Opinion: What Ben Bernanke and other bitcoin skeptics get wrong about crypto — even after this latest crash

Ben Bernanke, former chairman of the Federal Reserve, was a vocal skeptic about bitcoin BTCUSD,
He stated that cryptocurrency has no underlying value and cannot act as a reserve of value, which makes it unbelievable as a currency.

“If bitcoin were a substitute for fiat money, you could use bitcoin to buy your groceries. No one buys food with bitcoins because it’s too expensive and too inconvenient to do so,” Bernanke said in a CNBC interview in May. “The price of celery varies radically day by day in terms of bitcoins, so there is no stability in the value of bitcoin either.”

Bernanke is losing the bitcoin point and the more than 10,000 active cryptocurrencies. Even after this latest cryptocurrency crash, cryptocurrency is not a reserve of value. It is about creating a global currency.

What is the value reserve and what is the underlying value of the US dollar DXY,
ter? In the case of cryptocurrencies, it is the network we trust. We are confident that it will be able to move value quickly across borders, without government interference. That’s why bitcoin was created and why true bitcoin believers still keep it.

For many years, I said that you can’t have money without a government, and bitcoin believers threw stones at me. I was accused of being a statesman. I am not, as I never said the government had to be a national government. Perhaps he should have said that one cannot have money without governing, and the point of governance is that the community has to believe in the creator of the rules.

There is a belief in the power of the net to govern the currency and keep it stable.

In the case of the US dollar, it continues to believe in the United States as a global superpower and that the US economy is stable. In the case of bitcoin, or any other cryptocurrency, there is a belief in the power of the network to govern the currency and keep it stable. There is no value behind the US dollar or bitcoin; just a belief in governance. But this goes further when it comes to cryptocurrencies.

Let’s take a concrete example: buying a home. If you are a US citizen, buying a home in the US using US dollars is fairly straightforward. But if you are a European who is trying to buy an American house using euros, the transaction becomes more complex. The European has to arrange a transfer of funds across borders and pay fees and foreign exchange charges that can cost the buyer as the exchange rate fluctuates between the euro and the dollar.

That money is taken by the intermediary, who is more often a bank or a fintech. The transaction also takes days to settle, as you have to move through the Swift network and remove all anti-money laundering (AML) checks. A good example is a payment I received from a U.S. customer that took a month to credit my account, for the reasons listed above.

Instead, a cryptocurrency transfer between two users connected to the network can be done in real time, free of charge. That’s the point of cryptocurrencies. There is no conversion between currencies across borders and although there may be AML checks, settlement is immediate, as with a domestic payment.

What if bitcoin was backed by diamonds; is it more valuable then?

The problem for Bernanke and most of the traditional financial community is that they see bitcoin, dogecoin DOGEUSD,
and other cryptocurrencies as doubtful, rather than real currencies. They say that simply because you can’t use crypto to buy groceries in a physical store, they don’t see any value behind the coin. My refutation is that it is easy to use these coins online. Also, what is the value behind your accepted currency?

What if bitcoin was backed by diamonds; is it more valuable then? The answer is no. The diamond industry has convinced people that these stones have an underlying value, but in reality they do not. This is true of all precious stones and, for example, gold, silver and platinum. What you believe has value, has value, and with cryptocurrency, people believe in networked communities.

Ask yourself, what do you think is most valuable: the views of Bernanke and the banking community on crypto or the 4.65 billion people – two-thirds of the world’s population – who live on the Internet?

Chris Skinner is an independent commentator on fintech through his blog, Finanser.com. His latest book, Digital For Good: Stand for Something … or You Will Fall (Marshall Cavendish Business, June 2022), explores the use of technology and finance to improve society and the planet.

More: Bitcoin slips into Minsky Moment for crypto: “Psychologically for a lot of people, this is annoying”

Also read: Bet on bitcoin? You can now do this through an ETF in the US

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