New York Federal Reserve economists think bitcoin isn't a new kind of money.
The Fed's "crazy" argument
Bitcoin, the decentralized digital value system - here quotation - without authorization and without trust that an anonymous programmer created over a decade ago is "just another example of fiat money," said Michael Lee and Antoine Martin in a Thursday post.
"Bitcoin can be money, but it's not a new type of money," they said. Dollar bills are fiat, large stone wheels were once fiat and bitcoin is fiat, too, they said.
Their argument seems to define a legal currency as an intrinsically worthless object whose only value derives from the bearer's belief in using it as an asset.
But such a classification definition applied to the nature of bitcoin overturns the very meaning of Fiat, said Nic Carter, partner of Castle Island Ventures, a company focused on the blockchain and frequent commentator on cryptocurrencies.
Carter said that fiat currency, like dollar bills, has a value because the authority that issues it says so. But that's not the case with bitcoin at all, he said. "I don't know if their intent is to denigrate bitcoins but that's what it seems," said Carter of New York Fed economists. In a tweet he called the Fed's topic "crazy".
What is Bitcoin?
Martin and Lee believe that the real novelty of the Bitcoin ecosystem lies in the new "exchange mechanism" it has generated. Simply put, there had never been a real means of conducting "third party electronic transfers" before Bitcoin arrived, they said.
Yes, central and commercial banks and an ecosystem of financial products have allowed all financial flows to circulate earlier. But in that case they worked because a third party decided it. This is not the case with Bitcoin, they claim.
Bitcoin's innovation has allowed growth for a whole series of products based on the same principle of decentralization: stablecoin, initial coin offering and other unexpected assets, such as CryptoKitty, they underline.
But they also claim that none of these is a new form of money. "It is more accurate to think of Bitcoin as a new type of exchange mechanism that can support the transfer of money and other things," they said.
Carter agrees that Bitcoin has given the world a new way of transferring money, contested the authors' claim that the Bitcoin blockchain should host other assets and said it was impossible to separate the monetary nature of bitcoin from the mechanism on which it is founded.
Economists have concluded that it is important to define and affirm the novelties of bitcoin for historical reasons. "History offers lessons on what is good money and what is a good transfer mechanism," they wrote. "These lessons could help cryptocurrencies evolve in a way that makes them more useful."
