18 lines
2.8 KiB
Markdown
18 lines
2.8 KiB
Markdown
# Bitcoin cannot function as a currency
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Unlike the namesake of "cryptocurrency" might imply, [bitcoin](../concepts/bitcoin.md) is not a [currency](../concepts/currency.md). It does not fulfil the economic definition of [money](../concepts/money.md). Instead bitcoin is best understood as a [speculative](../concepts/speculation.md) [cryptoasset](../concepts/cryptoasset.md) or [gambling](../concepts/gambling.md) product.
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Since bitcoin is not issued by a sovereign state or [central-banks](../concepts/central-banks.md) there is no central party to manage the [deflationary](../concepts/deflationary.md) spirals that occur in the [price-formation](../concepts/price-formation.md) of the asset. Therefore it is subject to wild and uncontrollable volatility that makes it unsuitable as a *means of exchange*. No amount of technology can fix the volatility problem as it is a function of the economic design of the asset and its fixed supply. This arises out of the political imaginaries of the [neo-metallism](../notes/neo-metallism.md) school and [austrian-economics](../concepts/ideologies/austrian-economics.md) that informed the design of the bitcoin to resemble the historical [gold-standard](../concepts/gold-standard.md) and the conception of heterodox ideas of [sound-money](../concepts/sound-money.md).
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As evidenced by real world context there are very few businesses that are willing to transact in bitcoin because of the price volatility. Companies that attempt to do this, such as Tesla, effectively issue an [option](../concepts/derivative.md) in which the goods or services payed are quoted at a strike price and if the transaction is reversed or goods returned the amount will be returned to the customer in a different currency at the strike price. This terms commerce into a [security](../concepts/security.md) transaction and is a taxable event.
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Bitcoin cannot form the foundation for an economic system because its volatility makes it unsuitable for issuing debt or loan products without extremely large risk premiums to factor in the price risk of the counterparties on long time scales. This makes common products like mortgages nearly impossible to denominate in bitcoin.
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Since bitcoin is [deflationary](../concepts/deflationary.md) it encourages hording instead of spending on [productive enterprises](../concepts/productive-asset.md). This results in mass [market](../concepts/market.md) consolidation and accumulation instead of an environment in which commerce is encouraged. This property makes bitcoin completely antithetical to the entire project of a [currency](../concepts/currency.md) which definitionally exists to be spent.
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## References
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* [@taleb_bitcoin_2021-1]
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* [@corradi_disenchantment_2018]
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* [@nabilou_ignorance_2019]
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* [@krugman_brutal_2021]
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* [@krugman_technobabble_2021]
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* [@varoufakis_what_2021] |