“Bitcoin,”  economist Dean Baker argues at the Center for Economic and Policy Research, “won’t put food on the table. Bitcoin also won’t put gas in your car or provide medical care for your family.  … Bitcoin doesn’t actually produce these items or anything else that we directly consume.”

Baker is absolutely right. Bitcoin and other cryptocurrencies don’t produce  the various goods or services that we directly consume.

Neither, however, do dollars, euros, rubles, rupees, etc. produce the various goods or services that we directly consume.

For the most part, that is. Dollars, euros, rubles, rupees, etc. — and Bitcoin and other cryptocurrencies — do produce one thing, and it’s possibly the most important of all consumables: Trust.

When your employer pays you on Friday, you trust that the money he pays you with will in turn be trusted by those who sell you everything from gas to groceries to gardening tools.

Trusted as a medium of exchange that can be spent forward on other things.

Trusted as a store of value that will remain approximately as valuable to other people tomorrow as today.

Trusted as a unit of account that allows accounting to work, making the other two trust types feasible.

Bitcoin and other cryptocurrencies are at least potentially capable of besting  government-issued currencies on all three metrics.

Bitcoin is highly trustworthy as a medium of exchange and unit of account for two simple reasons.

First, it requires trust only in the system/algorithm that processes the transactions — not in third parties who might, to quote Darth Vader, “alter the deal” at any time and without your permission.

Governments and central banks can’t inflate Bitcoin’s value away, stealing a little bit of your wealth at a time, by magically creating more — as they can with dollars, etc. Per the system’s design, there can never be more than 21 million Bitcoins.

Nor can dishonest parties “charge back” transactions as they can with debit cards — once a Bitcoin transaction has taken place on the blockchain ledger, it’s immutable and irreversible.

That 21 million Bitcoin limit ticks the second box, making it a solid unit of account.

As for the middle function, “store of value,” yes,  Bitcoin — like all other currencies — will fluctuate in value as people find it more or less attractive and useful.

That happens with all forms of money. If it didn’t, traders wouldn’t be able to profit (or lose) on currency trades by predicting those fluctuations correctly (or incorrectly).

Bitcoin has, correctly, been called “volatile” when it comes to fluctuations versus other currencies.  But it’s worth noting that the “volatility” has trended upward. Some (not all) fiat currencies may be less volatile … but most continuously lose value due to inflation, while Bitcoin’s volatility will likely fade as adoption/use increases. Its resistance to government/central bank inflation makes it far less vulnerable to volatility worries.

Baker’s real problem with Bitcoin seems to be that it doesn’t fit into his Keynesian-leaning economic ideas on government control of money. But that’s a point in favor of, not against, Bitcoin.

Thomas L. Knapp (X: @thomaslknapp | Bluesky: @knappster.bsky.social | Mastodon: @knappster) is director and senior news analyst at the William Lloyd Garrison Center for Libertarian Advocacy Journalism (thegarrisoncenter.org). He lives and works in north central Florida.

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