In recent years, as bitcoins and digital currencies have become ubiquitous around the world, central banks, government agencies, and international institutions have always sought to highlight the weaknesses of bitcoin. But to what extent are these criticisms true, and for what purpose do organizations raise these issues?
to the Report Crypto News: Central banks still can not properly understand bitcoin in 2021. Although many have in the past called bitcoin a bubble and an unstable asset and rejected the digital currency altogether, bitcoin continues to grow in price, public acceptance, and other critical metrics.
With bitcoin prices soaring in recent years, central banks are once again slandering the digital currency, which often promotes the use of Blockchain technology in the development of its national digital currency.
In the following, we are going to take a closer look at these comments and see what mistakes central banks are making in relation to Bitcoin.
1. Bitcoin is very unstable and not suitable for storing value!
The criticism that not only central banks, but also a wide range of people are hesitant about bitcoin, is that bitcoin is far more unstable than it can be as a tool for storing value.
For example, Jerome Powell, the governor of the US Federal Reserve, said in March this year during an event held by the Bank for International Settlements:
Digital currencies [مانند بیت کوین], Which we call digital assets, are highly volatile and therefore not really useful as a store of value.
Many long-term investors reject the theory that bitcoin can be used as a store of value. Bitcoin prices can be really volatile in the short term, but those who have kept their bitcoins from the beginning to the end of the hawing cycle (almost every 4 years) have never lost money. Everyone agrees that the price of bitcoin can be very volatile in the short run, however many bitcoin investors tend to ignore this feature altogether and look at bitcoin as a long-term savings.
Bitcoin fell to close to $ 30,000 when it was worth more than $ 60,000 and then managed to recover its price to the level of $ 50,000. But it should be noted that even taking into account current prices, Bitcoin has still had a return of about 250% since last year and more than 6,000% in the last 5 years.
Because the market does not yet know how to value this new asset that did not exist in the past, short-term Bitcoin fluctuations can be very significant. In addition, Bitcoin price fluctuations in the last 5 years, compared to the first 5 years of the launch of this digital currency have been much less. It is not possible for a completely new asset to reach $ 10,000 without a price fluctuation from zero.
Robert Kaplan, head of the Federal Reserve in Dallas, disagrees with Jerome Powell on Bitcoin.
“The Bitcoin event hosted by Texas A&M University earlier this year, Kaplan said.
It is clear that [بیت کوین دارایی با قابلیت] Save value. [با این حال] Clearly, the price fluctuations of Bitcoin are so great that it could become widespread and widely accepted as a trading tool. [توسط سازمانها و دولتها] Prevent.
2. Bitcoin has no intrinsic support or value; What about dollars and gold?
Another criticism of bitcoin, which is closely related to the hypothesis that it is not used as a store of value, is that bitcoin has no intrinsic value. Jerome Powell said during the International Settlements Bank event that bitcoin has no backing.
According to him, stable coins are more advanced than genuine digital currencies such as bitcoin, because they are supported by the governing currencies of various countries such as the US dollar. That’s why Powell believes that bitcoin is more like gold than dollars. James Bullard, head of the Federal Reserve in St. Louis, agrees.
In an interview with CNBC earlier this year, Bullard said:
They describe bitcoin as a rival to gold, and it might be better to think of it that way.
Central banks around the world have also supported the theory that bitcoin has no intrinsic value. The European Central Bank (ECB) released a report in May comparing bitcoin to the South Sea bubble. The South Sea bubble refers to the financial crisis that the British company faced in the 18th century. In 1711 the shares of the South Sea Company were traded at a price of. 1,000, and nine years later in 1720 the value of the shares of the company was reduced to zero.
Luis Guindos, vice-president of the European Central Bank, has previously told Bloomberg that buying digital currencies is not a real investment because they have very weak fundamental features. Andrew Bailey, the Governor of the Bank of England, also supported this view.
He told a news conference in May:
[ارزهای دیجیتال] They have no intrinsic value. This does not mean telling people not to value them, because these currencies can be valuable [وابسته به عوامل] Have an exterior. However, they have no intrinsic value.
To be honest, this criticism is almost correct. Bitcoin has no intrinsic value, and its high price is only because people value it; However, the reason for this valuation goes back to the intrinsic features of Bitcoin. However, the lack of intrinsic value they use to criticize bitcoin also applies to options such as gold and the US dollar.
The US dollar is valuable because the government has said it is valuable and the people have accepted it. If most people decide to invest in bitcoin instead of dollars, the dollar has no inherent properties that can protect it from such attacks. However, if that happens one day, the US government could forcibly surpass Bitcoin, given its right to use violence.
