Bitcoin the Currency

Michael Goldstein – May 4, 2015

In his magnificent Money, Bank Credit, and Economic Cycles, Jesús Huerta de Soto tells us how fourteenth century Catalonians tried to handle their epidemic of fractional reserve bankers (page 76):

Nevertheless, there are indications to show that, in spite of everything, private bankers soon began to deceive their clients, and on August 14, 1321 the regulations pertaining to bank failures were modified. It was established that those bankers who did not immediately fulfill their commitments would be declared bankrupt, and if they did not pay their debts within one year, they would fall into public disgrace, which would be proclaimed throughout Catalonia by a town crier. Immediately afterward, the banker would be beheaded directly in front of his counter, and his property sold locally to pay his creditors. In fact, this is one of the few historical instances in which public authorities have bothered to effectively defend the general principles of property rights with respect to the monetary bank-deposit contract. While it is likely that most Catalonian bankers who went bankrupt tried to escape or pay their debts within a year, documentary evidence shows that at least one banker, a certain Francesch Castello, was beheaded directly in front of his counter in 1360, in strict accordance with the law.

Despite these sanctions, banks’ liquid funds did not match the amount received on demand deposit. As a result, they eventually failed en masse in the fourteenth century, during the same economic and credit recession that ravaged the Italian financial world and was studied by Carlo M. Cipolla.


The bank crisis of the fourteenth century did not lead to increased monitoring and protection of the property rights of depositors. Instead, it resulted in the creation of a municipal government bank, the Taula de Canvi, Barcelona’s Bank of Deposit.

Not even a literal sword of Damocles could stop the sinful practice of fractional reserve banking and its necessary economic consequences, let alone any old bank regulation. No, what ends fractional reserve banking is Bitcoin.

There are many critiques of Bitcoin, and many share a common theme: missing the point. Mining is wasteful. Bitcoin is too costly compared to its legacy counterparts (Venmo me, bro). It’s not Bitcoin the currency that is important, it’s the block chain technology. Bitcoin, you see, is a solution looking for a problem.

This is a great rhetorical strategy for scammers. What was missing from your life, what held you back from techno-salvation, was timestamping business contracts for decentralized autonomous organizations, right? They have plenty of snake oil to alleviate your 20th century ills.

In reality, Bitcoin is the solution to a problem that has plagued humanity since the dawn of man. It solves the problem of money. Prior to 2009, there was no actual solution to the double-spending problem without counterparty risk, historically exploited through fractional reserves. After January 3rd, 2009, there was. This makes Bitcoin the greatest money to ever exist. Where it seems costly only serves to highlight where traditional moneys have been subsidized via Faustian bargains.

Satoshi’s first post to the P2P Foundation board focuses on this very issue in a brilliant, concise, and explicit way.

Bitcoin’s competitors are not databases, whether they use block chain technology or not. Bitcoin’s competitors are other currencies, and Bitcoin will win.

Other applications of Bitcoin, block chains, and cryptography are often interesting, but if Satoshi had only given us sound money, dayenu.

Further reading:

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