With Bitcoin becoming known to the public, many began to see it as some kind of alternative to the fiat payment system. Not only an alternative but a superior alternative. This superiority supposedly stems from Bitcoin's "decentralization", "security", and "scarcity". Here we will show that these two systems are different as night and day. And that in no way can the first be an alternative to the second.
Narratives about Bitcoin are mostly focused on the field of informatics. However, payment systems are economic categories. Here we will therefore focus on the second. Economically speaking, people need resources. They need food, clothing, energy, a roof over their heads, clean streets, medical services, etc. In short, they need goods and services. This is what satisfies human needs. In that sense, the technical implementation of payment systems, through which the resources are exchanged, is irrelevant. Payment systems themselves can neither satisfy human needs nor magically create resources to satisfy them. They are only auxiliary means for exchanging existing resources and, most importantly, securing their return.
Why is securing the return of resources the most important thing in payment systems? Well, suppose you gave up your house and in return, you got membership in the fiat system by receiving banknotes or a deposit account with some numbers. Those numbers cannot satisfy your needs. They are not resources. So, you gave up a house that can satisfy a lot of needs, and in return, you got something that cannot satisfy any need. That is why the system has to have some kind of guarantee that in the future you will be able to return resources approximately equivalent to the value of that house. The fiat payment system has that guarantee. It guarantees the return of resources to members of that system. Let's see how.
By holding banknotes or deposit accounts people are members of the fiat payment system. But how did they become its members? Well, first banks granted loans to individuals and organizations or purchased government bonds. That is how banknotes or deposits ended up in the market. By exchanging resources for those banknotes and deposits, people became members of the fiat system. So basically, they gave up resources for numbers.
The fiat system guarantees them the return of resources through liabilities of debtors and their collaterals, i.e., by forcing debtors to pay off their debt. To be able to pay off their debt, debtors need banknotes or deposits. And to get them, they must work for the members of the fiat system, or sell them goods and services. And this is essentially how members get the resources back. The described process continues until debt is paid off.
So the fiat system has a built in mechanism for protecting its members. It uses collaterals and contracts with debtors to in a way force them to return resources they took from members after being granted loans and other forms of debt.
Let's now turn to the Bitcoin system. This system boils down to a network of computing devices linked together to manage a database. How do people become members of this system? Well initially, they give up electricity in the process of the so-called Bitcoin mining. This gets them the membership units, known as electronic coins or bitcoins. The more electricity they give up the more units they get. So, by giving up their resources in favor of the system, people become its members. That is just like when people gave up their resources in favor of debtors to become members of the fiat system.
And now comes the crucial question: how does the Bitcoin system guarantee its members the return of resources approximately equivalent to the electricity they gave up? Well, it guarantees nothing. There's no a built in mechanism with contracts and collaterals like in the fiat system.
And this is the key difference between the fiat system and the Bitcoin system. The members of the fiat system have the whole network of banks, banks' contracts with debtors, and pledged collaterals as the guarantee they will return resources. Members of the Bitcoin system, however, have nothing. They are just members. They have membership status, and that is it. The system is not there to protect them, to guarantee them the return of resources. Instead, the system is there to protect those membership units called bitcoins. In short, the system exists to protect its units, instead of protecting its members. It exists for its own sake.
"Decentralization", "security" or "scarcity" do not exist for the benefit of members, but for the benefit of the system units. None of these properties can help members to return the resources but are just characteristics of the system. That is why existing members can return resources only if someone from the outside of the system becomes a member by voluntarily giving up resources in favor of existing members. Without that, they cannot return literally anything. The system cannot help them.
Once the existing members transferred the units to someone else, new members have the same problem. The system cannot help them in returning the resources. Consequently, they also need help from outsiders, and so on and on.
There is currently an entire army of members of the Bitcoin system. They gave up an enormous amount of resources. And the system has nothing to protect them. It has nothing to ensure the return of resources. Members have a membership status that is "secured". And it is secured in a "decentralized" fashion. They also have "scarce" membership units. Yet, they have nothing that guarantees the return of the things they can live off of. And if outsiders no longer want to become members, that whole army is doomed.
To conclude. Membersip units in the fiat system are valuable because they protect members by securing the return of resources that members can live off of. The value per specific number of units can be determined by checked how much collaterals banks take when issuing that number of units. On the other hand, membership units in the Bitcoin system are worthless. This system does not protect its members. Instead, it protects its own units. It is a system that exists for its own sake. Which is pretty bizarre and hilarious at the same time.
[link] [comments]
source https://www.reddit.com/r/btc/comments/13pxyp2/bitcoin_vs_fiat_the_difference_that_no_one_talks/
No comments:
Post a Comment