Why Bitcoin Has Threatened US Dollar Dominance and Federal Reserve

摘要： Since the creation of Bitcoin, it has opened Pandora's box of the issues of monetary and financial systems and government power.

At the time of writing, the Bitcoin market capitalization is around $213 billion, around half of Tesla's, at $412 billion. The Bitcoin market cap could be considered as trivial when compared to the size of the entire stock market. But it has been recognized and invested by more and more institutions gradually. As the best internet currency claimed by Twitter CEO Jack Dorsey, Bitcoin is replacing the US dollar in some scenarios, thus have an impact on those behind US dollars as well.

Money has three internal factors: money form, money issuance standard, and the movement of money. To further measure the influence of money on the world dynamically, Blockchain.News previously introduced these external factors: power evolution, competition, and competition output.

Bitcoin's encrypted form brings new asset ownership guaranteed by technology

Bitcoin introduced a new money form—encryption. Bitcoin is a new kind of currency that the ownership is dependent on private key exclusively. Without the correct private key, there is no way to move Bitcoin around, even if it is by the means of law. This introduced to us the notion of “absolutely private property,” for the first time in human history. However, this makes illicit activities more convenient as well. This could undermine the enforcement of confiscation and court decision without private keys. Bitcoin's privacy feature makes tax evasion much more convenient if the address can not be connected to a certain identity.

In most countries, investors tend to store US dollars and gold due to huge fluctuations in their countries' currencies. Bitcoin and other cryptocurrencies such as Ethereum and Ripple are much more convenient for storing and transferring.

Bitcoin’s Proof-of-Work (PoW) could be a threat to the fed’s absolute power of money issuance

When it comes to the issuance of money, Bitcoin directly undermines the power of the Federal Reserve, which has the absolute power of US dollar issuance and monetary policies. After the collapse of the Bretton Woods system in 1973, when the US government refused to exchange the US dollar for gold as agreed, virtually all currencies have been issued based on the national credit, thus removed the constraint of gold supply and reserve. This then led to a debt-driven economy. The Federal Reserve has unlimited credit for issuing money. For any economic and related problems, they can simply print more money. This doesn't come without costs. The interests of every mounting debt are no doubt unattainable and currency devalued constantly.

The Bitcoin founder of Satoshi Nakamoto has expressed the frustrations several times.

"The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible."

In the Bitcoin whitepaper, it read that the cryptocurrency allows "any two willing parties to transact directly with each other without the need for a trusted third party".

If there is no consensus on money, like gold did before, the competition of money is by its adoption or requirement. The competition is a much likely zero-sum game. There is no doubt that the US dollar is the de facto world currency. As a country's economy is highly influenced by the US dollar, the country's monetary system is highly influenced by the Federal Reserve as well.

Currency dominance has a profound influence on the product and service values of the global value chain as well. There is no doubt the US will try its best to maintain its dollar dominance. The Bitcoin issuance rule introduced a new consensus that is based on computing power and may ignite computing power competition.

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