its fundamental value. The assertion is that bitcoin’s value is based on the fact that it can be spent as regular money, and if this ends due to, for example, fees and waiting times being too high and too long, bitcoin also loses its value.
It is because of this incorrect conclusion that many are saddened that bitcoin has been “destroyed”. Fortunately, the truth is contrary. The value of bitcoin comes from the fact that you can store value digitally into the future in a completely decentralized manner. The road bitcoin cash chooses to go, since cheap transactions are superior, threatens decentralization in the long run, and what gives bitcoin its value would actually be destroyed, which would be very unfortunate.
Bitcoin must first prove its function as a store of value before it can start to be used as a currency, not vice versa.
In the past year, we have not yet seen any appreciable increase in bitcoin as a means of online transactions or in stores, and that is entirely in line with classic economic theory and common sense.
Gresham’s law states: “bad money drives out good”. It means that we always choose to save and collect the best money and that we rather spend our worst. If I have both bitcoin and fiat currency, I obviously choose that, when consuming, spend my fiat first, as the Riksbanken (central bank of Sweden) even guarantees that they will fall in value by at least two percent a year.
That value should arise from spending and financial activity itself is a Keynesian error that unfortunately is popular with states and central banks around the world. Prosperity is created through savings, investments and deferred consumption. Stagnation occurs if we stop saving and instead consumes all our money, and worse if we also start taking loans to be able to consume.
We are in the stage where people have begun to realize bitcoin’s good quality as a form of saving and investing with a sufficient distance to the traditional financial system. Bitcoin has begun being attributed to the term “digital gold”.
The step towards mass adoption has to begin with traders themselves discovering and recognizing bitcoin as better money and preferring to receive it, preferably at a discount. Then incentives to pay with bitcoin also increase.
In a completely free market for money, traders always choose to receive the money they think will keep their value best in the long run. That’s how we ended up on the gold standard globally, which lasted for thousands of years, until the early 1970s when the gold standard was abolished.
At present, there is a monopoly on fiat money in most countries, but if the free market is allowed, then both traders and buyers eventually choose to use the best form of money, which is also called Thier’s law.
But if you are going to be able to spend your bitcoin on a daily basis, I think you first need to get your monthly salary in bitcoin or that you already have exchanged all your savings into bitcoin. Traders themselves need to discover the benefit of receiving bitcoin as a payment.
Don’t have a bad conscience just because you choose not to sell your best money!
Simon Lindh,
Bitcoin enthusiast
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