Though less fashionable than discussions about blockchain applications, the proposition that Bitcoin could be a new currency, designed to challenge large incumbents such as USD, EUR, and JPY has always been the most interesting to the author.
Trustless open record keeping is great - enter the future of no-fraud voting, vehicle and land titling, and securities ownership, and enter it quickly for it can't arrive soon enough. But, oh, to move the hearts and minds of humankind, how can the average person remain so apathetic, so disinterested, and so obstinately opposed to discussing the nature of the money for which they toil and obsess.
Currency and money are so interesting, and I am astounded by the level of denial. Is it only me? It reminds me of somebody eating a delicious tiramisu cake. Yes, yes, I want it! Yes, I love it! It's so delicious. What? Why are you showing me the nutritional information. Stop it! I don't want to see what it's made of! I'd rather live in a fantasy world. Clearly, whoever made this cake can be trusted to ensure that it's not bad for me, or at least there must be somebody in charge of overseeing them. That's somebody's job!
Perhaps it's a matter of context. One of my favorite periods in history is surrounding the Napoleonic wars. I enjoy reading about how little has changed in politics, even with the proliferation of technology and communication tools. But the most interesting part of the whole period to me is that it provides a window to a veritable test-bed of experiments with money, particularly in France. If it has taught me anything, it is that money is very much a deeply abstract concept, and poorly understood on a regular basis by both its users and designers. Secondly, it is that it is ephemeral. With only the exception of precious metals, all previous currencies have failed, within a typical lifespan of a generation or two.
And so I maintain that I am not crazy. Currencies, no matter how big, old, or widely used are not immune to total obliteration, weathered by the sands or time or vaporized through hyperinflation. It doesn't matter because fiat currencies are by their very nature vulnerable to instability.
Back to the theme of this post. After 2008 the US dollar has shown remarkable stability. Part of this is due to the cushioning effect that dollar-denominated debt has on the value of currency, meaning that if everybody has to pay their mortgages, student loans, and credit card bills with dollars, that it creates a floor of demand for these dollars. Another component is that the bailouts were more about filling holes in the financial system where money was expected to be, as opposed to creating "new" money, per se. But it's not the whole story.
One metric of inflation is known as "menu costs," the annoying burden on businesses to recalculate their prices to reflect cost increases. As of now, the dollar has a decent reputation as a store of value, and so it has become a widely used unit of account. In a way, the cart now comes before the horse. A candy bar is $1, and not the other way around.
So before the sticker shock of higher consumer prices really sets in, there is a certain amount of inertia present in the system due to reputation alone. So even in a rising tide of new credit, prices may not be as buoyant as expected because up until now, the currency has played the role of anchor.
For perception to change, it takes a while but not forever. In Argentina, where inflation is very high and has worsened, the peso has lost its unit of account privilege, and is now treated with a healthy degree of skepticism, the resulting game of hot-potato doing nothing to stem the bleeding.
So what for Bitcoin? Today it's a terrible unit of account. Pricing goods and services in bitcoin doesn't make much sense, again, today. But as the converse to a dollar-decline scenario, it's slowly fulfilling its promise as a reliable store of value, a necessary step in the path to earning the title of unit of account. "Unit of account" is something of a trophy, a badge of honor for behaving as a currency should. Perhaps someday little Bitcoin will get there, passed the torch, helped along in no small part by the eventual betrayal of large fiat currencies.