A Tale of Two Currencies

Obi Nwosu is the CEO and co-founder of Coinfloor, the UK's longest-running Bitcoin exchange. He has over 20 years’ experience building online marketplaces and bringing virtual currencies to tens of millions of people. Obi writes The Road to Bitcoin Hegemony, a weekly recap of some of the most impactful developments in Bitcoin.

Bitcoin and USD's monetary anniversaries illustrate money’s imperfect past and its limitless future.

Happy Birthdays Bitcoin

If you ever doubted that Bitcoin was the King of Currencies, consider how many “birthdays” it has. While our own monarch has just two, Bitcoin is even more regal: it celebrates three... the second of which fell on the first Sunday of 2021.

Bitcoin’s numerous birthdays makes it hard to determine its true, exact age. Do we date it from the famous Whitepaper of Halloween 2008. Should we mark 3 January, the anniversary of the Bitcoin network and the mining of the first-ever block? Or is it better to plump for 22 May (“Pizza Day”), when it first acquired real-world value?

The answer is that all these dates are important. If the Whitepaper was the glint in its father’s eye, then January 3rd marks the actual conception, while Pizza Day was the actual “birth.”

But Bitcoin isn’t King simply because it has a trio of birthdays. Rather, these numerous developmental milestones give us three opportunities to marvel at the phenomenal success it has achieved in such a short space of time, and in the face of such staunch and concerted opposition.

Any parent will fondly remember their child’s first word, its first tooth or first faltering steps. But these achievements happen naturally and in a loving and protective atmosphere. Bitcoin enjoyed no such coddling: it was damned at birth, and continually throughout its early existence. Bitcoin’s enemies never ceased to revel in its impending death: it was fundamentally flawed; it wouldn’t scale; it had no use case; it lacked any intrinsic value.

As it approaches its teenage years, Bitcoin and its supporters can look back on “childhood” achievements with far more pride than almost any 10- or 12-year-old. It's as if Bitcoin has learned not only to walk, but to run; and not just without support and encouragement, but in a house rigged with tripwires and other obstacles designed to bring it crashing down to earth.

That’s not to say that Bitcoin hasn’t had its fair share of love. There are plenty of people who have recognized the seeds of genius in this maverick child, and have backed it even while those in authority were predicting (and celebrating) its swift demise. From institutional investors to ordinary citizens looking for a way to protect the value of their hard-earned retirement savings, there’s been no shortage of supporters.

The truth is that Bitcoin is brilliant enough not to need the backing of governments, regulators, and other financial “experts.” It has not just survived internal and external crises—from the Mt Gox debacle to attempts to remove the cornerstone of pseudonymity through regulation—but thrived. In just over a decade, it has achieved so much: from ever greater decentralization to its self-reinforcing philosophy; the huge computing power at its command to the sea of talent and human capital that surrounds it.

It's as if Bitcoin has learned not only to walk, but to run; and not just without support and encouragement, but in a house rigged with tripwires and other obstacles designed to bring it crashing down to earth.

And that’s without mentioning the price. Readers will know that, as a HODLer, I usually steer clear of commenting on the peaks and troughs in value. After all: to err is human; to spike is Bitcoin. But the recent run to record heights can no longer be dismissed simply as speculation—and certainly not in the context of major institutions trading gold for orange.

So, whatever day you mark as Bitcoin’s “true” birthday, we should never forget to celebrate all that it has achieved, in so short a time, and with so little support from those in authority. And we can only wonder at what more Bitcoin will achieve by the time it reaches its majority at the end of the decade. Because if a 12-year-old can shake the financial world to its foundations, just imagine what it can do in the next nine years.

Not-So-Golden Anniversary

And so to the flip side of the coin. Because 2021 doesn’t just mark another birthday for Bitcoin but another, perhaps even more significant anniversary in the history of money.

It’s hard to believe that fiat currency is only fifty years old this year. But it was in 1971 that President Nixon untethered the U.S. dollar from the gold standard. Like so many facts of financial life, this was supposed to be temporary (in the same way that UK income tax was introduced in 1799 as a short-term measure to cover the cost of fighting the Napoleonic Wars).

What’s most remarkable about Nixon’s abrogation of the gold standard was its breathtaking cynicism. The president justified the move by telling the U.S. public that the dollar was “a hostage in the hands of international speculators;” the infamous Nixon Tapes, however, tell a different story. Nixon believed that manipulating monetary policy would help him reduce unemployment, saying, “I’ve never seen [any presidential candidate] beaten on inflation in the United States. I’ve seen many people beaten on unemployment.”

Forgive the history lesson, but it’s important that we remember the context for this failed experiment. What began as a ploy to win the ‘72 election has sent shockwaves through the global economic system that continue to resonate today. What’s more, it has hurt the policy’s mother country worst of all.

Thanks in large part to this “temporary” policy, the United States operates with an annual budget deficit of more than $1 trillion, with debt growing far faster than the real economy, interest rates held artificially low and the trade deficit dwarfing whole sectors of the economy.

In contrast to Bitcoin's Spartan upbringing, fiat U.S. dollar has had every advantage and exorbitant privilege showered upon it. Even so, after 50 years, it has attained the dubious distinction of only losing 95% of its value in this time. What's even more depressing is that this result marks it out as one of the best performing fiat currencies in the world.

Given that the value of fiat is, by definition, decreed by government, it’s a bit rich for financial authorities to claim that Bitcoin has no “intrinsic value.” Bitcoiners know different, of course: they realize that it represents a revolution in money which enables people to turn their back on the fiasco of fiat, and take control of their financial future.

Even among its biggest cheerleaders, it will be difficult to find anyone celebrating fiat’s Golden Anniversary. And as Bitcoin goes from strength to strength, this reluctance makes it all the more important that we mark the day that, ultimately, led to the birth of a far more perfect form of money.