Thoughts on Bitcoin and Fiat

The Old and the New

Technological innovations appear when the time for change has arrived. The need for change arises when cracks in the system become apparent and when technology has reached a point in development where it is ready to topple the dominating system of its day. When these two elements coincide, the change is ready to happen. Now, inspiration ablaze, humanity sets off innovating. On one side, faults in the system create the need for change, on the other technology makes the need for change apparent. Bitcoin has done just that. The faults of fiat created a need for bitcoin, while internet technology provided it with the platform to create the revolutionizing monetary technology.

Right Time for Change

With the 2008 financial crisis, we felt the first tremors of a downfall in the monetary system. Now, by 2022, we are seeing deeper cracks forming. The fiat life, for all the benefits it brought us, has become unsustainable. Inflation and printing have never been higher, eating away people’s savings and degrading the value of the dollar. The time was ripe for bitcoin’s development in the late 2000s, and the monetary revolution took hold.

Revolutions and the Human Factor

I think it was Proudhon that said that once a revolution start it cannot be stopped, it can only be delayed. He was right. And there are viable reasons for this. Technological progress can’t be stopped because, once the elements are set in, they have made the old system obsolete. What delays the progress from taking hold is the human factor. Human interests play a role in holding on to the previous system because of personal interests. For example, if one is rich and powerful because of a resource like oil, they are likely to even go to war in order to preserve the processes in place, because of the investment they have put into them and the status it grants them.

What are some problems with Fiat?

Fiat is a word that means “money that is backed by law.” Meaning that it is money that is created and controlled by a government. The key problem with fiat money is that it is not backed by a tangible commodity. Another problem with fiat money is that it loses value over time because of inflation. When there are too many dollars in circulation, they will push up prices and make everything more expensive. Finally, fiat money can create financial instability because governments can decide to print more money without warning.

How does Bitcoin reverse fiat problems?

In contrast to fiat, bitcoin is a decentralized digital currency that is not tied to any country or government. As centralized governments exploited their powers by inflating currencies through printing, people needed to solve this issue. Bitcoin to the rescue! Since it’s peer-to-peer, there’s no third party involvement that devaluates at will or involves itself in the transaction process. So out the door goes third party exploitation. The tangible commodity issue is resolved through a hard cap on the amount of coins that will ever be produced. We just can’t inflate Bitcoin!

Will bitcoin replace fiat?

Technologically speaking, bitcoin is far superior to fiat, for the major reasons mentioned above and for many others. Not that bitcoin is flawless, but everything that I’ve read points me towards saying that it is the technology fitted to make the fiat system obsolete. However, we can’t ignore the human factor, especially in something crucial like money. Even if technologically superior, it’s not as easy to replace the monetary system as it was to replace the horse with the car. Power, wealth, greed, and a plethora of human factors will come into play before we can make such a change. Perhaps even a change in human nature itself is necessary. For what my opinion is worth, because of our nature, Bitcoin will not replace fiat soon. However, it is not going anywhere either. The technological advantages and the problems that it addresses which plagued the old system, are far too important to be ignored. The revolution has already started and it can’t be stopped. We just need to keep building on bitcoin and its time will come, if not today then in the brighter future!