What Makes Bitcoin Special? An Economist Explains

A top cryptocurrency expert and economist explains the bitcoin phenomenon.

Bitcoin and other cryptocurrencies are all the rage right now.

Of course, the rise of non-government, decentralized, encrypted electronic currencies like bitcoin has been going on for years. But in recent months it has surged to the forefront of the national conversation as major figures like Elon Musk have bought in and bitcoin has hit record valuation levels.

Many Americans may not have followed the trend closely, and are seeking to understand it. So, to help readers better understand the novel technological trend, FEE interviewed Will Luther, an economics professor, director of the American Institute for Economic Research’s Sound Money Project, and an adjunct scholar with the Cato Institute’s Center for Monetary and Financial Alternatives.

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What Makes Bitcoin Different From the US Dollar?

One easy way to understand bitcoin is to compare it to the US dollar.

“Bitcoin is similar to the dollar in many respects,” Luther explained. “Both are intrinsically worthless, meaning they have no use apart from their role as a medium of exchange. Both are irredeemable, meaning they are not backed by some underlying asset. And both are digital base monies. (Bitcoin is fully digital, while the dollar is only 99.96% digital—close enough.)”

However, the two differ in important ways.

For one, the US government has centralized control over the dollar and its supply. Bitcoin is decentralized, meaning there’s no central authority controlling it.

“Bitcoin’s supply is preprogrammed,” Luther said. “There will never be more than 21 million bitcoin in circulation and the supply will follow a predetermined trajectory until it reaches the maximum. The supply of dollars, in contrast, depends on the discretion of the Federal Reserve.”

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