Bitcoin Perhaps More Dependent on Governments than Many Think
Saifedean Ammous, an economist and the author of The Bitcoin Standard, argues that the world’s most popular cryptocurrency may depend more on the government than we think. But there are good news for Bitcoin (BTC) too.
Ammous gave a presentation on “How to really kill Bitcoin” at the Baltic Honeybadger 2019 Bitcoin conference in Riga, Latvia, this past weekend. He argued that the better the monetary policy is, the less attractive crypto becomes. If there is a massive improvement in the monetary and banking policies, and if the restrictions on the movement of money are released, if there’s less inflation, if people stop having difficulty spending their money abroad, if “there are no more Venezuelas or Zimbabwes” with their crashing currencies – the coin will be under threat from the decrease in the economic incentive for people to use, transact in, protect, develop or innovate for Bitcoin.
However, if there is a great regression in these policies, and the world gets the hyperinflationary scenarios, with people having a free choice in money, Bitcoin could again come under threat, given that gold liquidity, which is much higher than BTC’s, might be perceived as more important and convenient.
Therefore, Ammous finds that “Bitcoin might be more dependent on government than we like to think.” While many people believe BTC is government-resistant, it actually depends on that same government to provide the incentive for people to use the cryptocurrency.
“Bitcoin requires the government to continue to do stupid things, in order for people to want to use Bitcoin,” Ammous concludes.
What’s the good news then? As Ammous explains: “status quo favors Bitcoin.” BTC thrives on failed monetary and banking policies. And there’s nothing to worry about as governments will continue to do “stupid things,” as they benefit from these “terrible” monetary policies, which are the only advertisement the crypto needs and it’s what keeps BTC going, says the economist. As long as these monetary policies continue, with the lack of free market choice, but at the same time with people thinking it’s not bad enough to leave the mainstream fiat monetary system, the status quo continues, and BTC will benefit from it, as the governments will continue to subsidize and support it.
Ammous also discussed scenarios on what could kill BTC, which include technical attacks that can disrupt the network and political attacks that can harm BTC. And while these can in theory have an effect, it’s not clear that they can actually kill Bitcoin completely, he says. Furthermore, any sort of a failed attack advertises BTC’s resilience, which might be a reason for the government to accept it, rather than fail in the attack against it. Additionally, any restriction leads to more innovation, which is why we've seen innovation in BTC hardware and software, wallets, nodes, etc. While governments fight prices, “they do not override human incentives,” says the economist. The market always finds a way around them. So to kill BTC, governments should attack the economic incentive for using BTC.
However, despite all the advantages gold has, the cost of running a full node for BTC is far cheaper than gold. The longer we stay in the 20th-century monetary policy around the government-controlled money, with all its financial crises, the more time BTC gets to build larger and larger liquidity – and the more it grows its liquidity, the more it can grow to become a monetary asset, and the better chances it gets to eventually fight gold in the free market, says Ammous.
Watch the presentation by Saifedean Ammous below: