Bitcoin can not prevent future economic crises such as the one we are seeing in Greece today. This is our streetonomic opinion, which expect the Bitcoin community will disagree with vehemently. Most of the content on the internet will tell you the exact opposite. In this matter, The Finance Guy is a true contrarian.
Everyone else says Bitcoin can prevent a future Greek style disaster, yet we are stating the exact opposite. We are looking at the same information, but we are drawing an opposing conclusion. It's only natural to assume that we have made huge errors in our forecasting. After all, it sounds like we are calling the earth flat, or saying that 2 + 2 will actually give you 79.5! It sounds like we've gone mad
Luckily this is perfectly natural in the world of economics. Despite looking at identical information, economists frequently make forecasts which contradict each other, and sometimes even themselves! This is reassuring to us as it means we have not lost our sanity :)
We Are Focusing on the Economics of Bitcoin Instead of Technology
Most of the posts we have read on this topic are focusing on the transactional qualities of Bitcoin. If our Greek friends had Bitcoin, there would be no way for their accounts to be frozen. Believe it or not, we agree with this. The Greek Government and banks would not have the power to put limitations on how much Bitcoin their people can access or send out of the country.
Our disagreement is based on how we are looking at the Greek crisis, more specifically, the macroeconomics involved. When we read posts which explain why Bitcoin could've saved the Greeks, we see why it couldn't have. For example we read an article called 'Bitcoin Could Solve Future Currency Crises, Experts Claim', which was published a on July 14th in the Australian Business Review. The same article was also published by The Wall Street Journal
Our colleagues over at CCN read the same article and wrote a post called How Bitcoin Could Prevent a Future Greece. CCN obviously agree with the original article and reiterate some of the key points with a nice mix of quotes and paraphrases. Their post is meant to illustrate how Bitcoin could protect us from such things happening in the future. Yet we read it and see weaknesses in the macroeconomic utility of Bitcoin
The article was in the Wall Street Journal and the Australian Business Review, and possibly many more reputable financial publications, yet a Blogger called The Finance Guy, is disagreeing with it. This makes us look extremely arrogant or extremely stupid, or both.
We found the article on finance related publications. Having said that it was written by Christopher Mims, a technology columnist. Mims has a degree in neuroscience and an impressive journalistic resume in the field of technology. He is undoubtedly an exceptionally intelligent individual. We are comfortable disagreeing with him, because we are talking about economics not brains and not technology.
Let's Look at the Macroeconomics
What the Article Says:
Greece's fundamental problem is that it cannot work its way out of its financial hole the way just about every other country outside the eurozone would: by printing money, and in the process making its goods and labour cheaper.
We 100% agree with this quote. The Greek Crisis would not be as severe if Greece wasn't a member of the Eurozone subgroup of the European Union (EU). The currency used by the Eurozone, and in Greece, is the Euro. Members don't have to worry about setting interest rates or issuing money, because this is all done by the European Central Bank (ECB). This is a macroeconomic function called monetary policy. The Eurozone member states have a communal monetary policy.
Why Doesn't the ECB Use Monetary Policy to Help Greece?
The ECB sets one monetary policy for all 24 Eurozone member states. Any adjustments the ECB makes, will impact all 24 members. Unfortunately for Greece, this means the ECB can't help them out by dropping interest rates or printing more EUR, because this would help Greece, but would simultaneously hurt other members. The ECB acts on the aggregated best interest of all members
The core problem which Greece is facing, is that they have no control over their money. They can't issue more currency, and they don't have their own central bank so they can't adjust interest rates. This proves why Bitcoin could not prevent a future Greek disaster
Why do Bitcoinners love Bitcoin? It has a fixed supply, there will never be more than 21 million and nobody can print more to devalue it. Bitcoin is decentralized there are no governments and no central banks. The problem that Greece is facing is that the government needs to devalue their currency but they can't because they have no central bank
Essentially the article is telling us that a currency with no government, no central bank, and no devaluation, can help a government replace a central bank and achieve devaluation. Can anyone else see something wrong with this logic? The features we love about Bitcoin, are the reason why Bitcoin can not help Greece.
Bitcoin is More Than a Currency, it's a Technology
We are aware of the Blockchain and how awesome it is. It's the foundation of Bitcoin, the source code upon which Bitcoin was built. Best of all it's open source, so nobody owns it and it's free to everyone. Anybody can access the Blockchain at no cost and use it to develop something new and amazing.
Another Quote from the Article
But bitcoin is at an inflection point, and it's evolving much more quickly than all but its most dedicated observers realise. Whatever happens to bitcoin itself, the technology underlying it opens up previously unimagined possibilities for the future of just about anything humans exchange
Once again we agree 100% with the article on this matter. The technology is great and the future is full of possibilities. The issue here, is that they are talking about the blockchain, not Bitcoin. We agree that many great things will come from the blockchain, however none of them will be of any benefit to Bitcoin.
Bitcoin and the blockchain are not the same thing. The fact that the blockchain has potential to change the world, does not mean that Bitcoin has the same potential. The article acknowledges this point, saying 'whatever happens to bitcoin itself'. So they are telling us that it's the technology that 'opens up previously unimagined possibilities' and bitcoin itself is inconsequential. Yet at the same time they are trying to convince us that Bitcoin could solve future crises?
