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Decentralized vs. Fiat Currency: Identifying Failure

Decentralized Currency

Critics have cited Bitcoin’s decentralized nature as problematic to long-term investment, but this criticism deserves deeper analysis.  Notable dissenting voices include investor Warren Buffet and economist Paul Krugman.  Critics are entitled to their opinion.  In considering the potential demerits of Bitcoin, however, investors should be aware of the benefits associated with its decentralized character.  The intent of this post is to explore the failures of historical fiat currencies.  (For reference, fiat currency describes government issued and/or authorized money, lacking intrinsic value.) From fiat currency failures, the benefits of a decentralized system become clearer.

Currency Failures of the Past

Fiat currencies, similar to Bitcoin, are susceptible to shocks in value.  Since they lack intrinsic value, immaterial forces can dramatically influence their worth.  This post examines the failures of the German Papiermark, the Argentine Peso, and the Zimbabwean Dollar.

After Germany’s World War I defeat, the Treaty of Versailles mandated Germany provide war reparations to allied nations.  When Germany neglected payments, France and Belgium occupied areas of German production, which forced the German government to print papiermarks for salaries.  As the quantity of currency increased, the value of the currency decreased.  This induced a spiral of hyperinflation.

Following the 1973 OPEC oil embargo, Argentine budget and trade deficits threatened to collapse the economy.  In response to growing debt and civil unrest, the Argentine government printed money.  The value of the peso drastically decreased, until the government established a new peso to stabilize the economy.

The situation in Zimbabwe echoed that of Argentina and shutterstock_482075365Germany.  Excessive government spending and economic problems led the government to overissue currency.  The government printed Zimbabwean dollars in higher denominations as the value of the dollar plummeted.

Lessons Learned

Each of these cases shares a common denominator.  Social, geographic, and political forces contributed to devaluation, and eventual collapse, of each of these currencies.  Bitcoin is exempt from these sources of error.  As an independent, decentralized currency, Bitcoin will not face pressure from foreign governments or internal unrest.  Monetary supply is fixed, which means that supply will not respond to changes in the world.  Effectively, Bitcoin removes the element of human error.

The argument of this article is imperfect for several reasons.

  1. Historical currencies are tested under harsher conditions than Bitcoin through wider use and longer duration.
  2. This piece overlooks the benefits of monetary policy, which have been used to stabilize economies.
  3. Hyperinflation, which is the common source of failure among these currencies, could still occur to Bitcoin.

Despite these imperfections, the trend in other intrinsically valueless currencies points a finger at geo-political variables as the culprit for currency failure.  Since Bitcoin avoids geo-political variables, it may be less prone to failure.

Bitcoin is Money: Federal Judge in US trial

Bitcoin had a strong opening this week making it third week in a row with the price over $600 level. But the support broke on 20th September plummeting Bitcoin prices to late $590 level. Whether the fall in prices happened fundamentally or just a test of lower bands is non-conclusive. While the market speculation remains confusing, Federal Judge has ruled that Bitcoin is Money in case. Let’s look into the details of the ruling:

JP Morgan’s hack tied to case:

JP Morgan hack ring tied to
JP Morgan hack ring tied to

A federal judge in New York has ruled that bitcoin constitutes a form of money. The ruling comes from the ongoing case involving the now-defunct Florida bitcoin exchange One of the former operators of the exchange, Anthony Murgio got indicted for alleged money laundering charges in July.  He sought to dismiss two of the charges against him by arguing that bitcoins don’t count as “funds” in US.

However,Judge Alison Nathan of the Southern District Court of New York rejected that bid. She moved that bitcoin is money by virtue of its usage.

Nathan wrote in her ruling:

“Bitcoins are funds within the plain meaning of that term. Bitcoins can be accepted as a payment for goods and services or bought directly from an exchange with a bank account. They therefore function as pecuniary resources and are used as a medium of exchange and a means of payment.”

The case links to a broader investigation by the US government into an alleged cybercrime ring. This ring ties to a series of hacks on major companies and financial institutions, including Wall Street giant JPMorgan Chase. According to prosecutors, was a conduit for laundering proceeds from the purported operation.

Purse and Unocoin partner to increase adoption in India:


Bitcoin shopping platform today announced a partnership with leading Indian cryptocurrency exchange Unocoin. Bitcoin use in India is growing rapidly, so Purse wants Indian residents to take advantage of its e-commerce platform. By the same notion, the company is trying to provide a seamless shopping experience for bitcoin users.

Amazon is steadily becoming one of the largest online marketplaces in India. The company also recently announced it would comply with Indian e-commerce rules. This allows greater foreign investment but restricts the discounts merchants can offer directly.

punoPurse leverages unspent gift card liquidity to provide Amazon discounts. The platform matches buyers with individuals who have illiquid gift card balances, then orders items at a discounted rate. The card holders receive bitcoin, which they can then exchange for rupees using Unocoin. This way Bitcoiners can get 15-22% discount on Amazon.