Reserve Currency Fallacy

There is a theory that Bitcoin will eventually be held by nations as a reserve currency and that individuals will transact using national currencies "backed" by Bitcoin. The theory asserts that transaction volume is insufficient for its use as a consumer currency, but the ability to resist debasement makes Bitcoin an ideal reserve asset. Central banks and their authorized functionaries would issue a dependent currency while holding Bitcoin on reserve. Given that Bitcoin cannot be inflated, the litany of problems produces by state control of money would be resolved, ushering in a new era of prosperity. Transaction fees would be low while transaction volume would be limitless.

Let us consider the scenario as it unfolds. Bitcoin becomes fairly a widely utilized hard currency but struggles with low transaction volume, high fees and long confirmation times. After some unspecified events unfold, national banks end up holding large amounts of bitcoin (BTC) and issue Bitcoin Certificates (BC) to facilitate trade. An auditing process is set up whereby people can verify that the ratio of issued BC never exceeds BTC reserves. Legal tender laws are passed requiring people to accept BC as payment for all debts. People purchase BC with BTC so that they can pay taxes and buy stuff from white market retailers.

This scenario should sound familiar, as it is how nations ended up with gold and people ended up with paper.