We’ve seen Bitcoin before, only not from the same technology perspective.
Alan Greenspan, past Federal Reserve Chairman, recently told CNBC that Bitcoin was comparable to extinct American currency: The Continental Dollar and the Greenback. Greenspan said, “Bitcoin looks like the history of fiat money in the United States.” (i.e. the Continental dollar and the Greenback from the Civil War). This isn’t a good sign for Cryptocurrency holders, as the Continental dollar ultimately proved to be worthless. However, Greenspan told holders not to worry too much yet, as “Humans buy all sorts of things that aren't worth anything...People gamble in casinos when the odds are against them. It has never stopped anybody." So long as there are people who see a way to make money off of bitcoin, it will have some value in trading.
The Continental Dollar
After the start of the American Revolution, Continental Congress started issuing Continental currency. These were Continental dollars with a wide range of different values up to about $80. Over the course of the war, Congress issued almost $250 million Continental dollars.
The Continental dollar was fiat currency. It was declared a legal tender by the government but it didn’t have backing in any other currency (like gold or silver). It got it’s value from supply and demand…which isn’t so different from Bitcoin currently.
The Continental dollar became valueless due to a few reason. The overarching one was, as historian Robert E. Wright wrote, “There were simply too many of them.” Also, Congress didn’t have the ability to regulate states. The states continued to issue bills of credit, which devalued the central Continental dollar. Plus the British also succeeded in economic warfare. Benjamin Franklin later recalled,
And so the Continentals became worthless. By 1780 they were worth 1/40th of their original value and by 1781 they stopped circulating as currency at all.
Worthless, however, was a relative term, as Alan Greenspan might argue. "A significant share of [the Continental Dollar] was creating real goods and services.” George Washington was able to use the currency to buy his army, its supplies, and so much of what was needed to win the American Revolution. Perhaps without this worthless currency, America wouldn’t have succeeded in its revolt from Great Britain.
About 90 years later, in 1862, the U.S. took another shot at fiat currency. Abraham Lincoln was struggling to come up with the money he needed to fund the Civil War. Instead of borrowing money from foreign investors, he decided the U.S. would print its own, non-gold or silver backed currency. It was called the greenback due to the green ink it used.
Unfortunately, the Greenback plan just wasn’t supportable. The U.S. government issued hundreds of millions of dollars in Greenbacks and so their value steadily declined in comparison to gold and silver. The money was also heavily valued alongside how well the Union was doing in the war. Originally 100 Greenbacks were equal to 100 dollars in good. By 1863, 152 Greenbacks could only get you 100 dollars in gold, but after the Union defeated the Confederates at Gettysburg the ratio jumped to 131 to 100. In 1864 the Greenback hit a low of 258 Greenbacks to 100 gold and by 1865 the ratio was at a much better 150 Greenback to 100 gold.
While the value in decline of the Greenbacks was worth recognizing, it was not comparable to the decline of the Continental dollar. The Greenback still held value at the end of the Civil War.
Ok, so what does this mean for Bitcoin and Cryptocurrency?
Alan Greenspan was asked in a CNBC interview if we should conclude that Bitcoin will eventually be worthless. Here’s how he responded:
I’m not a professional investor or Bitcoin expert. All I can tell you is that it is up to you to guess whether or not Bitcoin will go the way of past American currencies. Good luck guessing!
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