Skip to content

The Central Bank of the United States explains how Bitcoin is like an "ordinary money"

Join our community of 10,000 merchants on for only $ 39 a month.

Christine Smith, content strategist at the St. Louis Federal Reserve Bank, suggests that bitcoin is less "exotic" and more boring than people might think. The two cases of use of Bitcoin are a store of value and a currency, which Smith uses to argue a trio of reasons why the dominant digital currency is no different from the "normal currency".

Born by Rien

Bitcoin, like the US dollar, is not backed by any physical assets like gold. Its value is a consequence of the demand that people place there, which has now catapulted the price to about $ 9,300.

Smith quotes Fed economists who previously argued that "bitcoin units have no intrinsic value," adding that neither the US dollar, nor the euro, nor the Swiss franc. For example, paper money is made of cotton and linen, which makes it inexpensive to manufacture.

The US government abandoned the gold standard during the Great Depression and withdrew its international ties to the system in the seventies. Since then, the fiduciary money issued by the Federal Reserve is not backed by gold, but your money is still valuable.

While bitcoin is debated for being characterized as a currency, asset, or investment, Smith says regardless of how you cut it, "bitcoin units do not have intrinsic value."

Finished Supply

His next argument is related to the finite amount of bitcoin that will ever be created. As CCN recently reminds, there are only 21 million bitcoins in the total supply. The supply / demand dynamics of bitcoin and other cryptocurrencies and "shocks" of demand is what leads to the volatility that this market is experiencing.

See also  Arrested Development Season 5 is now online on Netflix

Meanwhile, contrary to popular belief, the Fed does not print money, notes Smith, but "increases or decreases the monetary base" (banks' reserves + l & # 39; money in circulation). There is 1.63 billion US dollars outstanding, starting in the first quarter of 2018, most of which is Federal Reserve banknotes. Smith says that while this may be hard to believe, "scarcity" is at the heart of the Fed's stability strategy in the monetary system, because "to maintain its value, money must be limited."


Finally, she evoked the vision of Satoshi Nakamoto –

"A purely peer-to-peer version of electronic money would allow online payments to be sent directly from one party to the other without going through a Financial institution." – Satoshi Nakamoto's White Paper

While the decentralized nature of bitcoin is what differentiates it from fiduciary money, Smith observes a similarity in the way money is spent, "requiring no intermediary to process a transaction". She concludes with the characteristic of anonymity.

As for bitcoin, while its founder remains anonymous, his transactions are recorded in a traceable public register.

Image of Shutterstock at a time

Follow us on Telegram.