One world, two systems: Why Bitcoin and Fiat have to learn to live together
Two competing economies eyed each other suspiciously across the ideological divide. One is based on complete government control and surveillance of its citizens; the other celebrates personal and financial freedom. The world is holding its breath, hoping that their mutual hostility does not turn into open conflict.
No, this is not the Cold War: it is the struggle for supremacy between Fiat and Bitcoin. And as we know from the last century, no one benefits from a war between two superpowers, whether it is nuclear or monetary weapons. Instead, the two worldviews have to learn to live together.
The division of the world into two parallel, competing economic systems has already begun. So rather than “picking a winner,” we need to understand what these two ideologies are trying to achieve, why each dominates its own sphere of influence, and how we can navigate this time of transition. And we have to ask ourselves whether and how we can ensure cooperation and collaboration between these two so different worlds.
The rise of central bank digital currencies (CBDCs) promises to be no less transformative than Bitcoin, though they serve an entirely different ideology: state control. From a fundamental point of view, CBDCs are just as bad a store of value as banknotes and are even easier to “print”. But that’s just one reason governments see a future in digital money. These CBDCs lay the foundation for a universal financial ecosystem in which every transaction is monitored and everyone’s access to the economy is controlled.
If that sounds like dystopian fiction, it’s just the logical development of a process that is already well advanced today. Just take a look at the Facebook Marketplace: a hyper-efficient online economy that has billions in its customers, with incredibly powerful analytics, and most importantly, complete control over its users. Break the rules and you’re out.
It’s easy to see why Fiat 2.0 is so attractive to governments, but it is less obvious why these digital currencies will succeed when Bitcoin is superior in many ways.
To understand why CBDCs are unstoppable, remember that they are designed to work with and support the existing financial infrastructure. Centralized digital currencies do not require a revolution in the global financial ecosystem; they can simply piggyback on existing fiat payment rails. That’s a big reason their success is assured, but it also creates tension with the parallel Bitcoin ecosystem.
If CBDCs are the de facto standard for transactions, it creates a paradigm of control. As digital fiat creeps into more areas of the economy, even without the public realizing it, governments will become even less tolerant of competing systems. They will, of course, try – as many are trying now – to apply the same legacy regulation to the Bitcoin ecosystem, demanding the same types of anti-money laundering, KYC controls, and transaction monitoring.
While it’s easy to regulate what you can control, Bitcoin’s value lies in its decentralization: it can’t be censored – unless you censor Internet access altogether – and it can’t be “printed”. While this makes it the perfect means of transferring wealth through space and time, the risk is that governments and lawmakers will try to get consumers to adopt Fiat 2.0 by using as much friction as possible when buying, Add holding and transferring bitcoin. Tensions between the two monetary superpowers will only increase.
Learn to live together
Bitcoin may not be killing, but we can expect a rocky road to inevitable regulatory acceptance. There are two ways you can prepare: First, become a bitcoin technical expert to understand the workarounds for obstacles that stand in the path of consumer adoption. However, this requires a tremendous amount of time and effort and, even then, can exceed most people.
More realistically, people can choose services that really align with the vision of Bitcoin. Stay away from financial services companies that claim to “make bitcoin” but still have a significant stake in the old financial ecosystem. Companies like PayPal may have a strong brand and global reach, but careless users will quickly find that they are not giving the user ownership of coins and have strict requirements for withdrawing Bitcoin to personal wallets.
And what about the regulators? Well, we want them to play a role in the evolution of Bitcoin – or rather, in the services that build on it. We saw how cryptocurrencies can be used as the foundation for fraud and illegitimate crowdfunding efforts. See what Joseph Lubin had to say about it. We would like to see regulatory frameworks that can prevent abuse of the Bitcoin ecosystem. For this to work, regulators need to roll up their sleeves, hire experts, and set up panels and discussion boards to examine the risks and propose workable solutions, rather than just burdening them with old regulations.
We see the emergence of two monetary standards: one for everyday financial transactions and the other for storing and transferring wealth. Although neither can “win” the other, the old financial system Bitcoin and its followers can make life unnecessarily difficult without the hope of stopping the revolution. Let’s not repeat history as a farce and hope that the two worlds can compete but, where possible, work together for the good of humanity.
This is a guest post by Nik Oraevskiy. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.