Make no mistake about it, a person like Steve Hanke has enormous incentives to defend the status quo. He benefited enormously from it. One could argue that his livelihood depends on the failure of Bitcoin. A project to make it legal tender in any country goes directly against Hanke’s interests, and it’s no wonder he spoke out against it. The insult, however, was exaggerated.
We will take the higher path and answer all of its points elegantly. The tweet in question was this:
# Paraguay Congressman Carlitos Rejala tries to make #BTC legal tender. How dumb can someone be? #Bitcoin is NOT a store of value, medium of exchange or a reliable unit of account. Its volatility is an obvious reminder that it is merely a highly speculative asset, NOT a currency. https://t.co/BZXA9Y9i3N
– Steve Hanke (@steve_hanke) June 7, 2021
Is Bitcoin a store of value?
Who decides that? The human. If a person uses an asset to protect their property, then it is a store of value. The question then is, is Bitcoin an effective store of value? Well, considering that it is the only raw material in the history of the earth that is in absolute scarcity, it is probably a safe bet. Make no mistake, it’s still a bet. The Bitcoin experiment is an ongoing process and nothing is set in stone.
Related reading | Why bitcoin was declared legal tender could have a big impact beyond El Salvador
Scrape that, one thing is set in stone. There will only ever be 21 million bitcoins. The supply is fixed, so when the demand increases, the price increases. It’s that simple. To give credibility to the argument, let’s quote Saifedean Ammous ’” The Bitcoin Standard “:
Until the invention of Bitcoin, all forms of money were unlimited in quantity and therefore imperfect in their ability to store value over time. Bitcoin’s immutable money supply makes it the best medium to store the value produced from limited human time, making it arguably the best store of value mankind has ever invented. In other words, Bitcoin is the cheapest way to buy the future, because Bitcoin is the only medium that is guaranteed not to be devalued, no matter how much its value increases.
Did you know that 40% of all US dollars ever existed was printed in the last twelve months? This is what a humiliation looks like. And the whole world feels its effects.
Is Bitcoin a Medium of Exchange?
Our friend Steve Hanke replied to Paraguay’s Congressman Carlos Rejala, but as you probably know, El Salvador was the first country to approve Bitcoin as legal tender. This is no coincidence, because in El Salvador there is “a real village with real Bitcoin use in everyday life”.
The Bitcoin Beach project is also the main real-world use case for the Lightning Network. If there is one place where small bitcoin transactions are commonplace, it is this one. As Nasdaq announced last year when the project was still under development:
In the flagship Bitcoin village of El Zonte, for example, you can use Bitcoin to pay for a haircut, get your nails done, and eat some local dishes (like some delicious pupusas). Soon you can even buy a cup of coffee with it and go to the doctor’s office for an examination.
When there is doubt that Bitcoin Beach was the inspiration for El Salvador’s historic move, Stephan Livera paraphrases what President Bukele said at the clubhouse:
Bukele: The Bitcoin Beach team showed that this isn’t just for rich people. A community can benefit from Bitcoin. And now we’re going to demonstrate it across the country.
– Stephan Livera (@stephanlivera) June 9, 2021
So yes, Bitcoin is a proven medium of exchange with real use cases. We could factor in the incredible amount of Bitcoin transactions that the virtual world sees every day, but that’s not necessary.
BTC price chart on Bitbay | Source: BTC/USD on TradingView.com
Is Bitcoin a Reliable Unit of Account?
Let’s admit it, the price of Bitcoin is volatile. Why this? Let’s quote “The Bitcoin Standard” again:
Given that Bitcoin accounts for less than 1% of the world’s money supply, large individual transactions in Bitcoin can have a huge impact on the price, and small fluctuations in demand can lead to large fluctuations in price. However, this is a feature of the current situation where Bitcoin as a global settlement network and currency is still a tiny fraction of global settlement payments and money supply.
Bitcoin is still in its infancy. You can’t ask a 12 year old child to act like an adult. What does it take to grow? Nourish. And since it IS a currency, maintenance means widespread acceptance. This is exactly what is happening as all of these countries are considering emulating El Salvador to make Bitcoin legal tender.
Related reading | Time to be careful: The behavior of the Bitcoin indicators mimics the historical rally
When bitcoin becomes the world’s global reserve currency, volatility won’t be an issue. And the whole planet will have a level playing field because one country will not have the immense privilege of spending the global reserve currency. And degrade it at will.