Will Bitcoin replace the current currency?

It is possible and won’t be a first. The history of money is a history of evolution, of new technology replacing old to improve the transfer of value from one person to another. Currencies are unusual in that their usefulness as currencies is the result of their demand. The more it is possible to make agreements with one, the better. It is only indirectly because of the inherent properties of a currency that it can become a good currency. For a foreigner who is not interested in human culture or technology, dollars and bitcoins would also be useless, even if he would be able to see that bitcoins are a superior means of exchange. In economics, we often talk about network effects because it is the network of people who use it that convinces everyone that the property has value. This may seem to lead to circular reasoning: everyone believes that it is valuable because everyone believes it is valuable because everyone believes it is valuable. Possession of one currency entails a high opportunity cost for the possession of another. I can not use the same money to buy an investment in bitcoins or Canadian dollars. If I want more than one, I must necessarily have less of another. If one of the currencies is recognized as winning, there is no additional benefit for anyone to own other currencies. Any initial disparity between any two currencies, however small, is growing in a positive way and there is no reason to expect that effect to end until one of the currencies is lost.

Leave a Reply

Your email address will not be published. Required fields are marked *