In the last 10 years, we have seen several kinds of bitcoins being launched. Not surprisingly, it has divided the monetary economics community.
On October 31, 2008, Satoshi Nakamoto published a paper ‘Bitcoin. A decade later, bitcoin and Nakomoto’s paper deserve attention for at least two reasons.
The idea of bitcoin followed a more communitarian approach to human inventions (or ideas). Unlike most other inventions which are accredited to one or two humans, we do not know who Nakamoto is – the name is a pseudonym. The spirit of bitcoin is not just one person but several others who have contributed towards the idea. Perhaps, this is the way forward on how we should accredit inventions/ideas so that cutting edge innovation happens.
Bitcoin made the world think about taking a free-spirited approach to money. A world in which the authority to govern money does not rest with one central authority but rests on each of us. While bitcoin is about two aspects — technology and monetary economics
The history of monetary economics is primarily divided into two halves. The first is the pre-gold standard era where currencies were backed by gold. Then, money supply could be expanded only if gold reserves were added or if there were new gold discoveries. This was abandoned in 1930s during the Great Depression as economies needed a monetary stimulus and the gold standard acted as a constraint.
Post the Bretton Woods conference in 1945, economies moved towards fiat currency where there was no constraint and one could expand money supply by merely buying bonds issued by domestic or foreign governments. The gold standard was instrumental in keeping inflation low but was ineffective during financial crises. Fiat currency was just the opposite. It is prone to bouts of inflation but better at resolving financial crises. However, financial crises were resolved by monetary stimulus, it led to moral hazard and as a result such crises have become more frequent over the years.
This is where bitcoin comes in, perhaps frustrated by the frequent crises and interventions by government authorities in monetary economy. The bitcoin idea was to take away money powers away from a centralised authority to a decentralised network (called blockchain). Bitcoin would be virtual currency managed by people on the blockchain network. The concept took a cue from the gold standard era and capped coin mining at a maximum of 21 million to constrain wilful creation of money.
In the last 10 years, we have seen several kinds of bitcoins being launched. Not surprisingly, it has divided the monetary economics community. The likes of Agustín Carstens of Bank for International Settlements (BIS) call it fake money. Nouriel Roubini has dubbed it shitcoin. They say crytocurrencies do not serve any of the three purposes of money: unit of account, medium of exchange and store of value.
Bitcoin has also led to some exciting research in the space as scholars have explored introduction of a central bank digital currency from both historical and futuristic lens.
In India, the authorities are pro-digital on most activities but not in currency. The Union Budget for 2018-19 declared that cryptocurrencies are not legal tender. RBI in its April-2018 Monetary Policy asked regulated entities not to deal in digital currencies. It had also set up a study group for central bank digital currency whose report, submitted nearly five months ago, is not public yet.
All in all, it has been quite an eventful journey for bitcoin. Though it is just 10 years old, by looking at the events it looks several decades old. Having said that, its future looks bleak as most governments have taken a negative view on cryptocurrencies .
please give your views on future of bitcoin and Govt. interference in it