At the beginning of 2018, Jack Dorsey, cofounder of Twitter and CEO of Square, said that Bitcoin would become the world’s “single currency” within a decade.
The truth is that Bitcoin transactions have not risen much in the last few years, and recent studies suggested that half of those transactions are associated with illicit activity. Bitcoin remains today pretty much what it was 8 years ago: an interesting complement to the existing monetary system, primarily useful for people interested in avoiding legal authorities or living in societies racked by inflation.
The idea that cryptocurrency could replace our existing system of money, remains a key part of Bitcoin’s appeal. The promise is of a system where the government can’t manipulate the money supply, and market competition determines which currencies people use. But what would happen if that story came true? If the traditional currencies were replaced by Bitcoin, how would the system adapt, and how would the economy and the financial system function?
The answer is: not well. Our economies and financial systems are built around traditional money, and they rely on the central bank’s control of the currency to help manage the business cycle. An economy in which Bitcoin was the dominant currency would be a more volatile economy, in which the government would have limited tools to fight recessions and where financial panics, once started, would be hard to stop.
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