- Fiat currency management is decided by governments, with the public having little influence over policy.
- Anyone can theoretically contribute to a cryptocurrency code and have a say in critical decisions on its development roadmap.
If you’ve read a research or policy paper from a government or central bank in recent years, you may have noticed an exciting distinction such institutions tend to make when it comes to money.
They like to refer to national fiat currencies as ‘public money’ and cryptocurrencies and other virtual currencies — as ‘private money,’ implying that one somehow ‘belongs’ to the public. In contrast, the other is strictly the reserve of private individuals.
This distinction is misleading, if not downright false, and for various reasons.
Yes, fiat currencies may be ‘public’ insofar as they’re created and managed by institutions that are (nominally) accountable to the public. Yes, cryptocurrencies may be ‘private’ insofar as they operate primarily outside of governments’ purview. However, many figures working within the cryptocurrency industry argue strongly that members of the public have more influence over the development of cryptocurrencies than that of fiat currencies.
What is ‘public’ money?
It’s not hard to find examples of central banks using the terms’ public money’ and ‘private money.’ In a speech delivered in June by the Bank of England’s Christina Segal-Knowles, references are made to both, with money issued by a central bank being ‘public’ and pretty much everything else (including money issued by commercial banks). Being ‘private.’
Likewise, the International Monetary Fund made a similar distinction in a blog published in February, in which it also happened to describe public money as “perfectly safe.”
Some proponents of the public-private money distinction appear to have a relatively rosy view of public money. Here’s the European Central Bank’s Fabio Panetta, defining public money in a speech delivered in November 2020:
“a public good that central banks have been managing for centuries in the public interest and that should be available to all citizens to satisfy their need for safety.”
Community control, no center of power
However, the cryptocurrency industry would seem to disagree fundamentally with such a view of public money, particularly when it’s claimed that fiat currencies are managed “in the public interest” and are intended to “be available to all citizens.” For them, such an assessment is mainly at odds with the reality of how money (in whatever form) is managed and distributed.
“There should be no public money with regards to citizens, all money created from an individual’s productive output should be private and protected by property rights,” said Peter McCormack, the host of the What Bitcoin Did podcast, implying that ‘public’ is perhaps the wrong adjective to use to describe money, even when created by a central bank.
Likewise, others take issue with the distinction’s suggestion that Bitcoin (BTC) and other cryptocurrencies are somehow out of the reach of members of the public, while fiat currencies are somehow under their control.
“A cryptocurrency that is built using open-source code and does not provide its founders with any exclusive advantages over any other participant of its ecosystem (like Bitcoin) is definitely a more public good than central bank-issued currencies, where a centralized agency has exclusive, direct control over its issuance and price,” said Nishant Sharma, founder, and CEO of mining-focused consultancy BlocksBridge Consulting.
Decentralized cryptocurrencies such as Bitcoin are decentralized precisely to the extent that no one group or individual holds dominance over their development, with the absence of a formalized or hierarchical governance structure meaning that members of the community have equal access to influence (at least in theory).
“Fiat currency management is decided by governments, with the public having little influence over policy. On the other hand’ private currencies,’ if decentralized (like Bitcoin) are managed by the community, giving the ‘public’ control,” said Lou Kerner, CEO of BIGtoken.
Nothing stops you from submitting proposals for an update for your favorite cryptocurrency if you’re a developer. If its wider development community like this proposal, it will be approved and implemented. It would certainly be tough to do something similar for central bank-issued ‘public’ money.
“Anybody can theoretically contribute to the code of a cryptocurrency and have a say in critical decisions on its development roadmap. That includes critical decisions that can ultimately have a big impact on the price of the said currency,” according to Nishant Sharma.
On the other hand, even if members of the public may theoretically have more of a chance of swaying the direction of Bitcoin (than of the dollar, euro, or pound), the need for community cohesion in approving updates ensures that no single agent becomes dominant.
“The good thing about Bitcoin is that it is very difficult for any individual to influence it,” stressed Peter McCormack.
However, one misgiving observers may have when trying to argue that decentralized cryptocurrencies belong more to the public than fiat currencies. Looking at the distribution of bitcoins, for example, you may notice that the top 0.4% of all BTC addresses hold around 85.6% of all bitcoin in circulation. However, this picture is not accurate, as some of these addresses belong to exchanges that hold BTC for millions of their customers.
In either case, in the future, the distribution of BTC might be even better if more members of the public get involved in Bitcoin.
As Nishant Sharma concluded, “The fact that a person gets to truly own bitcoin, makes that person a major stakeholder and well-wisher of that cryptocurrency. This is in stark contrast with elected (or appointed) officials who get to decide on critical decisions regarding fiat currencies, such as their issuance.”
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