by Ed Duffy
Crypto currencies hit the world stage with a lot of promise, but so far, you still don’t see a lot of people in the convenience store making purchases in Bitcoin or Ripple. They were supposed to be the ultimate upgrade from national (fiat) currencies. Nobody would control them. The amount would be finite and predictable and the value is originated by the work it takes to be issued a new one. The ledger is public, distributed and constantly self-verified. What’s not to love? Well, the value for one. Sure it’s fun to play that market if you’re into betting on wild swings and investor sentiment, but if you’re just sending $500 to Grandma, you want to know it will still be $500 when she goes to spend it. Bitcoin’s market value is tied to nothing but the current opinion of the current buyers and sellers. And the primary thing that Bitcoin is used for is, trading Bitcoin.
One of the constant criticisms of the dollar is that, since we got off the gold standard, it’s not tied to anything. That could not be more wrong. The value of the dollar is pegged to everything that’s priced in dollars. Sure, people can change prices, but stores like customers and customers like predictability, so they don’t constantly change prices throughout the day. You can be confident that the $10 worth of vegetables you put in your cart will still be purchasable with $10 when you get to the register, even if you meander a bit.
In a sense, the value of fiat currency is stored in the ultimate distributed database: the marketplace. The value of countless goods and services are weighed against the dollar and against each other, using the dollar as a unit of measure, all day, every day and the results reported as prices. This is not happening right now with crypto-currency. You really only get values in comparison to other currencies. There is not a wide range of products and services with fixed prices expressed in crypto.
Simply accepting crypto doesn’t do the trick. The goods and/or services have to be priced and published in crypto in order to fix the value. If prices are in dollars, I still have no idea what the price in crypto is until I get to the register. And if I’m the recipient, I’m going to convert it right back to dollars ASAP because I’ll have no idea what the value of my crypto will be tomorrow or what I can buy with it, because nobody publishes fixed prices in crypto, or at least not on a mass market scale.
Bitcoin will likely be around for a long time, but it may not be useful as a currency. The blockchain technology that Bitcoin provided proof of concept for, will certainly be, and is being deployed in international banking, inventory management and other applications. There will no doubt be great crypto currencies coming down the pike as we see what works and what doesn’t and each generation gets a bit of tweaking. Ultimately though, the value of a currency is determined by its users, not its creators.