Hard and soft money are used to depict different types of currency in economics. Hard money, commonly referred to as cold, hard cash, is secured by a valuable commodity like gold or silver, serving as a reliable and stable store of value. On account of stability in the financial markets, hard money has a critical monetary role, functioning as a medium of exchange and unit of account. It involves lower transaction costs and risks. Conversely, soft money refers to paper currency or fiat money, which is declared legal tender by a government but has no intrinsic or fixed value.
Money like Bitcoin is scarce and hard to come by because it has a maximum supply of 21 million coins; more than 19 million tokens have already been mined. It’s harder than fiat money and even gold, which it’s often compared to, because its hard cap serves as a financial safeguard and a signaling mechanism in the intricate setup of cryptocurrencies and blockchain projects. Discover how easy it is to buy Bitcoin with fiat on Binance by visiting binance.com/en. Soft money is often used instead of hard money as they’re interchangeable economically. Nevertheless, Bitcoin supporters see it as the best store of value.
Hard Times for Soft Money: What Are the Problems Caused?
Soft money isn’t guaranteed by something tangible, a physical commodity, but by a government, so it can react to economic growth, recessions, or population changes. It depends on trust – in other words, people must trust its value. Soft money is the more accessible and safer system for all involved; it’s without complications. When a central bank issues money, people trust the currency’s value. It can be distributed via national party committees to increase general support, creating a gray area for its use. The use of soft money is commonly criticized for its power to undermine the integrity of the political process, limiting people’s ability to influence outcomes.
By and large, the use of soft money in the economy elicits a negative response, being associated with an erratic, weak, and unstable society. Some of the issues caused by soft money include but aren’t limited to:
- Inflation: If the money supply grows at a faster rate than the economy’s ability to produce goods and services, it causes inflationary pressure. A specific amount of currency is able to buy less than before. Inflation can impact the effectiveness of investments.
- Financial market dislocations: When the financial markets operate under stressful conditions, they experience asset mispricing. Measuring the direct extent of the friction is challenging. At any rate, capital is oftentimes allocated to projects that are economically nonviable, a problem given they’re limited.
- Inequality: Income is unevenly distributed throughout the population, with the wealthy and well-connected taking advantage of asset appreciation. Some inequality is inevitable in the market-based economic system due to differences in talent, effort, and luck.
- Weakening confidence in currencies: Confidence is fragile, which may affect the behavior of public and private currency holders. The ideal protection is offered by a stable financial system, which allows share prices to absorb the impact of a lack of confidence.
- Volatility: Soft money is volatile due to regular business cycles and periodic recessions. If volatility is high, prices are moving quickly and steeply, which can spell trouble. Not only is it difficult to plan for the future, but also to create jobs.
Bitcoin Directly Challenges Soft Money, Emerging as A Groundbreaking Solution
In light of the soft money challenges, it’s clear we need a remedy, and Bitcoin can be the change we’ve been waiting for. Soft money, the pivotal institution of modern capitalism, is the greatest enabler in the world, but it’s also a perennial source of evil. Bitcoin, as hard money, stands in opposition to soft money, threatening the state’s power by creating money. At present, multiple investors and financial institutions are taking notice of Bitcoin, actively incorporating the largest and most popular cryptocurrency by market cap into their daily operations. You, too, can invest in Bitcoin to enhance returns and enjoy diversification benefits, says NYTimes.
Bitcoin can perform the functions of money, facilitating the purchase and sale of goods and services between parties. As it trades on online exchanges, the cryptocurrency can be easily transferred, the blockchain recording thousands of transactions daily. Bitcoin’s singular attributes make it an attractive asset. Its hard money properties refer to:
- Its decentralized framework: Bitcoin operates on a decentralized network that verifies transactions via cryptography, so it’s not controlled by a government or an institution. It leverages an immutable ledger to ensure the integrity of transactions and solve the double-spending problem; it’s impossible to duplicate or spend the same amount of Bitcoin twice.
- Pseudo-anonymous transactions: For transactions, people use pseudonyms (or addresses) to hide their real identities. Identity protection is watertight. Bitcoin users send and receive payments with an acceptable level of privacy, but achieving perfect anonymity is impossible. Instead of requiring personal information, Bitcoin transactions are associated with unique public addresses.
- Limited supply: Bitcoin’s limited supply increases scarcity with time, which, in turn, increases demand and price. Satoshi Nakamoto imposed a strict limit on the number of coins that could ever exist, so there will never be more than 21 million Bitcoins (read more about this). Even if the technical limitation would be adjusted by increasing the size of the field, the total number would still be 21 million.
The Takeaway
The money of the future could be computer code, which helps complete tasks more easily. Technological progress is driven by money, and the world of finance hasn’t been left untouched by the cryptocurrency revolution. Bitcoin is an innovation of the information age that guarantees people sovereignty and, consequently, a new form of freedom; the upcoming decade could prove pivotal to Bitcoin and cryptocurrencies at large. Bitcoin is growing in acceptance because it meets the requirements of hard money and brings about benefits for people who travel abroad or buy from overseas.
All in all, the Bitcoin ecosystem is still developing, so it will continue to evolve over the next few years. The supply limit is likely to have the greatest impact.
Last Updated: February 20, 2024
