A new Minister of Finance has been appointed in Greece a few weeks ago. While that fact may not seem too significant to most of our readers just yet, Yanis Varoufakis – member of Greece’s Coalition of the Radical Left – has formed his own opinion on Bitcoin nearly two years ago. It will be interesting to see if Mr. Varoufakis is still hostile towards Bitcoin and digital currency, or whether his stance has changed over the past 18 months.
“There can be no de-politicised currency capable of ‘powering’ an advanced, industrial society”
A very interesting quote, coming directly from Yanis Varoufakis himself in April of 2013. He does admit that the “Crash of 2008” made a lot of regular people skeptical of central banks of governments all around the world, which also incur dreaming of a new revolutionary way to make payments and earn back financial freedom. Basically, a currency for the people by the people.
Bitcoin has come to the scene at a very opportune time, as many banks and countries were facing outrage due to the financial crisis. According to Mr. Varoufakis, the hope Bitcoin brings to the hearts and minds of many people is false, simply because there is no way an unsupervised digital currency can become mainstream without oversight.
Truth be told, 90% of all fiat currency is digital. For example, when you go to the bank for a bank loan, the money suddenly “appears” in your bank account in a digital manner. Completing an online banking transaction is a transfer of digital money. When looking at things from that point of view, Bitcoin is not unique in the world of digital payments, at all. It is all a matter of perception, as most people do not realize that most of the money they come across in life only exists in digital form.
“What is, however, genuinely novel and unique about bitcoin is that no ‘one’ institution or company is safeguarding the so-called Ledger: the record of transactions that ensures that, when you have spent one unit of currency, there is one less unit of currency in your (digital) wallet,” Yanis Varoufakis mentions in 2013.
Such a semi-positive statement is no reason to get your hopes up, as Mr. Varoufakis grasps at the typical “ straws” to downplay the potential of Bitcoin. “In a sense, the designer of the Bitcoin algorithm (the delectable Mr ‘Nakamoto’, who has, by the way, dropped off the radar some time ago) seems to have designed the new currency on the basis of faith in the crudest version of the ‘monetarist’ Quantity Theory of Money (i.e. the idea that the value of money depended solely on the quantity of money supplied to the public) and, thus, aimed at creating the digital equivalent to… gold.”
Misconceptions about Bitcoin and its creator
Time to set some things straight. First of all, no one said that the name Satoshi Nakamoto refers to a male person creating Bitcoin. There is a 50% chance the creator of the Bitcoin protocol was either male or female, and we may never find out. Furthermore. there is also a distinct possibility that multiple people are behind the nickname “ Satoshi Nakamoto”.
Secondly, the fact that Satoshi Nakamoto has “dropped off the radar” doesn’t mean Bitcoin is an abandoned project. Au contraire, the Bitcoin technology has evolved with great leaps and bounds over the past few years, and we are only beginning to see the tip of the iceberg. Mr. Varoufakis makes it sounds like this was a hobby project, abandoned by the creator and left to die, so no one should even bother to get involved with Bitcoin right now.
Lastly, Bitcoin gets compared to gold so often, it isn’t even remotely funny anymore. This is the train of thought you get from people who are stuck in their old ways and methods of thinking. Bitcoin does not just gets its value from the quantity of coins supplied, but from the fact that it is a true peer-to-peer payment method, which works on a global scale at the cost of minimal fees.
I can see where the comparison between Bitcoin and gold is coming from though. Both currencies can be “mined”, which is the easy way to draw a comparison even though it is a completely different story for either currency. Gold also gets its value from scarcity, and Bitcoin has been created with a quantitative cap, giving it an “ aura of scarcity”.
The thing a lot of people fail to realize is that, unlike gold, Bitcoins can actually be divided into 100 million individual units, called “satoshi’s”. 100 Million bits multiplied by 21 million Bitcoins gives you a number indicating Bitcoin is not as scarce as “ higher up people” would want you to believe. Even though 1 Satoshi may not hold a significant value at this point, that doesn’t mean it won’t be valuable in the future.
Bitcoin’s Fundamental Flaws
According to Yanis Varoufakis (in 2013), the Bitcoin social economy is bound to be typified by chronic deflation, simply because of its fixed maximum coin supply of 21 million BTC. Even if Bitcoin succeeds in penetrating the market, and more goods and services get traded for Bitcoin, the increase in quantity of those goods and services will far outpace the rate of increase in quantity of new Bitcoins being mined.
Mr. Varoufakis feels this will be a problem because an expected fall in Bitcoin prices will motivate people with BTC to delay their Bitcoin-related expenditures. But there is also a second reason why this could prove to be a problem, as a steady fall in average prices will translate into a constantly shrinking price-cost margin for firms dealing with Bitcoin.
As we have learned over the past year or so, most firms are instantly converting Bitcoin to fiat currency, so this statement holds no merit. Granted, the situation was quite different in 2013.
The second major flaw in Bitcoin, according to Yanis Varoufakis, consists of two major faultlines developing in the Bitcoin community. The first fault line divides the “ Bitcoin rich” from the “Bitcoin poor”, as people who have not invested in Bitcoin at this point in time need to do so at ever increasing prices. Funny he should mention that, because the current Bitcoin price is still fairly low and an excellent entry point for novice users.
On the other hand, faultline number two separates the speculators from the users, as you have a group of people who see Bitcoin as a form of exchange versus a group of people who see Bitcoin as a stock of value. I can see what Mr. Varoufakis is trying to point out here, but neither of these groups seem to be causing any issues in Bitcoin that we don’t see in other currencies.
Yanis Varoufakis rambles on about how Bitcoin is bad and why people should steer away from it as far possible, which you can read more about here. Do keep in mind this was writt
en in 2013, but as far as we can tell, his opinion on Bitcoin has not changed over the years. It will be interesting to see how his stance will influence Bitcoin’s position in Greece from this point forward.