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The US dollars has been the world’s most popular currency for over half a century. But that’s starting to change, our Central Banks have been meddling with the value of the dollar and people are looking to replace it with something better.
One currency has been making news lately, Bitcoin, a new digital currency. Lots of things have been used as currency throughout history; gold and silver, wheat, seashells, tobacco, salt, paper and numerous other things. Some currencies have stuck around; lots have died off, but why? What makes some currencies better than others? It’s not any government to cray it’s their properties. Certain properties are essential to a healthy currency and if we keep score, the US dollar doesn’t look so great especially in comparison to historical favourite like gold and silver or the Bitcoin.
A sound currency stay valuable overtime, has a limited supply, and easily divisible and portable.
If you want to compare currencies as head to head, we need to understand the importance of these qualities.
Imagine if a currency doesn’t stay valuable overtime. For example, let’s say we used banana as a currency, well, bananas have a lifespan and eventually rot. A large store of savings in bananas will eventually turn to mush and nobody wants to trade rotten fruit with each other. The US dollar doesn’t rot, but thanks to the Central Bank it lost about ninety-five percent of its purchasing power in the last one hundred years. Gold and silver don’t rot either; they’re durable and a long history of being valuable. Bitcoin also doesn’t degrade overtime. Ones and zeros will be the exact same fifty years from now, because these are not centralized currencies, not issued by anyone institution which means that its value is independent from any government or central bank. As long as people find it valuable, it will stick around.
Next, imagine a currency without a limited supply. Let’s say we used wooden nickels as our currency. What happens when people start carving their own? If people can easily create more currency for themselves, economic prices become meaningless. Since the 1970’s the US dollar has anything but a limited supply. The Central Bank has created trillions of dollars out of thin air, devaluing everybody else dollar in the process. In contrast, the supply of gold and silver has been relatively constant for the last few millennia. Bitcoin also has a stable supply. In fact, in any given time, we know almost exactly how many exist and at what rate they will be produced in the future. No more than twenty-one million Bitcoins will ever be created. It is written straight into the code. Counterfeiting might also increase the supply of currency by defrauding paper. Only difference in money printing and counterfeiting is who is behind it, the result is the same. Fortunately, it’s difficult for citizens to counterfeit the US dollars, gold or silver. But what about something digital like Bitcoin? It uses mathematical cryptography in a public ledger called the, “Black Chain”, to make it impossible to counterfeit.
Picture a currency which does not divide easily. What if cows were used as a currency? How would you pay for something like a loaf of bread? A cow is worth much more than one loaf of bread and it would be very difficult to divide a cow to a smaller unit to make a fair trade. The dollar divides very easily down to the penny. Gold and silver are a little bit more difficult to divide into small quantities. Bitcoin easily divided down to one hundredth million of a Bitcoin.
A sound currency must also be portable. Imagine the difficulty of using a cement of block as a currency. The dollar is easily portable. Gold and silver are less portable. Though on a gold standard people usually carry around a paper which is redeemable in the meadows. Bitcoin can be sent anywhere in the world with internet access instantly regardless of the size of the transaction and with almost no cost.
So how do these currencies match up against each other? You decide for yourself. We can’t know what is the best currency is. We discover it overtime. But if Central banks keep inflating the money supply and people are free to choose, the US dollar likely cannot stand toe to toe with the competition.
To learn more about sound economics, visit FEE.org and to donate Bitcoin scan this code.