The End of Central Banking?

some theoretical means by which bitcoin may lead to the demise of central banking

(1) COMPETE WITH FIAT

the theory: bitcoin can introduce genuine competition in the monetary space. if bitcoin succeeds in establishing itself as a sound and widely adopted currency, it can erode trust in traditional fiat currencies controlled by central banks, as people start to recognize its advantages: fixed supply, deterministic monetary policy, resistance to manipulation, etc. this loss of trust can undermine central banks' influence over monetary policy, reducing their power.

my take: after 16 years, bitcoin still isn't competing with the dollar system or the euro system in any meaningful sense. it is feasible that G7 central banks will manage to keep inflation in a yearly range of -10% to +10% (or better) over the long term. say, over a time span of 2-3 decades more. if they do, they will maintain dominance in unit-of-account terms for their respective regions. bitcoin is too volatile and unstable when measured against a "1 vol" fiat currency. maybe someday bitcoin gets to a level of adoption and liquidity that would facilitate a halving of its daily vol, from around 4% to around 2%. if it did, that might allow for denominating the prices of some goods in terms of bitcoin or sats. but likely only on the margin. conceivably, bitcoin could increase in price another 10x and still remain volatile, simply because demand for it is volatile.

ironically, if a number of the G7 central banks created "strategic bitcoin reserves", bitcoin's volatility would probably decrease. making it a bit more like gold. but do we really want bitcoin to behave like gold and sit around in vaults, unused?

DONT GOLDIFY MUH BITCOIN

i would posit that central banks holding bitcoin is a net-negative for real-world adoption, in the widespread p2p voluntary exchange digital cash sense.

small circular economies are better than massive 0-velocity central bank reserves

(2) LIMIT CENTRAL BANKS

the theory: as the adoption and use of bitcoin grow, central banks could find it increasingly difficult to regulate and control the asset class effectively. by creating their own digital currencies (CBDCs), central banks will aim to address these challenges; however, a significant concern is that they could lead to further encroachment on people's privacy and financial freedoms. bitcoin presents an alternative, limiting central banks.

my take: real life bitcoin merchants and spenders still make up just a tiny proportion of global trade. this intolerant minority of UTXO users can probably grow 10x and still not make a dent in the fiat banksters' armor, their mechanisms of control over the population at large. let's face it: bitcoin is a lever to elevate the individual, to free him, to some degree. bitcoin is a tool, not a MULE. and I use MULE in the asimovian foundation sense, as in a targeted psychological weapon that casts a cloud of despair over all keynesians globally, causing them to throw in the towel and concede defeat to bitcoin... no. bitcoin is not a weapon of mass destruction. it is an incremental builder of sovereignty for those who use it.

REBEL SCUM ALONE CANNOT KILL THE DEATHSTAR

we may need more allies who can work from within the system to dethrone the keynesians and dismantle their central banks

(3) MASS EXODUS

the theory: bitcoin has brought to life the concept of a decentralized digital currency system. central banks continue to discourage saving and encourage malinvestment. the cantillon effect puts the poor at the greatest disadvantage, while bolstering those who already have significant wealth. should the community succeed in fostering increasing grassroots adoption, central banks could eventually become sidelined. at a certain tipping point, with greatly increased usage of bitcoin in p2p + b2b realms, the central banks would become obsolete.

my take: while bitcoin may someday reach a tipping point of obviating central banks, i have yet to see any proponents of the mass exodus theory lay out a clear and consistent path for how said tipping point can be reached. we still live in the world of fiat hucksters, profligate politicians, whiny welfaremongers, and statist uncles. it would seem to me the key is in winning hearts and minds over multiple generations. with each successive wave of userer die-offs, the sound money crowd can plant more flags.

the implication is that bitcoiners will need to occupy increasingly more influencial positions in government and industry. but not the saylors and the dennis porters. not the kind of bitcoiners that intend to shimy bitcoin onto the balance sheets and call it a day. we will need people that actually use bitcoin regularly, as money, to step up and brave the beast.

LET A THOUSAND RON PAULS BLOOM

this begs the question: what changes to our normie culture will need to take place in order for that to be even remotely possible?

just look at how the DOJ has gone after the authors of privacy-enhancing, non-custodial crypto software: Tornado Cash and Samourai Devs, specifically.

the situation is dire. it is precisely inverse of what it needs to be for any significant number of cypherpunk leaders to risk stepping up into some kind of position of authority in society.

what seems more likely to me at this point, given how little traction and acknowledgement cases like this are receiving, is that we continue to bifurcate.

the bitcoin users and the privacy coiners and the cypherpunks will keep on building their tools and growing their p2p economies.

and fiat will persist for now. sad to say, but i don't see any straight and easy way of just flipping the tables of the moneychangers at present.

i am happy to receive feedback, criticism, a rhetorical ass-whooping or any other benign or pointed questions, if you have them.

if you wish to get a comment added to the blog post, just email me at (email on about page).

cheers ~