If you've spent any time lurking around the bitcoin community on Twitter or Reddit as I have you may have come across the term 'hyperbitcoinization'.

This is the theory where bitcoin surpasses all global currencies, including the US dollar, to become the world's reserve currency and, ultimately, the world's only currency.

The hyperbitcoinization theory is, of course, just that - a theory. At the time of writing, the dollar is very much still the world's reserve currency and the eleven-year-old bitcoin has a market cap of $183 billion with comparatively low adoption.

If hyperbitcoinization was ever to happen it would require a devaluation of the world's major currencies and thus forcing governments and people to adopt The Bitcoin Standard.

Given we are in the midst of the COVID-19 pandemic, the dollar's position as the world's reserve currency is likely to strengthen in the short-term as investors see it as a safe-haven to temporarily preserve wealth as financial turmoil and trade wars begin to play out in the coming years.

As the Federal Reserve continues to print off trillions of dollars via quantitive easing to prop up the struggling US economy this may eventually devalue the dollar or, worse, destabilise it.

The severity of the situation in the years to come will dictate the odds of bitcoin - or something like it - becoming the global reserve currency.

While this might sound farfetched it is in fact the normal state of play. New currencies have surpassed old ones for thousands of years.

The changing of currencies

The Latin definition of the word currency means 'in circulation' and before the invention of coins shells were the most circulated form of money and traded throughout the world. So too was silver and more recently gold.

Modern paper money was originally backed by the amount of gold stored in a country's vaults known as the gold standard. Today, however, paper money is not backed by anything other than a country's promise to honour it.

The world's reserve currency has also changed throughout history and is usually correlated to the country with the most powerful military.

From 1450 to 1530 the world's reserve currency belonged to the Portuguese. Then from 1530 to 1640 the Spanish, 1640 to 1720 the Dutch, 1720 to 1815 the French, 1815 to 1920 the British and from 1920 to present day the USA.

The connection? The country with the world's reserve currency was (or is) the global superpower at the time.

If history is anything to go by, the US dollar will lose its status as the world's reserve currency eventually. The question is what will dethrone it?

Despite being the world's second largest economy China has little to no interest in making the renminbi the global reserve. As an exporting nation and with cheap labour the Chinese government prefer to keep the renminbi relatively weak alongside other currencies.

It's also worth noting that historically the changing of a world reserve currency usually involves war. The last time followed World War 1.

The function of money

Money has to fulfil three functions to be a viable currency. These are:

A medium of exchange - facilitating the exchange of goods and services A unit of account - a measure of value in the economic system A store of value - allowing individuals to decide when they spend it

All currencies throughout history have, to some extent, met these three criteria. The dollar, pound, yen etc all do along with being backed by strong democratic governments.

Most currencies are increasingly losing their function as a long-term store of value as you can see with the dollar in the illustration below.

Decline of the dollar / howmuch.net

To preserve wealth today one must keep it in assets rather than money because of inflation. The value of the dollar decreases over time where the value of an asset such as gold, stocks, property and so on tends to increase over time.