Fun.
What could possibly go wrong? Bitcoin proselytizers will tell you that bitcoin's rise in price means that it is the coming thing, but as I wrote yesterday in Part I, even a rise in price, relative to the dollar, makes bitcoin useless as currency. Still, doesn't that rise in price make you want to go buy a shitload of bitcoin?
Um. Sure. Go, get in your time machine, go back to when bitcoin was way cheaper (like, last week), tell yourself to buy a bunch, and then sell it now.
So, go do that.
What? You mean you don't have a time machine?
Well, then.
And even if you did, if it works anything like time travel in Neal Stephenson and Nicole Galland's The Rise and Fall of D.O.D.O., it still might not be that simple. (Side note: fun book).
Still, as bitcoin futures trading opens up, you might think that this is a sign of the normalization of bitcoin. However, there is a critical thing that you will never be able to do with bitcoin, and it is a big part of why bitcoin is bullshit.
So, um, how's Greece doin' these days? Remember Greece? It's that Mediterranean country with finances that are totally fucked. (One of them, anyway). Short version, in 2007 and 2008, our economy collapsed, and since we are the center of the world, financially speaking, that spread. When it hit Greece, it hit haaaaard. (Yes, I'm oversimplifying. This isn't the main point.) A couple of years after the global crisis started, Greece revealed that the government had been cooking their books. You see, the Greek national pass-time is tax "avoision," as Kent Brockman likes to say. And, the Greek government being what it was, decided to be complicit, and cover it up, so they just fuckin' lied about how much/little money they had. Eventually, it all came out, they revealed to the world that they had no fuckin' money, they couldn't pay their bills, couldn't pay their creditors, and Greece went into total financial collapse.
But... it was even worse for Greece than it might have otherwise been. You see, for a country on its own currency, worst case scenario, you do something that you don't want to do, but can do as a last resort to pay your creditors. The US government can, as a last resort, quite literally print dollars to pay off creditors. Canada can print... loonies, or whatever the fuck they use up there, eh? Any country using its own fiat currency can print money to pay creditors. It's a bad thing to do if you really have a shitload of bills because... inflation, and if you really have a metric fuckton of bills, literally printing currency causes hyperinflation. Absolute last resort.
However, the knowledge that a government can do this means that creditors don't tend to worry that the US government will fail to pay bondholders (except when House Republicans started fucking with the debt ceiling in 2011, but that was just political stupidity, not economic necessity).
Remember Greece, though? This is a story about Greece. When the crisis hit, Greece was on the euro. Not the drachma, the euro. They couldn't print money. So, holders of Greek bonds legitimately looked at the Greek government's finances, and worried that they wouldn't get paid because they knew the Greek government's accounts were empty, and the government didn't even have that horrible, last-resort option of printing money. So, interest rates on Greek bonds skyrocketed, sending the country into a fiscal death spiral, such that they needed to beg for money from Germany under whatever shitty terms Germany would give them. Greece is still fucked because of this.
Back when the "Great Recession" hit, economists Ken Rogoff and Carmen Reinhart put out a paper called, "Growth in a Time of Debt," claiming that if a country's debt-to-GDP ratio crossed over the 90% threshold, DOOM! DOOM! DOOM! There were plenty of problems with their paper, not the least of which was an Excel spreadsheet error uncovered by a UMass, Amherst grad student doing a replication paper for a Methods class. (Yes, really!) However, all of the countries that have experienced serious problems with high debt-to-GDP ratios are countries that don't use their own currency.
Like Greece.
Greece wasn't alone. Italy went through quite a rough patch, and if you pay attention to the international business news, you see references to the PIGS countries (Portugal, Italy, Greece, Spain), because of the similar underlying economic issues they have faced, and the problems that ensue when you don't borrow money in your own currency.
Basic point: if a country borrows money in some currency that it doesn't control, it doesn't have options like that last resort of printing money to pay off debt. Even though nobody wants to have to use it, just having it there means that bond-holders know they're going to get paid, and that makes financial crises like the one Greece faced really unlikely. That's why the countries Reinhart and Rogoff pointed to as problem countries were all countries that borrowed in some currency they didn't control. If you control your own currency, that doesn't mean everything is smooth sailing, but you are safe from Greece-style crises.
As long as the government borrows money in currency that it controls. Any government that borrows money in currency that it doesn't control, knowing what happened to Greece...
That's just fucking stupid.
Solution? Issue bonds only in currency of your own denomination. Pay employees only in currency of your own denomination...
And this is vital: only accept tax payments in currency of your own denomination. That way, you pay your bondholders in your own currency. And you are safe from a Greece-style crisis. Period.
That is why no sane, functioning government will ever let you pay your taxes in bitcoin.
How much of the economy is that? The proportion of any country's economy that the government takes up, obviously, varies by country. The thing is, though, that taxes are a portion of every single legal economic transaction. The government gets a piece of everything. Or, everything legal, anyway.
It isn't just the size of government. It is the ubiquity. So you don't want government to have a piece of the action everywhere? Tough fucking shit. It does. Income taxes, payroll taxes, sales taxes, capital gains taxes, corporate taxes... That shit ain't goin' nowhere, and it ain't never gettin' paid in bitcoin because policymakers watched what happened in Greece and other countries that saw problems because their debt was denominated in currency they didn't control. Policymakers won't let that happen anywhere else. You are either paying your taxes in dollars (assuming you are reading this in the US), or running the risk of imprisonment for tax "avoision" (HT: Kent Brockman).
Now, why does this matter so much? That will be the subject of Part III! A little thing called, "a transaction cost." Hey, if Trump can claim he invented the phrase, "priming the pump," can I claim to have invented the phrase, "transaction cost?" Anyway, coming soon... Part III: bitcoin and transaction costs, because...
Bitcoin is bullshit.