This is a recurring theme the article purports that Bitcoin could save the future then goes on to mention hypothetical uses of the blockchain to create new solutions. It does not once suggest the use of existing bitcoin as a solution.
This is a point CCN will disagree with us on. Their post about 'How Bitcoin Could Prevent a Future Greece' focused on two big points:
- 'The blockchain's unimaginable possiblities'
- 'Cryptocurrencies could represent assets'
Both these points go on to tell us that Bitcoin will save the day because people could use the operating system of the blockchain to develop something new which is not bitcoin. Again let us point out the blockchain is open source. Bitcoin will receive no benefit from any new projects which are created from the blockchain.
We are not denying that Satoshi Nakamoto created the blockchain and bitcoin at the same time. The fact that they were created together does not make them the same. If you are collecting bitcoin because you think you are investing in the blockchain, you are wrong.
What did the Experts Really say?
The article is not just a technology guy writing for the WSJ, it is full of references to all sorts of experts. The Former Greek Finance Minister, UBS, Deloitte, even the Bank of England! Are we saying all those experts are wrong?
We agree wholeheartedly with every one of the experts quoted in the article. And if you ask them, you'd probably find they agree with our point of view too. Let's have a look at what the experts really said, and why we agree with each other :)
We are not having a go at Christopher Mims, what we are about to do though is look at the expert quotes he uses, and explain why, they in our view, they suggest the future of bitcoin is bleak. This is because we believe that the blockchain and Bitcoin are not one and the same, where as Mims would disagree.
Mims says that UBS Cheif Investment Officer Oliver Bussman, expressed an interest in Bitcoin. We had a look at what the UBS CIO really said. He referred to the blockchain as having potential to revolutioize or 'disrupt' the financial system and simplify banking. He mentions that the blockchain is 'associated with Bitcoin', but that is actually a negative aspect of the blockchain in his opinion. At no time does Bussman mention Bitcoin as playing a role in the future he foresees. If Bitcoin ceased to exist, the blockchain could still revolutionize financial services
Mims says the Bank of England declared Bitcion will 'someday have "far-reaching implications". We read the Bank of England Bulletin 'Innovations in payment technologies and the emergence of digital currencies'. The full quote from this expert is 'The application of decentralised technology to this platform of digital information could have far-reaching implications'. Again we see reference to the blockchain but Bitcoin is not mentioned.
The bank of England absolutely agrees with us! In the paragraph found at the bottom right of page 3 of this expert opinion, it reads 'Although Bitcoin introduced a new currency and a new payment technology together, the distributed ledger technology could, in theory, be used without the creation of a new currency'
Deloitte is also in agreement with us! First of all Deloitte issued a report on state sponsored cryptocurrency. Bitcoin is not an never will be state sponsored... how is this even relevant to Bitcoin as an economic savior? I don't think Mims even read this report, right there in the first paragraph, it says 'Bitcoin suffers from some significant and legitimate drawbacks that may permanently limit its adoption in the mainstream economy'
Nasdaq is testing the blockchain technology. Nasdaq is not testing Bitcoin. Mims and most of the Bitcoin community think that this is good for Bitcoin. It isn't. If Nasdaq develops a new trading system from the blockchain, Bitcoin will not be a beneficiary of its success. It seems that the Bitcoin community has a propensity to over-react to and misinterpret news. One expert who agrees with us on this point is Martin Tillier, who is a 'writer on markets and investments' for none other than NASDAQ :) See what Tillier had to say about the Bitcoin Community's Overeactions
The last expert is former Greek finance minister Yanis Varoufakis. This expert agrees with us even more than any of the former experts quoted by Mims. Mims either mis-read or intentionally misquoted him. In his article, he alleges that Varoufakis posted on his blog about the potential for Greece 'to use the technology of bitcoin to create a currency that he called "future taxes"'
The real Varoufakis Quote
They can create their own payment system backed by future taxes and denominated in euros. Moreover, they could use a Bitcoin-like algorithm in order to make the system transparent, efficient and transactions-cost-free. Let’s call this system FT-coin; with FT standing for… Future Taxes
Not only is this not a use of Bitcoin, but it is going an extra step and suggesting that the blockchain can be used to develop a system which is linked to and priced in Euros. The same fiat currency Bitcoin wants to 'disrupt' is at the core of what Varoufakis is suggesting.
We are really not sure how anyone could think that Varoufakis was trying to endorse Bitcoin in any way. He called his blog post 'Bitcoin: A flawed Currency bluerint with a potentially useful application for the Eurozone' The former Greek finance minister also agrees with us that Bitcoin is flawed!
A Preemptive Apology
The opinions stated in this post are just opinions. They are not concrete facts. We have blatantly disagreed with what others have said, and we know this can be offensive. It is not our intention to offend, we are just expressing our own point of view. If we have upset anybody, then we apologize
If you agree or disagree with us, please let us know in the comments. We promise not to be offended if you tell us that we are completely wrong :)