Ep. 82: Will bitcoin become a global reserve currency, with Eric Yakes.

Watch our interview with Eric Yakes on Youtube.

Eric Yakes graduated with a double major in finance and economics from Creighton University, and 3 years later earned his CFA charter. He began his career at FTI Consulting in their Corporate Finance and Restructuring group and then moved to Lion Equity Partners, a distressed buyout private equity fund. All the while he intently followed Bitcoin, and its development eventually led him to author the book "The 7th Property: Bitcoin and the Monetary Revolution".

Related

• Our interview on monetary economics with Dr. George Selgin. 
• Lyn Alden on cryptocurrencies and inflation. 
• Talking to Jeff Booth about bitcoin and deflation. 

Questions Covered

What makes bitcoin a good store of value? 

• First, we must understand what money is. Money is a commodity that is scarce, durable, divisible, and fungible, and compared to other goods it has the lowest diminishing marginal utility. A good money is salable across time, space, and distance, and these dimensions correspond to money's role as a store of value, medium of exchange, and unit of account, respectively. The fact that bitcoin is scarce and durable means that it is likely to hold its value over time, and it is therefore a good store of value. 

Even if Bitcoin is a superior money, doesn't the fact that the dollar has a vast network of users mean that bitcoin will struggle to displace it? 

• It's certainly true that the dollar is backed by the largest military in the world and used nearly everywhere. But in recent decades multiple countries have noticed that the prevailing dollar-focused monetary order has not benefited them, and have begun looking for alternatives. This has only accelerated with the weaponization of SWIFT in light of the recent Russian invasion of Ukraine. None of this guarantees that Bitcoin will be what replaces the dollar, but it does represent an opening of cracks in its otherwise unchallenged dominance, creating opportunities for some alternative to begin establishing a parallel network of users. If Bitcoin can first become one of the options, then outcompete the others, there's at least a plausible pathway to its becoming a global reserve currency. 

What is the 7th property of Bitcoin? 

• Immutability. Bitcoin has the other properties of money, but it would the first immutable currency. This would reduce important forms of moral hazard and make Bitcoin a nearly ideal base layer money.