Why Economists Are the Ones Who Understand Bitcoin the Least
“There is no choice but to admit that opinions about money are harder to pin down than clouds deformed by the wind.”
—J. A. Schumpeter, History of Economic Analysis
I often share a meme that reads: “Economists have the worst understanding of Bitcoin. Change my mind.” Over and over again, I find this to be true. Economists, as a group, consistently have the poorest grasp of Bitcoin. And it doesn't matter what school they come from, whether they’re professors or banking executives, whether they lean left or right, whether they follow the Austrian School or Modern Monetary Theory. After four years immersed in Bitcoin —conducting hundreds of interviews, attending conferences, and participating in debates— I can count on one hand the economists who truly understand it.
Bitcoin Challenges Beliefs
Bitcoin confronts deeply held beliefs, and as Ortega y Gasset observed, we are held by our beliefs, we interpret the world through them and instinctively reject ideas that contradict them.
What’s Wrong with Economists?
Undoubtedly, Bitcoin operates in the economic realm —though not only there— so how is it possible that something so economically significant could go unnoticed or misunderstood by economic theorists?
“It’s a bubble! Just digital tulips!” they say, ignoring the fact that while tulips went up 22-fold, Bitcoin has increased over 60 million times. “That can’t be right,” they think, “the market must be wrong.” But what are they missing?
Bitcoin solves a set of long-standing problems in the digital world. In the digital realm, we lack privacy by default, because every interaction requires a service provider. Privacy means the ability to reveal oneself selectively, but this becomes impossible if you're forced to share your data with someone who can betray your trust.
If you hand someone a letter, the contents remain private. If you send an email, that privacy depends entirely on the provider, who can access or leak the contents. The same is true with physical cash; when you pay with a banknote, the shopkeeper doesn’t know who you are, nor does the central bank know what you bought, where, or when. But in digital transactions, that anonymity disappears. Your bank knows everything, and that data can spread far beyond.
Electronic Cash
Bitcoin, as described by Satoshi in the whitepaper, is “electronic cash.” However, this phrase has led to a series of mistaken assumptions, assumptions that are at the core of why economists fail to grasp Bitcoin. It’s not, as Saifedean Ammous suggests in The Bitcoin Standard, merely a better alternative to fiat or central banking. The misunderstanding goes deeper.
Bitcoin solves two core problems in the digital world: the double-spending problem, and the trusted third-party problem.
In the digital space, duplication is easy and nearly free. You can send the same image to ten people at once. That ability to replicate means digital items can’t be scarce or worth storing.
The Trusted Third Party
Moreover, to prevent this duplication from corrupting a monetary system, a third party is typically used to ensure that a transaction happens only once. Just as streaming platforms prevent you from endlessly sharing content, banks prevent digital money from being “double-spent.” But this introduces massive dependencies and risks: loss of privacy, censorship, reliance on the provider’s competence, exposure to attacks, regulatory compliance, and the risk of collapse or state seizure.
The Breakthrough: Solving Double Spending Without Trust
Bitcoin is the first and only digital asset to solve both double spending and third-party dependency, making it the world’s first truly digital, real asset, a digital commodity. Yes, Bitcoin is a real asset. It is nobody’s liability. It has no issuer, no company managing it, no one generating value on its behalf. Recognizing Bitcoin as a real asset is the first stumbling block for economists.
The second difficulty is understanding its role relative to payment systems. Bitcoin is not a great payment method, not due to technical limitations, but because that’s not what it’s designed for. Most of us already have easy ways to pay for things, so its use in day-to-day payments isn’t especially compelling. On top of that, it increases transaction costs —as Ronald Coase would note— for regular payments. And since its supply is fixed, any change in demand reflects directly in the price. There is no way to adjust supply to stabilize it, so Bitcoin is inherently volatile.
Payments and units of account require stability to enable economic calculation. But stability comes at the cost of long-term asset appreciation. So what value does Bitcoin actually offer?
A Redefinition of Property Rights
The most important thing Bitcoin does is redefine property rights. Until now, property has always depended on systems upheld by coercive power. Bitcoin removes the need for a trusted third party and creates a global, autonomous system where people can own and transfer control of a real asset, digitally. In this way, Bitcoin functions as a global system of absolute private property rights.
This is a historical shift. Ownership becomes dependent not on institutions or governments but on knowledge, knowing a set of words. For the first time, people anywhere in the world can own assets, store value, and pass on wealth privately, without censorship, and without dilution, with unprecedented accessibility.
That’s no small feat.
Deterioration, Divisibility, and Custody Costs
If Bitcoin is a real asset, then its value depends on the demand for the properties it possesses. Since it’s not anyone’s liability, it cannot be censored or easily confiscated. It also drastically reduces the cost of saving and transferring value over time.
Its deterministic supply schedule, which is essentially deflationary due to lost coins, means your share of the total supply grows over time. There's no risk of dilution, and your wealth concentration increases naturally.
Moreover, Bitcoin avoids the information asymmetry involved in choosing where to invest. It's like buying gold, you don’t have to pick the right company or fund. But unlike gold, Bitcoin is easy to divide, verify, and transport. Gold is costly to store, verify, and protect. It deteriorates slightly each year through dilution—about 1.6 to 2%. Over time, that’s significant.
Real estate has similar issues. It deteriorates, has high custody and maintenance costs, carries legal and regulatory risks, and is difficult to liquidate. Bitcoin doesn’t have those problems. It’s durable, portable, divisible, and not subject to location-based taxation or expropriation in the same way.
Bitcoin’s Superior Design
Compared with traditional “store of value” assets, Bitcoin’s design is superior in nearly every way. It is built for hoarding, not spending. With a fixed supply, it gains value the more people want to save it, not spend it. And as a real asset, it carries no counterparty risk. It doesn’t need to be “backed” by anything, and it cannot default.
Ask yourself: What are the odds that states will stop devaluing their currencies? What are the chances that regulation will loosen in the coming years? What’s the likelihood that taxes on illiquid assets like property won’t increase? Will politicians leave private pension funds untouched? Have banks ever failed to return depositors’ money? Have states or companies ever defaulted?
Bitcoin may not answer all these questions, but it changes the context in which we ask them.
Economists Must Do Their Homework
Economists still haven’t done the necessary work. The task is not to interpret Bitcoin through the lens of existing theories or beliefs, but to rethink those theories and beliefs in light of Bitcoin.
That’s where the work begins.
