The Other Side Of The (Bit)coin

The benefit Bitcoin has over fiat currencies like the U.S. Dollar is its decentralized and immutable ledger (called blockchain).

However, the exact thing that brings power to Bitcoin is also its downside: a lack of centralized control.

If you’re a crypto-enthusiast you’re probably thinking, “But the Federal Reserve doesn’t do such a good job inflating our money away one day at a time!”

This is true, the centralized power that the Fed has is outrageous, and is also a downside. That being said, it also has its advantages: namely relative price stability and physical manifestation (there are no literal sides to a Bitcoin).

Why does price stability matter?

If I’m going to need to pay X amount of dollars in bills each month, I can’t rely on Bitcoin as a store of value because the price could fall 10, 25, or even 50%, leaving me with less money but the same bills.

There have been efforts to create a “stable coin”, namely Tether (USDT) which have been controversial. There’s a lot of skeptics in the crypto world surrounding Tether because of its centralized nature. (If you’re interested in learning more about these so-called stable coins check out this video made by coin reviewer Crypto Candor.)

If we’re tethering a cryptocurrency to the US Dollar in a centralized way it begs the question, why not just use the dollar?

The other advantage of our current centralized system is that physical money is produced by our country’s mints.

This also has a clear downside: it costs money to print paper and mint metal coins. I do think it’s silly that we still make pennies. America has been losing money on every penny it’s minted since 2006. In 2016 it cost the mint 1.5 cents to mint a penny, creating what’s known as negative seigniorage.

However, the simplicity of money being physical can’t go unnoticed as a benefit. Why should I always have to have a connection to the internet (or SMS, see CoinText) if I want to spend money? Ultimately a technological connection is required to use Bitcoin (hence the name), making it more cumbersome in a sense.

Regular coins and paper money don’t require any technology, which is useful in situations where we don’t have an internet connection or cell reception. Most places that have no internet or cell service (think of desolate campgrounds) also would require cash, rather than a debit card or cryptocurrency.

I may sound like an old man writing a blog article talking about the disadvantages of decentralization, but I think it’s worth pointing out the problems of Bitcoin (and fiat) if we as a species want an ideal currency made real.

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