Bitcoin is Not a Threat Because Its Not “Stable”

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Earlier this week, the National Bank of Belgium governor Jan Smets said in an interview that bitcoin is not a threat to central banks because it is not stable.

“It’s not stable like the euro,” said Smets, adding “creating blockchain-based digital cash could diminish our limitation to drop interest rates below zero.”

Flawed Argument

Smets further emphasized that bitcoin cannot be utilized and trusted as a currency because of its lack of a central entity and authorities overseeing the network. He also noted that most investors in the bitcoin and cryptocurrency markets are speculating on the price trend of cryptocurrencies and as such, while the risk of investing in bitcoin is low at the moment, it could increase rapidly in the short-term.

A loosely translated transcript of interview between Smets and Belgian news publication VRT read:

“Let’s stop calling bitcoin a currency. Unlike the euro, bitcoin is not guaranteed by a central bank or government asa  means of payment so bitcoin is not a currency. Even if there are small risks for investing in bitcoin at the moment, there are potential consequences for financial stability.

According to Smets, bitcoin is not stable like the euro because of the lack of a central entity and a central bank. He emphasized that it is difficult to trust bitcoin as a currency as a result.

However, bitcoin is designed specifically to operate as a trustless financial system and network. The entire purpose of bitcoin and its greatest advantage over other stores of value and currencies is that within the bitcoin network, users can send and receive payments in a decentralized and peer-to-peer (P2P), eliminating the necessity of trust-based relationships, intermediaries, and third party service providers.

Fiat currencies or government-issued currencies are also less stable than cryptocurrencies like bitcoin and other safe haven assets like gold because of their inflationary nature. A fiat currency like the euro is manipulated by its central bank, which governs the circulation and supply of the currency.

Several Central Banks Understand Bitcoin

Earlier this year, the Bank of Finland released a research paper entitled “Monopoly without a monopolist: An Economic analysis of the bitcoin payment system,” with the sole intent of describing bitcoin’s trustless and decentralized system.

“Bitcoin is a monopoly run by a protocol, not by a managing organization. Familiar monopolies are run by managing organizations with discretion to determine and then change prices, offerings and rules. Monopolies are often regulated to prevent or at least mitigate their abuse of power,” read the paper of the Bank of Finland.

The central bank of Finland encouraged economists to study the structure of bitcoin, as it has introduced the first working decentralized financial and payment system in the history of the global finance market. Bank of Finland researchers added:

“Bitcoin’s design as an economic system is revolutionary and therefore would merit an economist’s attention and scrutiny even if it had not been functional. Its apparent functionality and usefulness should further encourage economists to study this marvelous structure.”

Bitcoin is a threat to central banks and the authorities because it is the first store of value and currency system that is capable of separating money and state. It removes arguably the most powerful tool of governments that is their monopoly over the global monetary system

Featured image from Shutterstock..

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