Economists at the New York Federal Reserve said earlier in the week that Bitcoin was just like fiat and any of its revolutionary aspects, and the talk of it being a new form of money, were overinflated and wrong. Unsurprisingly, this caught the attention and the ire of the cryptocurrency community, as well as one of its major haters, Peter Schiff.
Michael Lee and Antoine Martin, economists with the New York Federal Reserve, put out there in a blog post on Thursday titled ‘Bitcoin is not a new type of money.’
One choice line was “Bitcoin may be money, but it is not a new type of money,” they said. The primary argument that they were getting across was that fiat money is at its heart an intrinsically valueless object that gets its worth and value from the basis that people using it instil a certain value to it.
This argument can certainly be expanded to Bitcoin as it too has no intrinsic value other than that placed upon it by the entire market. But the economists are missing a lot of the point. The idea of exchanging tokens of value that hold no true value for goods and services has been going on for years and years.
The argument being that Bitcoin is the same, and that it is nothing new.
“History provides lessons about what makes a good money as well as what makes a good transfer mechanism,” it was written. “These lessons could help cryptocurrencies evolve in a way that makes them more useful.”
Missing the point
The point made by the economists that link Bitcoin back to fiat and hold some of the aspects of fiat money as we know today is indeed apparent. But philosophically, the trading of anything for anything else, going back to bartering, can have the same argument.
Gold, the antithesis of fiat, is also only valuable because it is given a value by people, and if it is used in a transaction, it can also be likened to fiat. But, this is where people — like Peter Schiff — who used this New York Fed argument in a tweet against Bitcoin, would also point to gold’s scarcity.
However, gold is only as scarce as we know it to be currently. Gold has an unknown supply, and its supply could yet be tapped later down the road, or indeed when new technology comes about. If, for instance, a meteor was suddenly found that was solid gold and technology allowed us to mine it by the ton-load — how much scarcity and value would gold hold on to?
On the other hand Bitcoin will ever only have 21 million coins and thus is far more scarce. Therefore, it would be concluded, using the economist’s example of Bitcoin being more like fiat than gold is incorrect based on scarcity.
Money and more
The one point around fiat money is that it is something that we have had for many years and Bitcoin is nothing new. This does not quite hold true because what they are saying is that transacting is nothing new, and Bitcoin can be used for transacting, so yes — that is not new.
But, it is the additional things that Bitcoin can do that makes it different. We have already outlined its scarcity — which is truly quantifiable. But as a fiat system that is decentralized and created to be deflationary, it is trending in a space never seen before.
The fiat value is derived not by the people who use it, rather by the centralized forces that create it. But, for Bitcoin, it is fiat for the people as there is no one in charge and its value comes from the market of people who use it.
This is not only new, but important, as this is showing that money can be truly decentralized and a tool for the people. Additionally, it is a deflationary cash which means it is actually better suited at benign an asset.
So, while gold was once used for trading and transaction, but now is more for storing and watching it grow, Bitcoin is both — crossing boundaries and doing something that has not been done by any other asset on this level.