Superiority can only be assessed through comparison. In many cases the exercise of comparing competing products and services, yields deeply subjective results. People are diverse and their choices reflect their subjectivity and biases. So, when it comes to their currency of choice, would everyone be better off, objectively, if Bitcoin replaced fiat?
Settling the Bitcoin vs Fiat Debate
It would be easy to declare that we must embrace diversity and settle the whole Bitcoin vs fiat debate like that. Taking the easy way out in this case, however, doesn’t settle anything.
The arguments for Bitcoin and the arguments for fiat are valuable and it is important to look at them. After all, revolutions and extreme changes in any kind of system are bound to yield extreme reactions and might not solve problems.
The Arguments for Bitcoin
A system is greater than the sum of its parts. This inevitably means that a simple cog in said system can generate ripple effects that are greater than the individual role that cog plays within the system. This became abundantly clear when the world economy came crashing down in 2008-09. A few cogs were loosened; the magnitude of the ripple effect caught almost everyone by surprise.
This is exactly where Bitcoin came in as a solution to a problem, in the eyes of maximalists. The arguments for Bitcoin, following that complete economic meltdown, cannot be overstated. Bitcoin offers the following:
- Resistance to monetary manipulation for political gain.
- A deflationary monetary policy administered by an algorithm.
- Clarity, with trust-less mechanisms that are censorship resistant.
- No bail outs are possible.
The Arguments for Fiat
Bitcoin was and still is the alternative that people need in a world in which the structure behind fiat has so many points of failure:
- Monetary policy – money supply – manipulation to serve the interests of the few.
- The ability to bail out those which are deemed to be “too big to fail” at the expense of the average taxpayer and future generations.
- Corporate subsidies that stifle competition.
- The power that financial institutions wield over so called “democratically elected” governments.
Nevertheless, there are still advantages that fiat has over Bitcoin:
- It is easier to adopt and use.
- Inflation is not always bad.
- A legacy of credibility.
- Government support.
Complementing Instead of Replacing
These advantages should not be taken lightly. There are battles that Bitcoin will not win, especially when it comes to adoption and use. Bitcoin will not replace fiat as long as governments have the power they have today. Financial institutions, which have also accumulated incredible wealth and power, will not roll over and allow Bitcoin to take them out. Therefore, Bitcoin should be seen as a complement to fiat and not as a system to replace the old order.
The advantages that Bitcoin has over fiat, can become liabilities without having a competing system running in parallel:
- Deflationary economies are as bad as those in which inflation is out of control.
- Payment processing on the blockchain has clear limitations. Scalability to replace fiat is a pipedream at this point in time.
- Computer literacy is not high enough throughout the world or throughout any single country to expect people to take full responsibility for the safety of their funds and for verifying instead of trusting.
Competing Against Legacy Systems
Legacy systems are not always bad; competing against them allows consumers to have more choices and drives product improvement. Bitcoin fits into the financial system as a hedge. Therefore, Bitcoin users should embrace the competition and embrace the kind of choice they give people around the world.
If the economy is to be free, then there will always be space for a centralized system like fiat. Bitcoin itself has been challenged from within its own space, successfully asserting itself as the leading cryptocurrency despite everything. Bitcoin is by now a legacy system in its own right, and as it competes against fiat, other cryptocurrencies compete against it as well.
What’s Good for Bitcoin
So far, this dynamic has been a net positive for Bitcoin. More fiat funds are flowing into crypto thanks to the notoriety that competition within the cryptocurrency sphere spawned. Fiat is leaving traditional markets in support of competing assets and we are all better off for it, but the main winner is Bitcoin.
The world will always be plagued by subjectivity, but at least now more people are being objective. Investors and average citizens who see how the flaws of the fiat system threaten their assets, are now hedged. Preference shifted thanks to competition, and choice is favoring everyone. If Bitcoin replaces fiat, people will no longer have an alternative; that is worst than having a flawed legacy system around to compete against.