Is Bitcoin Better Than Fiat Currency?


10 years ago you probably would’ve laughed in my face if I told you that a $1000 investment into an unknown asset called Bitcoin would now be worth $287 million. But this digital currency  is now much more than a ‘get rich quick’ scheme. Not only has Bitcoin crossed a market cap of $2 trillion, which is higher than that of most of the biggest companies in the world, it has also managed to add real-world value. 

While other forms of fiat currency are controlled by central banks and financial institutions that have caused turmoil over the years such as the global financial crisis of 2007-08, Bitcoin seeks to distribute power among the masses due to its decentralised nature. 

Central banks and the Problem Of Inflation and Consumer Spending

The one thing that unites all forms of fiat currency such as cash, credit and debit, is that they are all controlled by a central authority. Whether it be the government, the world banks or other financial institutions, they control the value of fiat currency. 

But these same central authorities have been known to create less than favourable outcomes for the world’s economy due to the way they use fiat currency. 

For example, let’s talk about the involvement of central banks in consumer spending and inflation. Central figures such as banks try to increase consumer spending in troubling times, like during Covid-19, to limit price instability.

They do this by conducting open market transactions, which is basically the process of buying assets such as government bonds, bills or other government issued assets, to bring more liquidity into the market. This has a domino effect on consumer spending – it adds more money into the market, which means consumers have more money to spend. They will also reduce interest rates on mortgages and home loans, to increase borrowing. 

But the trouble is that when consumer spending increases, inflation increases too. Inflation increases when people are spending more money, so when demand overtakes supply, this results in companies slowly increasing prices, which results in an increase of inflation rates. 

The only way out of this is for the same central figures and government to now sell these bonds, treasuries and government-issued assets and increase interest rates once again. This will result in both consumer spending and inflation decreasing.

But we all know that this back and forth of buying and selling is not sustainable, in fact the ill-management of money is what led to the global financial crash of 2007-08.  

The Excessive Lending That Caused The Financial Crisis

The thing that triggered this financial crisis was the burst of the housing bubble. From the 1990’s all the way to 2007, the price of houses in the US increased by a shocking 130%. 

Why did this happen? Well, interest rates were reduced to just 1% from 6.5% between 2000 and 2003. This was done in response to the 2001 attacks on US soil. The reduced interest rates were also caused by an increase of money coming from Japan, China and other countries, since the US was considered a safe investment. So, more funds coming in meant interest rate decreases and increases in mortgages and borrowing. 

The previous 20 years had been a period of stability and low inflation, so more people were willing to take more risks, thus taking out more loans on their mortgage. Eventually, mortgage standards started to decline, as loans were being dished out to subprime borrowers, or people with low credit scores. 

The belief was that that prices would always rise and if the subprime borrowers did not pay back their loans, banks would sell their houses and make back the money. This reckless spending by the banks triggered a burst of the housing bubble and eventually led to the financial crisis. 

By 2007, the housing market was saturated. Everyone who wanted a house had one, so prices fell. This was followed by the Fed raising interest rates in 2004-2006, so home loans became more expensive. 

These factors triggered a 25% fall in housing prices by September 2007, which caused people to default on their mortgage payments. Banks could not make the money back since housing prices had fallen. 

All of this was the result of central authorities controlling money and spending it recklessly. 

The Birth of Bitcoin

It was this same crisis that led the world to experience bitcoin for the first time, back in 2008. 

The Bitcoin founder came up with a way to disintermediate banks and financial institutions, instead creating a peer to peer payment system to exchange funds without the need of an external or third party intermediary. 

This way banks weren’t required to be involved in every transaction, in fact the idea was to cut them off altogether. But how does Bitcoin even work ? 

How Is Bitcoin Better Than Fiat Currency?

Arguably the reason why so many people love Bitcoin and why so many banks hate it is due to it having no association with any government and financial institution. The blockchain which lists all the transactions stops it from being duplicated and makes it impossible to counter-fiat. Since they are decentralised and digital assets, they are highly lucrative since absolutely anybody that owns some Bitcoin or a crypto wallet can check any transactions that occur on the server and networks.  

Limited Cap 

One of the main reasons why people tend to choose Bitcoin over fiat is because of the limited number of Bitcoins that exist. 

There will only ever be 21 million Bitcoins in existence. Currently, there are more than 18 million Bitcoins in existence, each with a value of over $60,000. The central banks and federal reserves on the other hand, can print an infinite amount of money. 

Printing more and more money, means there is more money available in the open market. This brings back the process of an increase in inflation due to an increase in consumer spending. This has been proven in recent times as well. Since the Covid-19 pandemic, the world’s countries have been pouring trillions of dollars into the economy, in a hope to counter reduced-spending. The US economy’s spending alone accounted for $6.5 trillion in 2020, nearly 50% higher than the previous year. 

More than this, the amount of dollars being printed is higher than ever. 40% of the US dollars that exist in the world today were printed in the last 12 months alone. Meaning more and more money is being printed to be re-invested in the market. And the results of this are looking to be scary to say the least. 

As we approach 2022, inflation has never been higher. The consumer price index, which measures the price of goods and services minus foods and energy, is up 0.6% in just October of this year. Overall prices have increased by over 6.2%, making it the highest year on year increase in over 30 years. 

This is why Bitcoin is termed as a hedge against inflation. With a limited supply of existing Bitcoin, the belief is that the dollar will depreciate much faster than crypto. In fact, the same increase in consumer spending facilitated by banks and governments adding money into the market is what triggered the 2007 banking crisis. 

Cross border payments 

Cross border transactions are not possible with uniform value when it comes to fiat currency. But this is more than possible with Bitcoin. Since Bitcoin is a decentralized currency with no government restriction, you can receive and transfer money from one peer to another across countries, without an increase in charges. Fiat currencies are very hard to send over borders without huge charges coming in your way, which is one of the biggest inconveniences that banks are trying hard to solve. Many banks and financial institutions have even started to think about adopting various cryptos such as XRP, which can make cross border payments faster and more affordable. 

Power In The Hands Of The People 

What I’m essentially trying to tell you here is that these central authorities have complete control over your money. How do you feel knowing that the current financial system relies on a limited number of individuals controlling your money? We have no say in deciding what the banks do with our money, meaning they can make the decision to lend it to people who are unlikely to return it or pour more and more into the markets, all without us knowing or agreeing to it. Fortunately, Bitcoin gives us a second option. Instead of relying on a central figure, Bitcoin allows us to be part of a distributed and decentralised authority.
So are you finally going to hop on the Bitcoin train, or will you carry on trusting banks until they fail you again?




Disclaimer: The views expressed in The Coin Times are solely those of the authors cited. It does not constitute The Coin Times recommendation to buy, sell, or hold any investment. Before making any financial decisions, it is recommended that you undertake your own research. Use the information supplied at your own risk. For additional information, please see the Disclaimer.

More like this

How Do You Know When The Next Alt-Season Is Coming?

Markets operate in a variety of ways. A single... Named Official Partner Of Miami Grand Prix

Organizers of the Miami Grand Prix have signed a...

Crypto Mortgages and the Housing Industry

How Crypto-Currency Impacts Mortgage Industry Cryptocurrency is the new form...

An Overview of Initial Coin Offerings (ICOs)

When a company needs to raise funds, it will...