Why Bitcoin Will Never Survive Without Fiat

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People consider bitcoin unique in lots of terms. But it is especially peculiar if compared to the economy of a country. Bitcoin network will perennially generate the same percentage of economic results, no matter how many workers will be involved in the production.

This can be reflected in an imaginable situation, in which the American economy will increase by $100 every 20 minutes due to unique technology which will also lead to the decline of the total income by 50% in four years. And this, by the way, cannot be influenced by the increase or decrease of the labor force.

Imagine if every year, the amount US economic output would be $2.6 million, but later, in nine years, it would drop to $657,000 per annum with the growth of $25 every 20 minutes. Would any like to live in such a country? But that’s precisely what is happening to bitcoin’s inner economy, wrote Tim Swanson, who is a director of research at Post Oak Labs, a technology advisory firm, for the Coindesk.

Currently, the network of bitcoin produces 25 digital coins approximately every 20 minutes. In its third era, bitcoin network will produce 657,000 bitcoins per annum despite outer economic swings. Even though such “bitcoin-country” comparison is not ideal, one cannot deny that financial extension of bitcoin can be changed against the background that its rigid supply of coins could be devastating, Swanson argues.

Lots of bitcoin enthusiasts hope that in future there will be no regulators and consider bitcoin’s limitation as a beneficial trait but not a problem. However, before bitcoin mining gets exhausted, they have to deal with the issue of the workforce and safety system. Today, the author emphasizes, nobody makes economic calculations in the bitcoin network in cryptos. Nobody does it because of their unstable nature.

Workforce

The only “salary” that is paid in the world of cryptocurrency is the money received by miners for solving problems, probably, every 10 minutes. In general, miners don’t gauge their income in cryptos, but in public currency, depending on the country they are located in. Moreover, crypto firms are still contingent on investments from foreign venture-capital companies.

Public currency, known as fiat money, is less volatile than bitcoin, Swanson argues, that’s why miners trust it more. With its help, they can pay salary to their workers, cover costs for electricity and pay estate taxes.

Because bitcoin has not been adopted as a unit of account, representatives of the bitcoin network human resources depend on the information, provided by third parties. This way, they can make some economic calculations, e.g., decide whether to enhance or diminish capital expenditure and investment. Also, to know whether their activities are not going to make them bankrupt, miners forecast future returns, calculating it in steadier fiat money. To explain such a situation entertainingly, the author told an anecdote.

During the geopolitical tension between the Soviet Union and the US in the previous century, there was a joke about the Soviet Union which planned to war down the whole world except one country – New Zealand. However, there was a condition that mainly this state should have left independent as the Soviet authorities lacked an existing market that would demonstrate them real prices for services and commodities.

He also mentioned that miners are in need for spot exchanges expressed in external currency as they have to pay bills with it. In this situation, such countries as, for instance, Japan, the US, South Korea and European states play the role of anecdotal New Zealand because miners can utilize their fiat money and prices to predict their capital future.

No Way Without Fiat

On January 3, 2018, bitcoin ledger marked its ninth birthday. Hitherto, miners are very dependable on foreign investments for liquidity as well as for regular pricing. If anything happens to the existing financial system, miners won’t be able to survive. Swanson explains that the producing of a theoretically sustained bitcoin equivalent to $20,000 would cost $13 billion – the money, devoured by miners. The author also believes that no matter what, bitcoiners will still depend on fiat money.

One may argue that there have been implemented lots of bitcoin-clones that may challenge the current financial system and become more independent. However, as experience shows, they rely both on merchant banks and the economic solidity of the country where they want to function.

On the whole, bitcoin network’s workforce is still dependent on foreign investors, and without them, bitcoiners cannot turn their labor efforts into real wealth. Maybe, the situation will change with the emersion of new hedging products on the internet. From today and on classical financial markets will keep developing. And if it is evident that right now fiat money can survive without bitcoin, cryptos without it have no chances in this world.

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