The consequences of the lockdown measures and the additional uncertainty have an immense impact on financial markets worldwide. That is why countries, and also the ECB here in Europe, are recovering from their ‘bazooka’. Essentially, these economic bazookas are nothing more than printing money and pumping it into the economy.
Printing money notes comes with a price: each banknote printed leads to a decrease in the value of the currency as a whole. You don’t see your capital change, but in reality there is a loss of purchasing power due to the actions of the monetary authorities. The victims are ordinary citizens.
Nobody wants to see their capital decrease in value. One way to protect yourself from this is to use Bitcoin, a crypt currency or digital currency. As an experiment, Bitcoin was released to the world in 2009. As a result of its technical development, the maximum number of Bitcoins in circulation has been set at 21 million.
So the big advantage of Bitcoin is that the coins can’t be added and this ceiling remains unchanged. This is in stark contrast to the number of one-dollar bills that increased from 9.7 billion in 2009 to as much as 12.4 billion in 2018.
Gold vs Bitcoin
For decades, a rare raw material such as goud has been used as an underlying substitute. And that has its consequences during a financial crisis, because ‘gold shines in dark times’. The difference in size between different amounts ranging from buying a loaf of bread to buying a villa, makes gold less scalable (flexible) than note money. Despite its stability under economically unstable conditions, gold remains an impractical currency.
Makes Bitcoin a useful currency.
Combining the needs of the present, such as supporting digital transactions, with the power of the past, such as the scalability of paper money, makes Bitcoin a usable currency. A strong currency has a predetermined size and meets all the requirements to be a good means of payment. It is disposable, anonymous, safe, sustainable, and above all, inflation-resistant. What’s more, there are no additional hidden transaction fees, you can immediately transfer Bitcoins and split them into smaller monetary values. Finally, the decentralization of Bitcoin means that a central body cannot create or control the currency.
What does the ECB do?
The ECB also sees these advantages. That is why it decided at the beginning of this year to thoroughly explore the possibilities of crypto coins. In cooperation with the central banks of Canada, the United Kingdom, Japan, Sweden and Switzerland, a research team is being set up to examine in which situations crypto coins can be interesting and advantageous, especially in terms of digital payment solutions at international level. In addition, they are investigating the possibilities of having their own digital currency and which technical approach would be most appropriate. The main question then remains whether or not this concerns a fixed quantity of coins.
These actions are necessary since various tech giants such as Amazon and Facebook are also researching the different possibilities of their own digital currency. How governments will arm themselves against this is another question.
It is not all gold that shines
Although it all sounds nice in theory, it’s not all gold that shines. The working of Bitcoin, or other digital coins like Ethereum, Litecoin or Ripple is similar. In practice, however, a number of pitfalls come to light that were not initially foreseen. Due to the fixed number of Bitcoins in circulation, the currency is considered an investment material rather than a digital currency that can be used for numerous transactions. This explains its volatile nature and makes it less interesting as a means of payment. The future will have to show how international legislation could curb this opportunistic behavior of investors – who see digital coins as an opportunity for usury rather than as a means of payment – and to what extent crypt currency could complement or even completely replace our current currencies.