Bitcoin: More Than Just Digital Gold
Omid Malekan, along with Ulrich Bindseil and Jürgen Schaaf, have presented an interesting paper on the potential societal consequences should Bitcoin continue to appreciate in value. While Malekan agrees with their conclusion, he disagrees with their premise on the utility of Bitcoin, citing two reasons.
Bitcoin's Utility Today
Firstly, Malekan believes that the authors place too much emphasis on whether Bitcoin has achieved the goals of its creator and early adopters. He argues that what matters more is whether Bitcoin has utility for society today. Secondly, he criticizes the authors for treating Bitcoin as just an asset, ignoring the innovative infrastructure that powers it.
These two oversights, according to Malekan, cause the authors to overlook Bitcoin's appeal as a form of monetary insurance. Given the importance of savings and payments in society, this is the ultimate utility, financially and socially, and the simplest justification for Bitcoin having value.
Bitcoin's Creator's Intentions
Malekan argues that the intentions of Bitcoin's creator, the pseudonymous Satoshi Nakamoto, are irrelevant to its current utility. A technology that finds utility beyond what its inventor envisioned is no less useful, or valuable.
Bindseil and Schaaf argue that Bitcoin today is not used as “Peer to Peer” cash as Nakamoto had hoped. While this is true, Malekan argues that this doesn't detract from Bitcoin's utility. Nakamoto was a keen observer of the challenges of modern payment systems and Bitcoin, as the first ever non-intermediated form of ledger money, offers some of the desirable features of token money, such as universal access, without the censorship that comes with intermediated payments.
Bitcoin vs. Gold
The authors of the paper also focus on Bitcoin as a digital version of gold. While this comparison is popular among many crypto advocates, Malekan argues that Bitcoin is fundamentally different from gold because gold doesn't come with its own payment system. Bitcoin's payment system preserves both its scarcity and its transferability.
Bitcoin and gold are both scarce and used more for savings than payment. However, there are three key differences. Firstly, the authenticity of bitcoins is cheaper and easier to verify. Secondly, bitcoins can be stored by anyone, anywhere, for minimal cost. Thirdly, bitcoins can be transferred quickly and easily, often at minimal cost for medium to high value payments.
Bitcoin as Monetary Insurance
Malekan concludes by arguing that Bitcoin's unique properties make it appealing as a form of insurance. It offers protection from dilution, confiscation, and censorship. Unlike any fiat currency, there is no risk of excess printing or borrowing by the sovereign in charge. This makes Bitcoin highly desirable as a hedge.
Bottom Line
In conclusion, Bitcoin is a unique type of money that doesn't analogize well with fiat currency or gold. Its unique properties make it appealing as a form of insurance. The fact that holders aren't actively transacting it doesn't mean they are not finding utility beyond price appreciation. If current financial, regulatory, and geopolitical trends continue, then many more nations, corporations, and individuals will want to hold some to protect their monetary downside, from inflation, confiscation, and censorship. This outcome will likely drive the price higher. Given all of its utility, that appreciation will benefit society.
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