Larry White on Bitcoin
By David Henderson
In “Has Bitcoin Succeeded?,” Alt-M, December 23, 2020, Larry White of George Mason University has a nicely nuanced piece on, as will not surprise you if you read the title, whether Bitcoin has succeeded. As Larry says, the answer depends on the goal. As a widely used private alternative to government fiat money, it has not succeeded yet. As an asset that has gained in value, it has succeeded wildly.
Larry nicely walks the reader through the ins and outs of Bitcoin and does so mainly by taking on Bitcoin critic Edward Hadas. Larry writes:
Starting from an (overstated) argument, to the effect that Bitcoin would not become a commonly accepted medium of exchange, Hadas leapt to the prediction that Bitcoin would have zero use and zero market value. Bitcoin today in fact occupies an intermediate position: it is an uncommon or niche medium of exchange. It is better than other media for making some payments that, even if for legitimate purposes, might be censored if routed through payment systems controlled by national governments and central banks. Human rights activist Alex Gladstein recently tweeted an annotated list of Bitcoin use cases, beginning with: “BYSOL, a grassroots Belarusian human rights org, has moved more than $500k of value peer-to-peer to striking workers inside Belarus, in a way the regime can’t stop. Activists or protestors normally get their bank accounts frozen.” His other examples include fundraising by activists in Nigeria, Hong Kong, and Russia; savings expatriation by people fleeing Venezuela; remittances into Iran; and peer-to-peer transfers within China among people seeking to avoid state financial surveillance. Such uses (together with forecasts of wider future use) are enough to sustain Bitcoin’s positive market value.
People can indeed be excused for thinking that central banks have done poorly at preserving the purchasing power of money, and at preserving financial privacy. And people can be excused for thinking that Bitcoin is potentially a more viable money than a non-governmental commodity standard in a world where governments have been allowed to suppress commodity-money payment systems. Bitcoin is vulnerable to government surveillance and prohibitions that could quash crypto exchanges and drive trades underground. But it arguably could survive underground better than could a banking system based on commodity redeemability that must be openly accessible to be trustworthy. If Bitcoin will continue to thrive as an investment and medium-of-exchange-in-waiting “until the authorities do better” at managing fiat money (and at allowing financial privacy), then Bitcoin may thrive for a long time to come.
One commenter on Larry’s piece writes:
Is it not legally suppressed (like all alternatives to fiat money) by capital gains/losses calculation requirements for tax on each transaction? A huge detriment worthy of mention for something seeking to be a medium of exchange.
Good question. And the answer: Yes.
Indeed, Larry points that out in the article he links to in the paragraph quoted just above. In that 2014 article, he writes:
The legal barriers to open currency competition in the United States are not only (1) the legal tender laws to the extent that they render it doubtful that a U.S. court would compel specific perform- ance of a nondollar contract, (2) capital gains taxes and state sales taxes on precious metals, and (3) the statute(s) banning private coinage.