Bitcoin’s Ultimate Stack Against the US Dollar

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Bitcoin has pulled off the biggest heist the financial industry has ever seen.

Judging bitcoin’s success by the dollar, the quintessential symbol of what the grandfather of all cryptocurrencies was created to rebel against, is flawed logic.

Bitcoin began as the rebel child protesting against a system that drove nearly 10 million Americans out of their homes after the 2008 financial meltdown.

Initially, Bitcoin needed dollar representation simply because it cost a certain amount to mine. But the emergence of Bitcoin Market, Mt. Gox, and other exchanges where users could trade with each other created the artificial supply and demand paradigm that gives value to all things.

At the time, the only measure of this value was the US dollar.

Today, bitcoin (BTC) naysayers point to the falling BTC-USD price and laugh, assuring themselves and others, as they have from the start, that BTC has no never worth anything.

But BTC was not created to match the dollar. It was created to allow people to financially free themselves from a centralized banking system that had let the world down.

Bitcoin is well on its way to achieving full decoupling from USD or any other fiat currency, establishing a full-fledged existence as a medium of exchange containing its own intrinsic value.

It is terrifying for central governments and banks.

The wide acceptance of Bitcoin

The Italian-speaking city of Lugano in Switzerland is paving the way for bitcoin adoption, with its “Plan B” initiative. Plan B is a joint initiative of the city and Tether to transform Lugano’s financial infrastructure through the use of bitcoin.

Soon, citizens of Lugano will be able to use bitcoin in 200 local establishments, as well as pay their taxes and other public services using cryptocurrency.

If Joe can buy Jack eggs using bitcoin, and Jack can pay Mary in bitcoin for bread, and Mary can pay her taxes with BTC, no fiat currency is needed anywhere.

El Salvador adopted bitcoin as its official legal tender over a year ago. Part of the reason for this adoption was to allow the 80% of unbanked Salvadorans to have access to digital funds. And the country managed to get 70% of those people to do just that in just four months.

The country bought $103.9 million worth of BTC after September 2021 and the USD value of BTC fell to just over $40 million a year later. Opponents beat their chests for joy.

But here we are exercising that flawed logic again.

If countries trade with other countries using only BTC, who cares about the USD value of that BTC? The value of the USD becomes irrelevant.

In October 2022, El Salvador signed a memorandum of understanding with the city of Lugano to spread bitcoin adoption. Although bitcoin is not the de jure currency in Lugano, the city does not have the power to declare legal tender in Switzerland, it becomes a de facto currency.

What if El Salvador and Lugano started to pay in bitcoin?

Panama once floated the idea of ​​making BTC legal tender. And the Central African Republic (CAR), one of the poorest countries in the world despite being rich in mineral reserves, has also adopted cryptocurrency as legal tender.

A third of small businesses in the United States already accepted bitcoin as a valid form of payment in 2020. The top companies that accept bitcoin are AT&T, Wikipedia, Microsoft, and Norwegian Air.

Bitcoin seems to be everywhere.

De facto currencies and government panic

De facto currencies terrify central governments. Speaking at the fourth Nordic Blockchain Conference in Copenhagen, Denmark, in December, lawyer Payam Samarghandi revealed that EU regulations on block-scale cryptocurrencies had initially intended to prevent Facebook from creating a de facto currency to compete with the euro. After Facebook destroyed its Libra currency, regulation became what it is now regulation of crypto-asset markets (MiCA).

Controlled by no government on earth, the idealistic bitcoin cryptocurrency can now be used to buy goods in many places around the world.

While bitcoin can be used to purchase goods such as quartz, copper, uranium, iron ore and many other minerals available in the CAR, the value of bitcoin becomes the supply and demand value goods it represents.

It is the dollar itself that has sown this seed of its own destruction.

A fiat currency is a currency that is not backed by reserves but by the trust of the issuer.

The dollar was backed by gold reserves. In 1933, the US government passed the Emergency Banking Act which prevented US citizens from exchanging their dollars for gold. Then, in 1971, the United States stopped issuing gold to foreign countries in exchange for their dollars. The US dollar fiat currency was born.

According to this same scheme, bitcoin also becomes a fiat currency. But the issuer in his case is not a central government, it is the bitcoin blockchain, a decentralized and independent entity whose trust has been earned many times over.

What makes a currency?

Professor Emeritus of Accounting at Brigham Young University Earl Kay Stice defines the three necessary characteristics of reliable money as follows:

Reasonable limit of supply. Verifiability Wide acceptance.

There will never be more than 21 million bitcoins. Each transaction is verifiable. And it is now widely accepted.

By achieving this wide acceptance, bitcoin has pulled the rug out from under the US dollar. He first said, “Hey, look how many dollars I’m worth!” Investors piled in. Bitcoin’s value against the dollar has skyrocketed. Just like the adoption of bitcoin.

But the real value was in the adoption, never the monetary value. So bitcoin finally said, “Who needs dollars?”

*R Paulo Delgado is a crypto writer with an eye for the bizarre, human stories behind the always fascinating leaps and stumbles of this new asset class.

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