Two big things have happened in the cryptocurrency world recently. The first is that there are now two competing versions of bitcoin: bitcoin core and bitcoin classic. There is quite a lot of argument about which will become more popular. The second development is that the price of bitcoin – now known as bitcoin core – rose a lot in late 2015.
This has raised the expectations of many cryptocurrency buffs that bitcoin will replace the fiat money printed by central banks.
But when I read these debates, I see a lot of misunderstanding. Whether people are talking about which version of bitcoin will prevail, or whether cryptocurrency in general will replace fiat currency, they keep making the same error.
That error is the assumption that long-term value is what makes a currency good. The truth is it’s almost the opposite.
Ben Bernanke and Harold James noted in a 1990 paper, the countries that abandoned the gold standard soon began to recover.
Skeptics will note that although liquidity is the primary source of money’s value, it isn’t the only source. You also need money to hold