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EDF: “Bitcoin is not a new type of money”

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A publication from the blog of the Liberty Street Economics unit of the New York FED, argues that Bitcoin should not be seen as a new type of money, but rather it is more accurate to think of it as a new exchange prototype.

Michael Lee and Antoine Martin’s post titled “Bitcoin is not a new type of money,” specifies that cryptocurrencies are often described as a new type of money, but argues that this is a misconception.

In this regard they underlined:

“Bitcoin may be money, but it is not a new type of money.”

Importantly, Michael Lee is the research and statistics economist at the New York Fed and Antoine Martin is the senior vice president of the Research and Statistic group.

Bitcoin is not a new type of money

Accordingly, Lee and Martin added:

“To see what’s new in Bitcoin, it’s helpful to make a distinction between money and the exchange mechanism.”

First of all, Bitcoin is not a new kind of money, it is a new type of exchange mechanism. So this mechanism can support a variety of forms of money, as well as other asset ideals.

Consequently, the publication notes that the distinction between money and an exchange mechanism is not new in the field of payments, emphasizing a report by the Committee on Payments and Market Infrastructure (CPMI).

The CPMI is an organization within the Bank for International Settlements, which says that the money refers to the asset that is being transferred. Rather, the exchange mechanism is the way the asset is transferred, such as physically delivering the currency to a merchant in exchange for a coffee.

Opinion of a commentator

According Nic Carter, a Blockchain-focused Castle Island Ventures partner and frequent commentator on crypto technology, such a definition misclassifies the nature of Bitcoin, spoiling the very meaning of Fiat.

He also stated:

“I don’t know if the intention of the New York Fed economists was to denigrate Bitcoin, but it turns out that way.”

Nic Carter agrees that Bitcoin gave the world a new way to move money. Undoubtedly, challenging the authors’ claim that the Bitcoin Blockchain should house other assets.

He certainly said that it was impossible to separate Bitcoin’s monetary nature from the mechanism in which it exists.

What aspect of Bitcoin is unique?

Specifically, the publication proposes two classifications, one for money and the other for exchange mechanisms. For each of them, it makes use of three categories that are clear:

  1. Fiduciary money
  2. Backed by assets.
  3. Claims backed money.

It is worth noting, that the distinction between asset-backed and claim-backed money is intended to replicate the distinction between secured claims and unsecured claims.

In addition, the exchange mechanisms are also divided into three categories:

  1. Physical transfer.
  2. Electronics with a trusted third party.
  3. Electronic transfer without a third party.

They add, they find that Bitcoin and other cryptocurrencies are not a new type of money, because other examples of fiat money have been around for a long time. The same is true of stablecoins, which are just the latest incarnation of monies tied to the value of an asset.

By contrast, electronic mechanisms without third parties did not exist before 2009. Because of this, the true innovation of cryptocurrencies is that they offer a radically new exchange mechanism.

According to the report, this exchange mechanism can support the transfer of different types of money:

  • Fiat money in the case of Bitcoin.
  • Asset-backed money in the case of stablecoin.
  • Future services or products, as in the case of ICO Tokens.

At the conclusion of the publication, the authors pose the question, Why should we care if Bitcoin is money?





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