Bitcoin: A New Digital Gold Standard in the 21st Century?

Abstract

Since a mysterious creator under the alias Satoshi Nakamoto (a pseudonym) launched first successful cryptocurrency in January 2009, he (or could be she) also opened the door for never-ending criticism, claims, arguments, plethora of articles, and media frenzy all contemplating what Bitcoin is. This paper concludes that Bitcoin is not a currency to be used for every-day transactions like all fiat currencies. Furthermore, Bitcoin is not a stable cryptocurrency and it is useless (and impractical) of arguing how Bitcoin meets or fails basic functions of money; to make it clear, Bitcoin satisfies all three functions of money (not to the extent of fiat currencies, nonetheless it does); store of value, unit of account, and medium of exchange. As discussed in this article, our proposal of Bitcoin as a supranational central bank reserve currency not only will put an end to debates and the frequently asked old question of “what is Bitcoin?”, it will also make Bitcoin’s design flaws disappear instantly. Under the new Bitcoin standard (Gold 2.0), inefficiencies become trivial because Bitcoin is capable of easily handling the volume of operations among central banks. Bitcoin’s extensively discussed weaknesses become no issue; high latency (a block of transactions is validated every 10 minutes), low processing speed (3-7 transactions per second), huge power cost (mining of 1 bitcoin requires 1,825 kWh of electricity, equivalent to 63 days of power usage by a U.S. household), and low scalability (the maximum number of bitcoins is fixed at 21 million). Key elements of the proposed new Bitcoin Standard include: Bitcoin will be a supranational reserve currency used by central banks only; ownership, trade, and other uses of bitcoins by citizens and various entities will be prohibited; the fixed supply of bitcoins (21 million) will remain unchanged; every country’s financial authority will switch to central bank digital coins (CBDC); CBDCs will be defined in bitcoin by a corresponding exchange rate for each country; 100% of CBDCs will be 100% backed by bitcoins; any increase in the digital money supply by a central bank will require additional bitcoins; and the value of each bitcoin will be raised to a price level to cover 100% of the total money in circulation (approximately $75 trillion).