The issuance of Bitcoin is intact, whilst governments are issuing money at their discretion. European central banks are exploring digital currencies, using the same approach as with fiat currencies.

The European Commission recently proposed a recovery fund for the region’s economies, which could reach EUR 750 billion. Of that amount, EUR 500 billion would be subsidized and another EUR 250,000 in the form of loans.

The approach of the European Commission is to go to debt markets, seeking to raise the required amount through bonds payable within 30 years from 2028.

The formula seems bleak, such as the almost unstoppable issuance of US dollars by the US Federal Reserve. These bailouts do not seem to represent future solutions when the injection of billions of euros has an inflationary influence on the pockets of savers and the general population.

Whilst governments are implementing inflationary measures, it is still unclear when they will reactivate economies. Even by relaxing the quarantine, the risks of new infections, deaths, and collapse in health systems show uncertainty regarding the return to normality.

Inflation, Deflation or Whatever Could Happen

Bitcoin maintains intact its policy of restricting issuance, with a rate that is not only controlled but also decreasing. Just over a month ago, the third halving event occurred, reducing by half the rewards to miners per block mined.

Bitcoin will not have an issue greater than 21 million BTC, being controlled to the point of limiting its existence. It is precisely the fact of being scarce one of its main attributes as a haven of value. It is something like gold, with the difference that there is total certainty in its limit of circulation.

Each block in the chain creates a certain amount of Bitcoin. In the current period, that amount is 6.25 BTC per block, and the blocks are mined about every 10 minutes.

There are cycles established from the code, aimed at reducing the amount issued per block. That event occurs every 210,000 blocks, which represents about 4 years.

Central banks issue money or create debt to justify unsupported money, at their discretion. Europe already did something similar when it issued bonds to rescue the crisis economies of Portugal, Ireland, and Greece. The bailouts did not help solve the economic situation in those countries, and the cure was sometimes worse than the disease.

Digital Version of Fiat Currencies

As they create debt that makes the long-term picture worse, many European central banks join the blockchain and digital currency fever, with the overt support of the European Union.

They mainly explore the possibilities of stablecoins or anchored currencies to create their digital currencies. It is a non-physical version of their national fiat currencies, with the same premise of issuing at their discretion, state control, and rules to convenience.

They may improve transaction processes concerning the current functioning of banking. However, there would be only a nominal change, in terms of economic policies.

Investment firm Grayscale concluded in a recently published investigation that the launch of digital currencies by Central Banks could boost the use of Bitcoin. The contrast between both proposals would eventually highlight the qualities of the first cryptocurrency among potential users.

By Willmen Blanco


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