For anything to have a price, it must meet the prerequisites of being rare, states Walras Law. According to the director at Colombo Investimentos, Eloy Rodrigo Colombo, the first law of economics is quite powerful in defining characteristics of bitcoin. While bitcoin (BTC) is seen as an investment opportunity by some, it is considered more than a cryptocurrency by many. The credit goes to its intrinsic value and revolutionary disruptive capabilities which are more promising than fiat.
Eloy suggested that one thing is rare if it’s scarce, can be owned and is useful to at least one person. After explaining the criterion to be rare, Eloy suggested that things have a price only if they fall within the criterion. During the exploration of bitcoin’s intrinsic value, Eloy maintained that the value of a thing is always relative. He extended his argument to bitcoin and compared it with other things whose intrinsic value are known like metals including gold and silver, a company’s stocks, state-backed currencies and other cryptocurrencies. After comparison, he concluded that as bitcoin is scarce, useful and capable of being owned, it does have intrinsic value in accordance with the first law of economics.
Apart from intrinsic value, the disruptive nature of bitcoin is worth exploring. The fiat circulating in the banks has developed an economic system in which the growth of inflation is inevitable. Central banks have printed money way more than the gold reserves needed to back the money. Every time they add money in circulation, the value of money drops down. With this never-ending cycle of creating money, the economy of a country suffer drastically from inflation and people have to work more to cope up with their needs. In addition, banks have realized the presence of a minimum threshold of money long ago. They use that reserve for lending purposes and through one channel or another, the very same money ends up at the bank again. When a bank loans out, the person is required to return the loan with interest. It’s all good if the loan is paid back but even if it defaults, banks liquidate the assets of that person to fill up. Irrespective of circumstances, banks do ensure that the money they gave out in the first place returns to them at the end of the day. If the cycle keeps repeating itself as banks continue to follow the same course of action. Eloy regarded:
To these successive loans of the same notes of money, we give the name monetary expansion. In practice, it’s as if banks are printing more money!
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Bitcoin has the potential to end the inflation tyranny with its decentralized signature characteristic. Bitcoin’s price is dependent on supply and demand. Besides, the total supply of bitcoin has a maximum bound, 21 million. Unlike fiat which has an infinite supply and is controlled by banks, bitcoin is an uncontrollable store of value entity that doesn’t oppose the principles of capitalism. Fiat, on the other hand, is still under the influence of financial institutes on every level. For example, blocking of Venezuelan gold by the Bank of England decided the freedom offered by fiat currency of Venezuela. The Bank of England prevented Venezuela to withdraw $1.2 billion worth gold that forms a large part of the $8 billion in foreign currency reserves held by the Venezuelan central bank. This step taken by the bank shows the power that rests with the banks and how easily can banks control money.
However, there are also issues with bitcoin. Compatibility is still thwarting the mass adoption of bitcoin. Scalability and lack of regulations are not allowing the general public to trust bitcoin completely. At the moment, 7 bitcoin transactions can take place in a second whereas Visa can undergo 24,000 transactions. This explains why bitcoin needs a scalable solution before it can become widely accepted and go mainstream. Apart from scalability issues, due to lack of regulations, bitcoin is still banned in many countries and people restraint using it to avoid lawful consequences. Add to that the perception of bitcoin being used for illegal activities such as payments on dark web, payment for buying drugs and even for money-laundering. In reality, only 0.125% of the total money laundered was done through bitcoin. To extensively inspect the current position of bitcoin, BlockPublisher talked to crypto and blockchain expert, Dr. Michael Yuan, Co-Founder of The CyberMiles Foundation. He explained:
“TBD. Neither Bitcoin or any other cryptocurrency (ex. Ripple) is currently used as an everyday currency because they’re treated as a store of value” vs. a true utility token to pay for everyday goods and services. Crypto’s volatility today makes “stable coins,” which are tethered to fiat currency, a best bet. While eliminating physical and virtual barriers, a less volatile, more utilitarian cryptocurrency also may spell the potential end to currency exchanges, manipulation, etc. There’s so much promise yet to be realized”.
Bitcoin and other cryptocurrencies are bound to change the financial and other markets forever. It is this disruptive capability of bitcoin and its inherent intrinsic value that will make it the go-to currency in the near future.