Also read: Is Bitcoin Intrinsic Value?
In particular, there are still a number of underlying reasons why both the dollar and bitcoin are now considered valuable. There is this currency, which of course is a good thing.
However, Bitcoin also has its own fundamental features, including incorruptible monetary policy, barriers to the seizure of personal property, and uncensored online payments.
To summarize this section, Powell’s view that Bitcoin is not backed up can not be considered a negative feature, as it is one of the main features of this digital currency system. If Bitcoin is backed up using real assets or by a centralized supplier, the risk of breach of the other party’s obligations in transactions increases; The problem with stable coins is that bitcoin has completely solved it.
3. Bitcoin network consumes a lot of energy
Another criticism Powell has leveled at Bitcoin is its high energy consumption. A spokesman for the World Bank, which has invested billions of dollars in fossil fuel-related industries despite opposition from the European Union, told Reuters that concerns about the environmental consequences of the extraction were one of the reasons the international finance agency met with El Salvador over Do not accept bitcoin as your legal currency.
In addition, Fabio Panetta, a member of the European Central Bank’s board of directors, said in May:
High energy consumption and carbon dioxide from digital currency extraction can lead to environmental activities [برای نسلهای آینده] Weaken. [شبکه] Bitcoin alone consumes more electricity than the Netherlands. Controlling and limiting the environmental impact of digital currencies, including legislation and taxation, should be discussed by international institutions.
The European Central Bank recently announced that the energy consumption of their national digital currency will be small compared to bitcoin.
This summer, the International Settlement Bank announced in a report:
Bitcoin does not have many features that are in the public interest, especially when we consider its high energy consumption.
According to the Bank for International Settlements, this is a clear example of the environmental problems attributed to bitcoin. These reasons are accepted only by those who think that the existence of bitcoin has no properties.
Anyone who does not understand the value of bitcoin will surely argue that consuming energy to extract bitcoin is useless; Just like someone who cares about Christmas and thinks that consuming energy for Christmas lights is useless.
Such an argument depends on the way people think. Clearly, those who own bitcoins know that having an international non-political financial system is worth the energy.
The media exaggerates the bitcoin damage to the environment. Many estimates that measure the energy consumption of the Bitcoin network in the future make fundamental errors, such as ignoring second-tier solutions such as the Lightning network and mistakenly assuming that all transactions will take place on the main network.
There are many reasons why the environmental impact of bitcoin, given that it is widely accepted as a monetary standard, would be far less than the current global financial system and gold-based standard. ARK Invest and Square recently co-authored an article examining the impact of bitcoin mining on the renewable energy economy.
4. Bitcoin is a tool for criminals
A spokesman for the World Bank, who had previously said that the environmental impact of mining had prevented the international body from cooperating with El Salvador in accepting bitcoin as its legal tender, said the lack of transparency was one of the potential problems with bitcoin. The Bank for International Settlements also examines the use of bitcoin in money laundering and ransomware attacks in the same report we discussed in the previous section.
But perhaps the strongest criticism of bitcoin for its use by criminals has come from European Central Bank President Christine Lagarde.
In an interview with Reuters in January, Lagarde said:
[بیت کوین] It is a very risky asset that has been used to do interesting businesses [البته] For [تسهیل] Money laundering activities are completely reprehensible.
The head of the European Central Bank, who has been accused in court in the past for some reason, has said that international rules should be set for bitcoin and other digital currencies to prevent people from accessing digital currencies around the world to circumvent presentation rules. Use tax reports to avoid.
Bitcoin is a digital currency introduced by libertarians in 2009 with the aim of creating a decentralized and completely anonymous world.
Lagarde’s remarks reflect his understanding of the political context of the Bitcoin network. However, a digital financial system that is not anonymous and decentralized also has its own social consequences. Perhaps the best explanation for the implications of such a system is provided by Agustin Carstens, CEO of the Bank for International Settlements. He compared current physical cash currencies and future national digital currencies during an International Monetary Fund event in October 2020.
Bitcoin has long been known as an option for dealing with a society where the use of physical forms of money has no place and is full of injustice. In such a society, there is no such thing as financial security and property ownership.
Full control over the digital financial system, the implementation of inflationary monetary policies, the seizure of public property and the censorship of transactions will make it easier than ever, and those in power will do all this under the pretext of protecting the people from cybercriminals.
Also read: The destruction of the world economy with government money: Ancient Roman hyperinflation and its similarity to today
Many countries around the world are currently developing legal frameworks for digital currencies. Just a glance at what has happened this year shows how hard governments have worked to maintain complete control over the digital financial system.