Jack Dorsey is a well known Bitcoin advocate. He started voicing his support years ago. His payment application, Square, was an early adopter of Bitcoin for payments. After leaving Twitter, he embarked into the world of crypto in a big way.
His advocation for the industry has not waned. Now, he is calling for a reversion back to the Bitcoin roots, citing the original Satoshi White Paper as the direction Bitcoin should travel in.
Today, Bitcoin is a speculation asset. It was always that way. The problem is, in the early days, many thought it would be a form of electronic cash, used for payments similar to the US dollar.
This simply is not the case.
In this article I will cover what Dorsey stated and why it is not going to happen.
Jack Dorsey Wants Bitcoin To Revert To Its Original Premise And Why It Won't Happen
The idea of a new form of electronic cash long excited people. As the digital realm started to take hold, a number of the early cypherpunks were experimenting with pathways of innovation. They were trying to decentralized the monetary system in a way that would rival banking.
Bitcoin was the break through, although not for the reasons commonly cited. The coin, itself, was not revolutionary. What separated Bitcoin from everything else was the decentralized consensus. Before Satoshi and the POW mechanism, all forms of electronic cash required centralized consensus. No matter what people tried, it always ended up at the same place.
Satoshi brought about a network whereby consensus was fully decentralized. That fact still holds true today with Bitcoin. Some opine that could change with a 51% attack yet we have never seen anything close to this with BTC.
Unfortunately, this is where the Bitcoin story ends. Jack Dorsey carries on a narrative that promotes an ideology more than anything else. The real world feasibility is almost non-existent.
Electronic Cash
Electronic cash is the norm today.
Few took the time to truly consider the age of money we are in. The overwhelming percentage of transactions are done digitally. Very little physical cash (banknotes) are used. This is one major reason why the central banks are basically impotent. They are nothing more than marketing arms. A central bank such as the Fed does not control the money supply. All the nonsense about interest rates collapses when we realize the Fed cannot force banks to lend. It is these institutions that control the money supply.
Commercial banks do not want to deal in cash. They hate it. It is dirty, costly to transport and they have to house it. Numbers on a screen are much easier.
Of course, cryptocurrency was the first major penetration with money that was created exclusively in the digital realm. There are no physical forms of it. For this reason, we can consider it an evolution step in the path of money.
Bitcoin is a part of that obviously. However, as noted in a number of other articles, it fails as a medium of exchange.
The two factors to be effective in this realm are price stability and distribution. BTC is the ultimately HODL asset, not enhancing its distribution. As for price stability, it is a trader's dream since price drop of 10% can happen in a day or two (like we recently saw).
Bitcoin fixed supply makes it ideal for price go up. Naturally, this is against other assets, which means they go down. This is something people seem to think they want.
Unfortunately, it is ground in a lack of clarity.
Purchasing Power
Purchasing power is often discussed. People hate that their money "buys less". We see fancy images online depicting the decline of a currency such as the USD.
Sadly, this presents a false picture. None of what is presented takes into account things such as telecommunications, information, videos, and a host of other sectors where costs went to zero.
Another issue is that if money buys more, i.e. prices go down, this applies equally to labor. Are people willing to take a pay cut? Will they be happen with layoffs that results from deflationary environments? People seem to hate when the price of the home they want to sell or their stock goes down? Do they understand what a deflationary environment looks like?
With currency, the need to fuel to economy is crucial. Deflationary forces means more money is required. We see this in the technology sector. As downward pressure occurs, the amount required must increase, especially if the velocity of money declines, another fact we saw over the past 30 years.
We also have to consider the business cycle.
When economies expand, prices go up. People are more confident. Businesses are opening up, money is flowing into investments. This puts a strain on the labor market, forces wages to increase (something non-business owners seem to like).
Unfortunately, the good times never last. The business cycle will reverse at some point (usually after about 8 years) and the opposite is true. Layoffs occur as the economy tightens, forcing people to cut back on their spending. Companies start to offer deals in an effort to attract more buyers, reducing prices along the way.
The issue here is the equation is dependent upon which side you are on. If a seller, declining prices is bad. Think of the last time you sold a home. Did you want to take less money for it?
Buyers love it until they realize how it impacts them. Growth means expansion in the economy. This means more money is required to keep pace. Add in population growth and we can see the fallacy in the graphics people make regarding purchasing power.
There are still ones like Dorsey who push the Bitcoin as electronic cash. However, most, including Michael Saylor, switched to the store-of-value, something the fixed cap certainly enhances.
Posted Using INLEO