The new TV series Ozark has the best explanation of this I’ve seen in popular culture. To paraphrase: Say you have $1 million in cash. What can you actually do with it?
If you try to deposit it in the bank, they will file a report, and you will shortly be explaining to the government where that money came from. Unless you have a good explanation, you will then be desperately trying to hire a lawyer in order to avoid a trip to the pokey.
Nor can you simply buy a house or a car with that cash, which will raise many, many eyebrows at the bank, and then at the government that bank reports to. You basically can’t make any large purchase in cash without raising a lot of questions. This is why drug dealers spend so much effort figuring out how to launder their ill-gotten gains. Unless you can find some way to put the money in a bank without the government getting suspicious, then all you have, in the words of Jason Bateman’s character, is (approximately) “groceries and gas for the rest of your life.”
And that’s dollars, which are indisputably legal tender. Your cryptocurrency will be even harder to spend. Who wants to trade you legal cash for scrip that’s only good for buying on the black market? How do you find that person? What discount will they demand for giving up their cash?
Bitcoin is currently good for transferring money out of failing states like Venezuela, because in those places, the local currency is so worthless that you’re better off trading it for bitcoin, or for that matter, cans of mackerel. But that presumes there are countries elsewhere with stable governments and strong economies where bitcoins can be turned into real goods. If bitcoins become a good way to evade those governments, those governments will ban them, and desperate people will go back to smuggling diamonds and dollars.
Megan McArdle, “Bitcoin Is an Implausible Currency”, Bloomberg View, 2017-12-27.
March 12, 2020
QotD: Cryptocurrency versus cash in a modern economy
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