That's a great question, and one I've spent a lot of time thinking about.
My research has taken me one place, and I've found a lot of voices in that space with similar sentiments, for whatever that's worth. I always go back to the reason fractional reserve banking exists to begin with. Its existence flies in the face of every other exampl…
That's a great question, and one I've spent a lot of time thinking about.
My research has taken me one place, and I've found a lot of voices in that space with similar sentiments, for whatever that's worth. I always go back to the reason fractional reserve banking exists to begin with. Its existence flies in the face of every other example we see in monetary history, because throughout history, those using a harder money always end up outperforming those who stick to the more easily debased money.
That trajectory ended with gold, after all the people using silver, shells, glass beads, etc as money basically had their savings debased relative to people who saved in gold. So why go to the fractional reserve banking model that allows the money to be debased, after the world had finally settled on a gold standard? It comes back to the monetary properties of gold and the technological progress of the past few centuries. As commerce became faster and easier, especially after the invention of telecommunications, gold became a terribly inconvenient medium of exchange. You can't send gold over a telegraph or even through the mail, but you can send a bank ledger entry easily and cheaply over any form of communication. And that advantage in medium of exchange properties was so valuable to commerce that it offset the disadvantage of the constant debasement of the money.
But that all changed with the discovery of Bitcoin. Now we have a money with all the hardness (store of value) properties of gold, but also all the transactability (medium of exchange) properties of bank credit. We're in an adoption phase now, but personally I don't see how the fractionally reserved fiat currencies survive a competition with Bitcoin. There's zero reason to fractionally reserve a money that already transacts faster and easier than bank credit. And anyone who tries is doomed to fail, since fractionally reserved Bitcoin banks can collapse to a bank run that can happen in minutes rather than days.
Now that doesn't mean the competition will be a fair fight. There are plenty of incentives to prop up the existing system. But given the game theory as it's played out so far, anyone who doesn't adopt Bitcoin is being rapidly debased versus all those who do. So at some point game theory dictates that it's more profitable to join them than to fight to defend the legacy structures.
That's my optimistic take of one possible outcome. But I'm sure there are plenty of alternative paths with less roses and a lot more blood.
That's a great question, and one I've spent a lot of time thinking about.
My research has taken me one place, and I've found a lot of voices in that space with similar sentiments, for whatever that's worth. I always go back to the reason fractional reserve banking exists to begin with. Its existence flies in the face of every other example we see in monetary history, because throughout history, those using a harder money always end up outperforming those who stick to the more easily debased money.
That trajectory ended with gold, after all the people using silver, shells, glass beads, etc as money basically had their savings debased relative to people who saved in gold. So why go to the fractional reserve banking model that allows the money to be debased, after the world had finally settled on a gold standard? It comes back to the monetary properties of gold and the technological progress of the past few centuries. As commerce became faster and easier, especially after the invention of telecommunications, gold became a terribly inconvenient medium of exchange. You can't send gold over a telegraph or even through the mail, but you can send a bank ledger entry easily and cheaply over any form of communication. And that advantage in medium of exchange properties was so valuable to commerce that it offset the disadvantage of the constant debasement of the money.
But that all changed with the discovery of Bitcoin. Now we have a money with all the hardness (store of value) properties of gold, but also all the transactability (medium of exchange) properties of bank credit. We're in an adoption phase now, but personally I don't see how the fractionally reserved fiat currencies survive a competition with Bitcoin. There's zero reason to fractionally reserve a money that already transacts faster and easier than bank credit. And anyone who tries is doomed to fail, since fractionally reserved Bitcoin banks can collapse to a bank run that can happen in minutes rather than days.
Now that doesn't mean the competition will be a fair fight. There are plenty of incentives to prop up the existing system. But given the game theory as it's played out so far, anyone who doesn't adopt Bitcoin is being rapidly debased versus all those who do. So at some point game theory dictates that it's more profitable to join them than to fight to defend the legacy structures.
That's my optimistic take of one possible outcome. But I'm sure there are plenty of alternative paths with less roses and a lot more blood.