Existence Over Utopia: Why the Bitcoin Project Has Already Failed, Even If People Don't Realize It

Imagine two groups of people. One group owns houses, apartments, land, vehicles, precious metals, and other forms of tangible wealth. The other group holds pieces of paper they call money. In the past, the situation was reversed: the subsequent owners of those papers held the tangible wealth, having created it through their own hard work. The latter group, however, did nothing. They only thought about how to get their hands on that wealth. So, they devised these pieces of paper, along with a story about facilitating exchange, to convince others to hand over their wealth. And the others naively did just that.

This raises a crucial, existential question: why would those who now hold the tangible wealth ever hand it back to those with the pieces of paper?

There is no economic, logical, or any other rational reason to do so. When someone hands you a car that can satisfy a multitude of real, existential needs in exchange for a piece of paper that fulfills none, you would be crazy to give that car up again just because of a utopian story about how that same paper facilitates exchange.

This is precisely why the Bitcoin project has actually already failed, even though people are not yet aware of it. It is the exact same story about money, with the only difference being that the token is digital rather than paper. But the essence of the situation remains the same. There was a group that had tangible wealth and gave it up for the story of money, and a second group that now holds their wealth. Although exchanges are still happening at a certain level due to current market mania and blind faith in that story, statistics show they are constantly declining. When the mania finally subsides, the harsh reality will remain: those who have acquired tangible wealth will not give it up for the sake of those holding tokens.

How is it then that, for example, the US dollar did not collapse a long time ago? The gold standard hasn’t existed for over half a century, and dollars today are just pieces of paper or digital records. If we go back to the story of the two groups of people, in the case of the dollar, there is one extremely powerful reason why the collapse did not happen. There is a force that compels those who received tangible wealth to return it to dollar holders. Namely, the dollar is issued as debt. Banks create it by approving loans. When those debtors receive tangible wealth from the public using newly created dollars, they have to pay it back in installments. To return those dollars to the banks and save their real property from foreclosure, they must work and create new wealth for those holding dollars. In the case of the state, which is the largest debtor, it accepts the dollar as a means of settling tax obligations because of its debt, thereby saving dollar holders from asset seizure or prison.

So, there is no utopian story about facilitating exchange for theoretical economists to philosophize about here. There is only the harsh reality of existential coercion. It is this very coercion that has kept the dollar alive for over half a century. A financial gun pointed at the head is the only real reason why those who received tangible wealth return that same wealth to those who hold dollars.

With Bitcoin and cryptocurrencies in general, on the other hand, the story is entirely different. Here, we have people who, solely because of a utopian story about money, gave up their tangible wealth (or dollars that secure that wealth through the mechanism of coercion) and who now hold nothing but digital records in their hands. Since there is no mechanism of coercion to force the other group, which has acquired real wealth, to return that same wealth to the record holders, the crypto project has already failed at its core.

Most people still do not realize this because they blindly focus on the price, which is nothing more than a measure of how much real wealth the last individual in line sacrificed. Theoretically, there could be just two people pumping the price of Bitcoin to a million through mutual exchanges. But that is completely irrelevant. The raw reality on a general level remains relentless: there is absolutely no reason for the group that got the tangible wealth to ever give up a single part of it again in favor of those holding digital papers. Existence always triumphs over utopia.