The US dollar has been the world’s primary reserve currency since World War II. However, growing concerns about US dollar dominance have led some nations to explore diversification – seeking out alternative currencies for trade, with the Chinese yuan gaining traction. The dollar’s dominance has declined from over 70% in 1999 to under 60% in 2021 in global foreign exchange reserves.
Other competing fiat currencies include the Euro, Swedish krona, South Korean won, and Australian and Canadian dollars.
However, Bitcoin in particular is often overlooked as a major factor in the dollar’s slide from dominance. BTC is not beholden to any particular government, or the fate of any single country.
Bitcoin shares this same finite characteristic as precious metals, and as the generation of new BTC becomes increasingly rare we should see high increases in value, with less volatility. Just an opinion, not advice.
BTC is limited 5 transactions per second worldwide. Probably not capable of being the world’s reserve currency unless a major workaround came into place.
Bitcoin Cash would be a more realistic choice as a world reserve currency.
-Lower Transaction Fees
-Faster Confirmation Times
-Scalability
-Emphasis on Peer-to-Peer Cash
-Unwillingness to Change Block Size
One may remember that Bitcoin Cash was originally promoted as “Bitcoin: Peer-to-Peer Electronic Cash System”. I think it better aligns with Nakamoto’s original vision.
I agree that BTC Cash has a lot of advantages as a means for everyday transactions, and as a convenient way to move money around the world. However a reserve currency is an entirely different thing.
Bitcoin Cash was created as a fork of Bitcoin, mostly to increase the block size limit. This allows more transactions to be processed quickly and at lower fees. This improvement makes it great for everyday transactions, and made wide adoption likely, especially in parts of the world where banking isn’t as reliable.
But as a world reserve currency it would need to handle an enormous volume of transactions, and even with larger block sizes. It is unlikely BCH could scale to the necessary level.
The focus on the capability of BTC vs. BCH for everyday transactions is not really applicable to whether or not they could become a world reserve currency. Reserve currencies like the dollar or Euro are held in large amounts, by central banks for large international transactions.
The decentralized nature of crypto could make it a preferred reserve currency because it is borderless. It’s value cannot be manipulated to favor one country over another. The exchange of crypto cannot realistically be interfered with.
Volatility is an issue. But as cryptocurrencies mature, this will level out. Gold is also somewhat volatile, but within an acceptable range to be considered a stable store of wealth.
A related article that my team at CKC.Fund wrote about de-dollarization in relation to Gresham’s Law:
Gresham’s Law, which states that “bad money drives out good money,” is applicable not only to historical metal coinage but also to modern fiat currencies and cryptocurrencies. It describes how people tend to use lower-value currency over higher-value currency. In the context of fiat currency, when governments debase their currency through inflation, individuals prefer more stable foreign currencies like the USD. This can lead to “good money” (stable currency) replacing “bad money” (debased currency).
Cryptocurrencies, particularly Bitcoin (BTC), are considered hedges against currency debasement due to their fixed supply. They offer an alternative store of value. In regions with high inflation, there is a strong incentive to purchase cryptocurrencies, and some countries are even legalizing them as tender. This adoption trend may continue, making cryptocurrencies viable fiat currency alternatives in the future.
Thanks, the article points out that transactions per second are inversely proportional to privacy and decentralization. This I hadn’t really understood.
With Visa at around 1400 TPS and Bitcoin Cash at around 100, it’s a significant difference, but not the insurmountable gap the is normally discussed. Especially considering the unique advantages of BCH
Bitcoin Cash is in fact a viable payment system for everyday transactions, but it will first experience the widest adoption, I believe, in Southeast Asia.
I find that the Blockchain Trilemma serves as a framework to illustrate that Scalability, Security, and Decentralization can’t all be maximized simultaneously in a blockchain. Bitcoin excels in Security and Decentralization but falls short in Scalability, able to process only 5-7 transactions per second. In contrast, the Lightning Network, which acts as a second layer atop Bitcoin, was designed to address Bitcoin’s Scalability problem. It claims the ability to handle up to 40 million transactions per second at fees around 0.003%. It allows for transactions to be done off of the blockchain, which makes them much faster and more efficient, but less secure, so is generally suitable for smaller/micro-transactions.
Pairing Bitcoin with the Lightning Network does offer the potential for a balanced blend of all three key attributes, without sacrificing decentralization (albeit technically they are two different networks working in tandem, not one). But this is particularly significant given that the foundational principle of cryptocurrencies like Bitcoin is decentralization. Bitcoin Cash ABC increased its block size limit to 32 MB to address Scalability issues. Bitcoin Cash SV (which became eCash in 2021), on the other hand, increased the block size limit to a maximum of 128 MB to address Scalability even further. However, the increased computational demands and storage required for the ledger due to larger block sizes may result in reduced decentralization over time. This is because larger block sizes require more resources to validate and store, which can make it more expensive for individuals to operate full nodes, leading to less decentralization of the network.
Each has its own set of use-cases and trade-offs. (Bitcoin’s trade-off is Scalability, Lightning Network’s trade-off is Security and both Bitcoin Cash’s trade-off are Decentralization) I think this makes the Blockchain Trilemma a useful framework for evaluating their respective strengths and weaknesses.
Even so, the likelihood of Central Banks issuing their own digital currencies, known as central bank digital currencies (CBDCs), to serve as the new global reserve seems greater than any existing cryptocurrency claiming that role. And that is a whole different discussion topic…
Can Crypto challenge the Cantillon effect? In a world where early money recipients gain an advantage, cryptocurrencies like Bitcoin aim to rewrite this story. The Cantillon Effect, named after economist Richard Cantillon, highlights how early access to money creates arbitrage opportunities, leaving latecomers with rising prices. Cryptoeconomics offers a fresh perspective, separating money creation from politics and fostering equity. With cryptocurrencies having capped supplies and a promising track record, they become a refuge against inflation. As digital assets continue to gain traction, there’s potential for early adopters to seize opportunities in this evolving financial landscape.
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, global investment diversification 
, yield optimization 
, transparency through community involvement 
and strategic partnerships 
, digital asset investors are increasingly opting to delegate tasks to wealth managers 
for peace of mind, reduced risk, and increased performance. While owning popular digital assets like BTC, ETH, or XRP can sometimes be straightforward, adapting to ever-shifting market conditions and finding the next asset with substantial growth 
is often extremely challenging. Just as stock investors diversify across market caps 
, and regions 
. This approach offers market insights for asset evaluation, risk management 
, asset allocation 
, and portfolio adjustments 
.