I have read several arguments from reowned monetary specialists claiming that Bitcoin is a liability (Keith Weiner) or a fiat object (JP Koning). In this post I am going to explain why Bitcoin is none of both.

Regarding Bitcoin being a liability, it is crucial to realize that Bitcoin is not the obligation of anyone. No one obliges to redeem it for anything and no one obliges to accept it as payment or to cancel debts. Not even the miners are obliged to do anything in relation to the Bitcoin units they are rewarded by the protocol. The fact that they are recorded in a ledger does not make them a liability either, the same way land recorded in a land registry is not the liability of the registrar. The Bitcoin ledger is a property ledger, not an accounting ledger.

With the term fiat I have a two-fold concern. First concern is that I reject current fiat currencies have value just because a legal tender decree. In my view fiat currencies have value because of its credit (liability) nature. A legal tender decree is meaningless without the issuers obliging themselves to accept their own currency to cancel debts with them, otherwise their issued currency would be obviously worthless. I explain it with more detail here. This self obligation, if sincere, automatically forces the issuer to back its liabilities and to try to be creditworthy in front of the market.

My second concern is that the term fiat either denotes creating something without effort, which would mean that all raw unprocessed natural resources including gold would be fiat, or either denotes a mandate or decree from a specific authority. Bitcoin is definitely not a decree from any authority, so it could only fit on the first definition. But the first definition would mean that both gold are Bitcoin are fiat, when I suspect that who qualifies Bitcoin as a fiat object is precisely because he thinks gold is not fiat. So the only explanation left to justify gold is not fiat is the worst I can imagine, which is that as raw gold is barely available, the effort (costs) involved in mining and refining it is what makes it valuable, and this is labour theory of value, which has been demonstrated wrong again and again.

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Photo by Matthew Henry

The fact that Bitcoin is artificial, intangible or both, does not make it fiat. The same way that software, mp3 files or pdf files are not fiat either.

Both Gold and Bitcoin are things with very specific and deterministic properties. If they have value is because the market deems as useful their intrinsic properties, namely: accesible, portable, divisible, easy to identify, difficult to fake, easy to hoard and unhoard, relatively scarce etc. So Bitcoin might be better or worse medium of exchange, unlike gold it might not have non monetary demand, but that does not imply that Bitcoin is useless. Even if we shoehorn the term “fiat object” on Bitcoin, which I strongly reject, it is definitely not useless because the need for exchange is one of human’s most basic needs, so anything that might fulfill that need is useful only because of that.

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