Then They Fight You: Bitcoin and the United States’ Fiscal Crossroads
Introduction
Scholars dispute whether it was Mahatma Gandhi who first said, “First they ignore you, then they laugh at you, then they fight you, then you win.” What cannot be disputed is that advocates of bitcoin have adopted the aphorism as their own.
Bitcoiners commonly prophesize that at some point, bitcoin will replace the US dollar as the world’s predominant store of value.[1] Less frequently discussed is the essential question of exactly how such a transition might take place and what risks may lie along the path, especially if the issuers of fiat currency choose to fight back against challenges to their monetary monopolies.
Will the US government and other Western governments willingly adapt to an emerging bitcoin standard, or will they take restrictive measures to prevent the replacement of fiat currencies? If bitcoin does indeed surpass the dollar as the world’s most widely used medium of exchange, will a transition from the dollar to bitcoin be peaceful and benign, like the evolution from Blockbuster Video to Netflix? Or will it be violent and destructive, as with Weimar Germany and the Great Depression? Or somewhere in between?
These questions are not merely of theoretical interest. If bitcoin is to emerge from the potentially turbulent times ahead, the bitcoin community will need to contemplate exactly how to make it resilient to these future scenarios and how best to bring about the most peaceful and least disruptive transition toward an economy based once again upon sound money.
In particular, we must take into account the vulnerabilities of those whose incomes and wealth are below the rich-nation median—those who, at current and future bitcoin prices, may fail to save enough to protect themselves from the economic challenges to come. “Have fun staying poor,” some Bitcoiners retort to their skeptics on social media. But in a real economic crisis, the poor will not be having fun. The failure of fiat-based fiscal policy will inflict the most harm on those who most depend on government spending for their economic security. In democratic societies, populists across the political spectrum will have powerful incentives to harvest the resentment of the non-bitcoin-owning majority against bitcoin-owning elites.
It is, of course, difficult to predict exactly how the US government will respond to a hypothetical fiscal and monetary collapse decades into the future. But it is possible to broadly group the potential scenarios in ways that are relatively negative, neutral, or positive for society as a whole. In this essay, I describe three such scenarios: A restrictive scenario, in which the US attempts to aggressively curtail economic liberties in an effort to suppress competition between the dollar and bitcoin; a palsied scenario, in which partisan, ideological, and special-interest conflicts paralyze the government and limit its ability to either improve America’s fiscal situation or prevent bitcoin’s rise; and a munificent…
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