That’s right. You read that correctly. Bitcoin is a figment. But the dollar, imagined into reality by the Federal Reserve is…Backed? Backed by what?
With one unit of Bitcoin now worth 10,000 times the US dollar, it makes sense that the Fed would begin to feel a bit defensive. Indeed, the speech comes to the defense of the central bank, the existing money, and payment system networks, and calls for the pace of innovation to be controlled by regulators in the interest of “prudence.”
His summary criticism of Bitcoin is that:
The “currency” or asset at the center of some of these systems is not backed by other secure assets, has no intrinsic value, is not the liability of a regulated banking institution, and in leading cases, is not the liability of any institution at all. Indeed, how to treat and define this new asset is complicated.
That a Fed official would denounce cryptocurrency as unbacked strikes me as the height of irony. The dollar was once “backed” by the secure asset of gold, but that system was finally abolished by Richard Nixon’s Fed in 1971, lighting up inflationary fires that lasted a full decade. Since then, the banking system has moved from crisis to crisis, from the S&L debacle of the late 1980s to the near-death experience of the entire financial system of 2008.
This is not an excellent track record.
It is not a coincidence that Satoshi Nakamoto released his White Paper on Bitcoin in October 2008. It became very clear that we needed a new system of sound money that could not be manipulated by the very regulators and central banks that unleashed the crisis. Bitcoin was proposed as a sound money solution.
As for backing, Bitcoin is backed by the use value of the distributed ledger in the underlying technology of the Blockchain. What’s more, that backing has been tested. The march of BTC value from $0 to $10,000 in nine years reflects a market judgment, not anyone’s imposition, dictate, or regulatory plan.