As we move into 2022, know how Bitcoin stacks up against the US dollar

2021 has been a year dominated by cryptocurrencies, so much so that a few countries have announced a crypto ban and a few have hotly debated how to regulate their trade.

Now, as we move into 2022, the crypto market is likely to enter a new phase. This phase will focus less on the altcoin vs. Bitcoin debate, and more on Bitcoin against USD. Bitcoin speculative trading can only last a little longer. Ultimately, Bitcoin must become what Satoshi Nakamoto has always envisioned – legal tender that could either work alongside the US dollar or even replace it altogether.

That said, crypto enthusiasts probably have enough time to speculate on the value of Bitcoin, before it stabilizes in light of the fact that Bitcoin is finally making forays into the legal tender space. Today, let’s find out how Bitcoin is different from the USD.

Read also: Is Investing In Altcoins Better Than Bitcoin?

Bitcoin vs USD – Back to basics

Bitcoin is backed by the blockchain, not the dollar.

Bitcoin is essentially a digital currency that can be transferred using distributed ledger technology.

Can USD also be transferred digitally? Yes, but at this time it’s not on the Distributed Ledger.

Bitcoin started in 2009. In its early days, it was of little value. Hal Finney, a developer, is said to have been the first beneficiary of Bitcoin after contributing to the network’s underlying proof-of-work consensus mechanism.

The US dollar, on the other hand, has a long, illustrious history. The 18e Century Coinage Act established the USD, when pegged to the Spanish dollar.

Read also: Blockchain, crypto-currencies, NFT & CBDC: Difference explained in 4 paragraphs

Bitcoin regulation

If it hadn’t been for the regulatory part, there’s no point in discussing Bitcoin against USD. Bitcoin’s biggest Unique Selling Proposition (USP) is the absence of any regulatory authority. The US Federal Reserve, which is the regulator of the USD, has no control over Bitcoin. This is due to the underlying blockchain technology of Bitcoin which has decentralization at its heart.

The US dollar is regulated by the central bank, as a free supply of the greenback can cause a series of problems. For example, if there are enough US dollars floating around in the economy, the purchasing power of people will increase beyond the limits. Enough money can lead to high prices because supply will never be able to meet demand. In contrast, a low availability of the US dollar can lead to a shortage of capital for private companies. This can deal a severe blow to job creation and economic growth.

For now, Bitcoin supporters are avoiding the debate over how the unregulated supply of Bitcoin can become an economic problem. Bitcoin will have a limited supply of BTC tokens, but their movement from party to party would still be unlimited. This is what can lead to either too much cash or too little cash. The lack of regulatory oversight over Bitcoin has not yet been fully understood, and the dust will only settle when more countries make it legal tender.

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Does Bitcoin have a guarantee?

The US dollar is a fiat currency. The latter term means that the issuing government guarantees payment to the holder of a USD note.

In Bitcoin, such a sovereign guarantee does not exist. It gets more complex because of the wallet. Any investor in Bitcoin must store the assets in a crypto wallet. Wallets have a private key for each user. There have been many instances across the world where wallet owners failed to recall the private key and lost access to stored BTCs.

As Bitcoin is a digital-only currency, there have also been cases of hacking. Although cryptocurrency proponents claim that it is possible to locate any stolen Bitcoin, this remains a controversial part that still plagues cryptos. Bitcoin has yet to demonstrate its ability to guarantee the value of the holding to the user.

Read also: Is Bitcoin Better Than Gold As A Hedge Against High Inflation?

Acceptance of Bitcoin

There is little sense in using a currency that does not have wide acceptability.

The US dollar has a significant advantage in this category. It is the most powerful currency in the world. Any holder can be sure of its acceptance throughout the world. Several commodities, including crude oil, are denominated in USD. Banks easily exchange USD for any other fiat currency. In fact, the USD is not used as a regular currency in the United States, but it is also the only currency in many other jurisdictions. El Salvador, a country that legalized Bitcoin, used the USD because it did not have a local fiat currency.

Bitcoin is far from becoming a universally accepted currency. For now, a few big companies like airBaltic are accepting Bitcoin from customers, but mainstream adoption remains elusive.

The acceptance of Bitcoin is just in pieces. A “Bitcoin city” in El Salvador with Bitcoin bonds has yet to demonstrate long-term success.

Read also: Is Canada working on its own CBDC?

To take with

Bitcoin, for now, remains a tradable asset. For some, it may be digital gold and an inflation hedge. Unlike this, the USD is not a tradable asset. The US dollar is found in people’s pockets and is used to make purchases for a good or service. Countries maintain their reserves in US dollars in order to have a cushion in cross-border trade, where most commodities are valued in USD.

Bitcoin’s road to becoming such a powerful legal tender is filled with several roadblocks. First, the absence of any regulatory oversight makes economies vulnerable to having Bitcoin as a medium of exchange. But that doesn’t mean that Bitcoin can’t achieve the feat. Central banks are considering the launch of CBDCs (central bank digital currencies), which are likely to rely on blockchain. In this way, the digital version of fiat currencies can come with the same decentralized ledger attributes. These currencies can then be pegged to Bitcoin.

Finally, Bitcoin – there is a near consensus on this – makes remittances cheaper and faster. The presence of intermediaries such as commercial banks in USD payments adds time and expense. This is one thing that could be Bitcoin’s true USP against the USD.

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