The Paramount Importance of Bitcoin

Sometimes we discover things that do not fit the existing mould. Bitcoin is one of them. Depending on who is looking, it appears as a threat to the financial system, a worthless contraption that boils oceans, an uncensorable computer network, digital gold, sound money, or energy stored as digital capital.

Human perception is reliably clouded by self-interest, shortsightedness, and the bias of what we already know. So the more useful question is not what Bitcoin is — but what you see when you look at it.

A Threat?

Some countries, institutions, and individuals see Bitcoin as a threat: to the status quo, to incumbent power, to financial control. Some of these actors may be acting in good faith. Others understand Bitcoin reasonably well but oppose it to preserve their own position, regardless of public benefit.

The telling alternative they reach for is the Central Bank Digital Currency — the CBDC. Compared neutrally:

• CBDCs are built by a central entity, imposed through mandate, and governed by rules set unilaterally from time to time. Their function is preservation of the status quo. Their inevitable consequence is the perpetuation of moral hazard.
• Bitcoin operates on consensus, voluntary adoption, and freely agreed exchange — rules without rulers. It is structurally immune to moral hazard.

It follows that there is one reliable way to make Bitcoin obsolete: genuinely good governance by the institutions in whom populations place their trust. So far, that option has not been taken.

A Commodity?

Most countries — the United States and Canada among them — classify Bitcoin as a commodity or digital asset. The CFTC’s view reflects the logic well: Bitcoin is an open network with no single issuer, accessible to anyone willing to invest the effort, and tradeable without intermediaries. That profile is closer to a natural resource than to a financial instrument issued by a counterparty.

A Reserve Asset?

Bitcoin’s lack of counterparty risk positions it similarly to gold: independent, crisis-resistant, and structurally uncorrelated with most conventional portfolios. Serious voices now argue that adding Bitcoin to central bank balance sheets would give countries a meaningful competitive edge over those whose balance sheets are deteriorating.

The alternative — loading up on debt instruments issued by structurally indebted sovereigns — carries risks that are becoming harder to ignore. In an environment of escalating trade barriers and sanctions, holding another country’s currency or bonds is increasingly precarious. The issuing country can renege on its obligations, freeze transfers, or render the instrument inaccessible. Bitcoin offers a censorship-resistant alternative: settlement without third-party permission, which is a valuable property precisely when it is most needed.

A Security?

In most jurisdictions — including Japan and Singapore — Bitcoin is not classified as a security. This is defensible. The overwhelming majority of so-called crypto projects feature a central issuer: a software company that controls the token supply and the rules. The substantive difference between those tokens and fractional company shares is largely one of label.

Bitcoin is different in kind. It is an open network in which anyone running mining equipment or a full node participates in finding consensus on the true state of the ledger. No single participant can censor or manipulate supply or rules. That is what genuine decentralisation means — and it is what makes the ledger immutable and manipulation structurally impossible.

A Taxable Asset?

Governments tax irrespective of their views on legality, and Bitcoin is no exception. In the United States, the United Kingdom, and Germany, Bitcoin is treated similarly to property or stock — capital gains tax applies when profits are realised. Germany goes further: Bitcoin held for over a year can be sold tax-free. Australia previously applied GST to Bitcoin transactions before removing it in 2017, recognising it as a digital currency.

A Banking Alternative?

In countries with weak financial infrastructure or unstable currencies, Bitcoin functions as a tool for financial inclusion. Across parts of Africa and Latin America, large populations remain unbanked — without access to conventional financial services, yet with a clear need to transact. In Nigeria, Kenya, and Venezuela, Bitcoin adoption has grown rapidly as a way to store value outside deteriorating local currencies and restrictive banking systems.

Bitcoin Federations are emerging as a parallel infrastructure. Applications like Fedimint allow individuals to receive, hold, and spend Bitcoin in a self-sovereign way without requiring a bank account — providing autonomy in financial environments that are otherwise dysfunctional.

A Payment Method?

El Salvador became the first country to recognise Bitcoin as legal tender in 2021. Elsewhere, Bitcoin payments are generally permitted though not widely adopted at the retail level. PayPal and Visa now allow purchases with Bitcoin. Anyone who has used the Lightning Network for payments tends to arrive at the same conclusion: Visa and Mastercard are slow, expensive, and inefficient by comparison.

One of the Most Important Inventions of This Century

Whatever we conclude from our observations will not alter Bitcoin’s nature. It will be what it is and do what it does. Ayn Rand put it plainly:

“We are free to ignore reality, but we cannot ignore the consequences of ignoring reality.”

China banned Bitcoin in 2020. Within three months, miners had relocated and surpassed their previous hash rate. It subsequently emerged that many Chinese miners had simply continued operating inside China — the network could not be stopped. The ban produced the opposite of its intended effect: rather than weakening the network, it demonstrated the network’s resilience.

The analogy with Executive Order 6102 — Roosevelt’s 1933 prohibition on private gold ownership — is instructive. Did people surrender their gold? Some did. The price reached new highs regardless. Banning is always possible. Enforcement at scale raises questions of legitimacy that compound over time, because it does not criminalise individual wrongdoers — it criminalises ordinary behaviour across society at large.

Bitcoin consolidates sound economic principles, strong monetary properties, and a coherent case for social justice into a system that is elegant, open, and durable. Whether institutions choose to engage with it on those terms, or spend energy opposing it, the network will continue regardless.

The response we choose may matter more than we currently appreciate.