WHY BITCOIN WON'T WORK

The number of Bitcoin transactions (as opposed to trades) has not risen much in the last few years, and one recent academic study suggested that half of those transactions are associated with illicit activity. As a medium of exchange, Bitcoin remains today pretty much what it was in 2010: an interesting complement to the existing monetary system, primarily useful for people interested in avoiding legal authorities or living in societies racked by inflation (like, say, in Venezuela or Zimbabwe).

Still, the dream that cryptocurrency could replace our existing system of fiat money, in which the money supply is controlled by government-­run central banks, remains a key part of Bitcoin's appeal. The promise is of a system where the government can't manipulate the money supply, and market competition determines which currencies people use. But what would happen if that dream came true? If the dollar and the euro were replaced by Bitcoin, how would the system adapt, and how would the economy and the financial system function?

The simple answer is: not well. Our economies and financial systems are built around fiat money, and they rely on the central bank's control of the currency (and the government's ability to issue debt in that currency) to help manage the business cycle, fight unemployment, and deal with financial crises. An economy in which Bitcoin was the dominant currency would be a more volatile and harsher economy, in which the government would have limited tools to fight recessions and where financial panics, once started, would be hard to stop.

The opposite of what you want
To see why this is the case, it's key to recognize the crucial role that the central bank (which in the US is the Federal Reserve) plays to provide what economists call "liquidity" when the system needs it. That's just a fancy way of saying that the central bank can pump money into the system, either by printing it and then lending it to banks (with the idea that they will then inject that money into the system) or by simply buying assets itself. Providing liquidity is especially important in times of financial crisis, because crises lead banks to cut back on lending and savers to pull their money out of banks. In those times, the central bank serves as a lender of last resort, stepping in when otherwise solvent banks are struggling to stay afloat and ensuring that we don't end up with a flood of bank closings.

In an economy run on Bitcoin, these things would be impossible for a central bank to accomplish.

To read the complete article, see:
Bitcoin would be a calamity, not an economy (https://www.technologyreview.com/s/610783/bitcoin-would-be-a-calamity-not-an-economy/)

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