Bitcoin can revive economy …OK…. but how ?
By definition scarce resources are something that are not easy to find. Similar to other scarce resources such as gold, silver or diamond Bitcoin also needs to be mined. The only difference is that bitcoin is mined over the internet whereas others are mined over the physical world.When resources are scarce to find the demand to own goes high and so does the price. What we have seen so far is Gold trading or valuation of gold has always been rather stable over the years. Irrespective of the challenges in the financial industry or housing, gold had stood strong and stable to its relative value.
So what is recession?
In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock. This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock, the bursting of an economic bubble, or a large-scale natural or anthropogenic disaster (e.g. a pandemic).
The government manages the money supply available to spend or invest. During the recession the natural tendencies for government is to Print more paper notes. By doing so the government is trying to increase the the supply of money as the demand for money increases.
The down side of over printing the notes is that the currency becomes fragile and its value of the currency is degraded that results in hyper inflation. Meaning buying the same product or services from the past will be more costlier in comparison to when there was no inflation.
The question how is how will bitcoin do in a recession? Again the counter question could be can bitcoin help with the recession?
And even if it has all the right tools to support the recession how it is going to happen. There are a lot of questions around bitcoin when it comes to recession.
What is Hyperinflation ?
In economics, hyperinflation is very high and typically accelerating inflation. It quickly erodes the real value of the local currency, as the prices of all goods increase. This causes people to minimize their holdings in that currency as they usually switch to more stable foreign currencies, often the US Dollar.
Prices typically remain stable in terms of other relatively stable currencies.
That also means that the banking system will be at a risk of being a failure. When the banking system fails once again the consumer will have to find other alternative to search for services that does the same job.
For example buying food over the internet or making payments overseas. At the end the customer suffers when there is a finite amount revenue stream while the revenue cannot sustain the economic impact due to hyperinflation .
So when does a banking system fail ?
A large contribution to the recession was the closure and suspension of thousands of banks across the country. Financial institutions failed for several reasons, including unregulated lending procedures, confidence in the Gold standard, consumer confidence in future economics, and agricultural defaults on outstanding loans.
With these compounding issues the banking system struggled to keep up with the public’s increasing demand for cash withdrawals. This overall decreased the money supply and forced the banks to result to short sale (real estate) and liquidation of existing loans.
In the race to liquidate assets the banking system began to fail on a wide scale. In November 1930 the first major banking crisis began with over 800 banks closing their doors by January 1931. By October 1931 over 2100 banks were suspended with the highest suspension rate recorded in the St. Louis Federal Reserve District, with 2 out of every 5 banks suspended.
The economy as a whole experienced a massive reduction in banking footholds across the country amounting to more than nine thousand closed banks by 1933
In year 2008 during the time of most famous recession, Satoshi invented Bitcoin. Basically as an answer of not being happy financial institutions and the regulations around it. He was convinced that the usage of Bitcoin will not only help the general public but bitcoin can help the economy.The transfer of goods and services becomes challenging. Specially when consumer have less to spend, while dealing with tough time like now during the pandemic (COVID-19). Imagine the banking system not being able to pay your supplier the much needed money on time.Now that supplier cannot pay the manufacturer the goods that you desperately need. An example could be the ventilator, face masks are so scarce at the moment. Again there are island within nation which heavily relies on the supplier to send much needed items just as food,logistics, healthcare professionals etc. Now they don’t have a means to pay their suppliers nor make quick change in the way a legalization of documents is done.Take an example of migrant workers who has extremely competitive income and on top of that their relatives rely on them. To transfer money to their home country can be challenging while their relatives are waiting for the payment to arrive. On top of that the current banking system transfer fee is too high and perhaps, could be equivalent to their salary of a month if its taken into account for a year. That means the recipient will only get the salary for 11 months.
Bitcoin can revive economy…More examples…
Owning bitcoin can revive the economy as it helps the general consumer by not being impacted by their primary currency value degradation. Bitcoin will act as a lifeline where you can continue to pay your supplier on real time at the same time offer your services to your customer without having to break the supply chain.The way gold used to act like a lifeline in the past or still in most asian countries, Bitcoin can be an Internet Gold as an alternative all around the world. Again if government uses such technology for validation and automation purposes then it can be of immense help during the crisis situation.When you have a stable currency(For example Bitcoin) the positive effect during the recession is that you can still afford to buy the same goods and services at similar prices compared to the past. Using bitcoin and other forms of crypto currency can makes things much easier.Bitcoin or any other cryptocurrency be used either as a means to send money to foreign countries or using the technology to validate the authenticity of documents.
When a lot of manual work is required for regulatory reasons automating the transactions or validations and approval can be much easier and faster for service providers and seekers.The other example where Bitcoin can revive economy is by tracing the transactions concerning the criminal activities. During the time of recession the criminal activities soars up as people are desperately trying to keep up with their expenses.To sum it up Bitcoin has been established recently and perhaps it has to be tested with times. But to be definite that bitcoin will help with recession and or bitcoin can be useful during the recession is yet to be seen.