A crypto news site ran an intriguing story last week, under the headline “Bitcoin Has Already Reached 40% of Average Fiat Currency Lifespan”. We could hear the tiny sound of your eyeballs rolling to the skies before you even got to the headline.
The article had a video to accompany it and everything, and was pretty widely picked up by bitcoin bros (who may or may not self-identify as bitcoin bros) on Twitter, like by this guy:
The Coin Telegraph article cites “a 2018 study by Dollar Daze” as the source for the story. But what is Dollar Daze, we hear you ask? Well, it appears to be an Anglo-Spanish blog that offers cutting-edge commentary on the dollar and sometimes crypto, like:
Currently the general market has been changing and cryptocurrency calls have been changing the economy to be a new type of currency in which to bet. The dollar, as always has been the strongest currency in the world, and is being overshadowed by what cryptocurrencies are.
But the “the average lifespan of a fiat currency is 27 years” idea has been showing up around the sillier corners of the internet for several years now. Economist and blogger JP Koning has done a brilliant job of finding exactly where this meme originally came from, and debunking it, in a comprehensive blog post last month.
As Koning points out, the meme has been shared by a number of high-profile bitcoiners over the years, including bitcoin developer Adam Back earlier this year, and Barry Silbert, one of the biggest crypto investors.
Indeed, as Koning pointed out on Twitter, Silbert’s Grayscale investment group even uses it in its promotional material:
Koning worked out that the meme had first appeared ten years ago (so just after bitcoin appeared on the scene), from a post by a guy called Matt Hewitt on Dollar Daze that has since been removed (you can still read it, via the magic of the Wayback Machine, here).
The 27 Club
But is there any truth in it? Or did the author just decide that it would be kind of neat for “fiat currency” to join the 27 Club?
First of all, it’s important to get clear on exactly what a fiat currency is, as there seems to be some confusion on this point. Bitcoiners tend to just use it as shorthand for central-bank-issued currency, but actually it’s a little more nuanced than that.
Here’s Koning:
Fiat currency is generally considered to be inconvertible money. It can’t be redeemed for gold or silver. The world really only shifted onto a fiat standard between 1968-71 as the dollar ceased to be redeemed in gold. But Hewitt’s list is replete with many metallic currencies (i.e. the riksdaler riksmynt). Are people using his data to make a claim about currencies in general, or just fiat ones? The meme isn’t clear on this.
But it does seem that Hewitt, the originator of the meme, did do some actual calculations to come up with the 27-year thing (albeit using some very selective methods).
Hewitt claims to have counted 176 currencies that are still in circulation, and 599 that aren’t. Koning downloaded the full list to check Hewitt’s calculations. It turns out that you can indeed arrive at an average “lifespan” (more on that in a bit) of 27 years, but that’s only if you make one fairly significant omission.
Yup, that’s right, it only is true if you leave out all 176 currencies still in circulation. So… just a little misleading, it seems fair to say.
The other thing is that these 599 currencies that are no longer in circulation didn’t all just spontaneously combust, as the meme implies. Rather, they were actually deliberately replaced or ended for economic, political or social reasons. So the idea of counting up these currencies’ “lifespans” just doesn’t really make much sense.
From Koning again:
The list contains all of the pre-euro currencies (Dutch gulder, French franc, Italian lira, etc). These currencies had good reasons for disappearing: they were swapped for a new monetary unit. Existing currency holders weren’t robbed. They were fairly compensated for this switch.
Another example of monetary reorganization occurred in East Africa. From 1919 to the 1960s, Britain’s former east African colonies relied on the East African shilling, produced by the East African Currency Board. When these countries gained their independence, the currency board was dismantled. In its place Kenya began issuing its own shillings at par with the old ones, as did Tanzania and Uganda.
In each case, existing owners of East African shillings could convert their holdings into new currency. No wealth was being destroyed during any of these switches. But people who throw around the phrase the average life expectancy for a fiat currency is 27 years as a criticism of the very institution of currency are using the data in a way that implicitly assumes that the East African experience–and others like it–were negative. They weren’t.
There are also some other factual errors that Koning points out — the whole post is worth a read.
So by this stage, the 27-year life expectancy has been pretty comprehensively debunked. But what about the idea that bitcoin has now reached 40 per cent of that, because it’s “survived” ten or so years?
That bit it also questionable. Has bitcoin actually successfully survived for ten years as a currency? One measure of success might reasonably be whether it has remained as one currency or whether it’s splintered off into different ones (because after all one of the things that gives currencies their value is some sort of scarcity).
But bitcoin has “forked” into different versions of itself twice already — into bitcoin gold and bitcoin cash, with the latter then splitting again to form bitcoin SV. So the people who originally backed bitcoin no longer agree on what the real bitcoin actually is. Adam Back might say it’s the thing most of us call “bitcoin” (ticker: BTC); Roger Ver would tell you it’s bitcoin cash (BCH); while Craig Wright would tell you it’s bitcoin SV (BSV).
Another measure of success of a currency might be its continued use as a medium of exchange, and yet outside the dark net, the acceptance of bitcoin in commerce has dried up (and that was from an already low base).
Furthermore, as we have said time and time again, bitcoin is not a currency. It fulfils none of the three key criteria for being a currency (serving as a unit of account, a medium of exchange, and a store of value). So comparing it to currencies makes no sense. As we have also said before, the fact that the battle cry of bitcoiners is HODL! is precisely why it makes no sense as a currency.