Ines AissaniHave you heard of "sound money"? Well, if you do a literal translation, you will come across the expression "sound money". However, this is not the case. We tend to prefer the term "healthy money" in French.
So, when we talk about sound money, we are actually talking about sustainable money. This refers, for example, to gold, the value of which is always maintained over time. The opposite of "sound money" is what we call "unsound money", that is to say, a currency that depreciates over time. Most of the currencies created were unsound money. Whether it is the shell or the Roman coin, today, they serve as museum objects and not as exchange currency as was the case in the past.
The evolution of currency over time
Historians and anthropologists have shown us that since man has lived in society, he has used different means of exchange throughout history to buy and sell what he wanted. What is then called "currency" in common language has taken different forms throughout history and regions. We have paid in shells, salt, copper, silver (the metal), or, etc.
Then, human society used money in the form of minted notes and coins. Even today, this is the form in which we know and use money. Lately, our notes and coins have taken a digital form, particularly because of all the financial infrastructure that has become digital. This took concrete form with the globalized use of electronic bank accounts and cards.
Lately (for exactly 13 years), a new form has emerged: cryptocurrency with bitcoin. This is a new "evolution" of money that is happening before our eyes.
However, it took time for people to really understand these cryptocurrencies. For a long time, Bitcoin was rejected by economists and financial institutions who considered it a currency of casino, without real interest or concrete use.
However, the ever-increasing adoption of bitcoin and the implementation of blockchain technology in different sectors of the economy have meant that this consideration has gradually been reviewed and corrected. Now countries like El Salvador accept bitcoin and others are launching their own digital currencies like the sango corner of the Central African Republic.
Some countries (and there are more and more of them) claim that bitcoin is actually "sound money" and that it can improve the economic state of the world.
So let’s take a closer look at what constitutes “sound money.”
What are the features of Sound Money?
A sound currency is basically a currency that does not depreciate over time. Typically, this would be a currency backed by a commodity such as gold or silver. Gold has always represented a "value" for men for centuries. And we can go back to the Pharaohs to be sure, who covered their objects with gold leaf.
Non-depreciation or appreciation of the currency is not enough. To be called "sound money" it must be divisible, trans-portable, uniform, rare and acceptable everywhere. Here is why these particularities are important:
- Divisibility of a currency : Possibility of breaking down into several fractions of units according to the “price” of purchases.
- Portability : easy to transfer from one person to another.
- Uniformity : currency has the same value, shape and size. For example, all €50 notes are identical.
- Acceptability : Merchants and banks accept this currency.
- Scarcity : This is what makes money more valuable and gives it interest.
Now that we know the main characteristics of a sound currency, it is time to subject Bitcoin to these criteria.
Is Bitcoin a SoundMoney?
For many people, bitcoin is sound money. However, we can understand the skeptics. Indeed, bitcoin is still in "development". It remains a currency that has existed for 13 years and is constantly evolving.
The acceptability of bitcoin
For example, the characteristic of acceptability is not fully validated. There are still many countries that have banned bitcoin as a means of payment. Likewise, there are only a few countries such as El Salvador or the Central who have “legalized” bitcoin. There is still a long way to go.
You need to be patient and do some research to find out what you can buy with your bitcoins. And, even if today we can travel in bitcoin ou pay for a beer in BTC, this remains very “exceptional”…
However, it is essential that bitcoin be a means of exchange (and not simply a speculative asset or a store of value as is currently the case).
That said, bitcoin is moving forward in this direction. This is a fact. L'bitcoin ecosystem continues to develop to improve the network. More and more merchants accept bitcoin as a means of payment. It's simply a problem of scale.
The other characteristic that is lacking is the volatility of BTC… This can sometimes lead to excessive transaction costs. Even if since the implementation of SegWit, transaction fees have been lower, they can still be high for daily expenses.
Fortunately, the Lightning Network allows you to reduce transaction fees.
There is also another "flaw" to Bitcoin. It is the fact that some coins are deemed illegal or linked to fraudulent activities. Everything is recorded in the blockchain ledger. In fact, bitcoins stolen from exchanges have traceability. Some people may refuse to receive such BTC with such a history... When these coins are listed in police reports, they become very difficult to move and convert to FIAT currency. The holders would take the risk of being indicted for this…So, one BTC is not worth one BTC. Certain coins are more valued (newly mined coins for example) than those which have been involved in scams and scams…
Bitcoin: A sound money under construction
To conclude, we can say that bitcoin is one of the few currencies (the only one?) in the world that has a majority of characteristics to be called "sound money". However, there is still work to be done to check all the boxes. However, and this is perhaps the big difference with other currencies, bitcoin is trying to solve these flaws to achieve this.
It can be added that Bitcoin has other features such as censorship resistance that puts it way above other currencies. It is the only currency in the world that cannot be controlled by any government in the world. It is also the only borderless currency, born and created on the internet that allows everyone to be and have their own bank. No monetary policy can manipulate it. And, for many, this is the ultimate feature that makes it a "sound money".
In this sense, we can say that bitcoin is the currency that is "closest" to the concept of sound money. It would not be impossible that in a few years, it will become universally used...
Note: This is an opinion article and is solely the responsibility of the author.
source:
- “What constitutes sound money?” » by Thomas J. Jordan
- https://www.soundmoneydefense.org/sound-money-explained
- Book " The bitcoin standard: the decentralized alternative to central banks "To Saifedean Ammous
- The day Nixon abandoned the convertibility of dollars into gold
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Note: No financial advice is given in this or any other article on this blog. This is information of which you are the sole judge and master. Be responsible with your investments and only invest as much as you are willing to lose.
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