Based on an article wrote down by John O. Mcginnis a law professor at Northwestern University, and Kyle W. Roche, a lawyer at Boies Schiller & Flexner LLP in the Wall Street Journal, bitcoin surged to historic value while its while its volatility has receded. But what makes it interesting is the fact that this has happened during a time when recent events might have caused bitcoin to lose value, such as the Security and Exchange Commission (SEC) rejecting a bitcoin ETF that would have allowed small traders to invest in bitcoin on the stock market.
The Security and Exchange Commission (SEC) resulted in obituaries for bitcoin, but the doubters have been proven wrong. Supported by the Authors, a big reason is that many distrust government currency and want to use bitcoin as a hedge or an alternative payment tool when government currency doesn’t perform its functions as it should.
Weaknesses in Fiat Currency
The Authors – Mcginnis and Roche argue that a big reason for bitcoin’s fame is that it perfects the imperfect sides of fiat currencies. Fiat currencies rely on trust in government.
Some government entities, like the Federal Reserve Bank, inspire trust, but others have monetarily oppressive regimes. Argentina, for example, debased its currency up until last year, while China restricted transferring currency out of the country. Bitcoin trading has been strong in both countries.
On the contrary, Bitcoin does not rely on a government entity that politicians can manipulate as its blockchain is maintained by the “miners”.
Order Without Centralization
Bitcoin creates order without centralization. This is not unknown in society at large. Social norms are known to regulate behavior without the need of formal laws. Etiquette rules inform people how to act without offending others.
While a person an ignore a social convention, they cannot ignore an algorithm that tells the world someone owns a bitcoin.
To prosper, bitcoin does not have to become a stable store of value more than the U.S. dollar. It can continue to rise by gaining more support than other currencies. It is doing this in monetarily oppressive countries and is helping impoverished immigrants in the developed world send money home to relatives.
As bitcoin grows, it can become more competitive against other currencies since even the strongest fiat money is subject to political risks.
Global and national crises will continue to support bitcoin’s popularity. Instability caused by the euro, Brexit and the rising ratio of debt to gross domestic product in western nations undermines the value of established currencies.
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