If we do not understand the problem at a granular level, how can we ever determine what may be a suitable solution? Bitcoin has been obtuse to many, the reason being that most simply do not understand the problem of money; if you are one of these people, don’t be hard on yourself — very few do understand.
Bitcoin is an open-source, globally distributed protocol for transferring and storing value; but, just as important, it has a vast technology stack being built out on top of the base protocol — drastically expanding Bitcoin use cases.
We don’t have time in our busy lives to dig into quantitative easing, interest rate policy, RePo markets, currency game theory among competing nations, the rationale for negative yielding bonds, why economic inequality has become so staggering, and how everything has become “so damn expensive?” Bitcoin can and is a solution to many of these topics; however, we will never understand why Bitcoin until we understand the underlying problem it solves.
In short, money should simply be an abstraction of value that frees us from the inconvenience of barter — or easier said, a ledger of who owns what.
I will spare the reader the laborious task of going through each of these characteristics in great detail; but I will instead focus on the key deficits in our current monetary system and how the Bitcoin protocol fixes them.
With these disparities, it led to a lack of fungibility and the buyer and seller had to resort to negotiation of the value of the particular seashell in question — making pricing difficult.
In 600 BC, a major breakthrough was reached to solve this issue of fungibility, scarcity and, in many instances, portability.
Coins were small enough that they were fairly portable , but it did drastically improve upon the portability of previous barter systems; one didn’t have to bring a flock of chickens or a cow with you wherever you went to settle a transaction.
In respect to gold,the yellow metal is not easily divisible, if you were to pay for lunch with gold it would be cumbersome to break off a piece of a gold bar that would be commensurate with any low value transaction.
It very clearly states “Redeemable for 5 dollars of Gold Coin.” Do you notice anything different from our current $5 dollar bill? It now says “Federal Reserve Note” — this is no longer redeemable for gold.
You made a fortune due to the fact you could charge such a high price being the only game in town for wheat — we chubby Americans are willing to pay a lot more to make sure we get some wheat for our cakes.
This is a perpetual “get out of jail free card” for governments, as they can now just print money to meet expenditures without having to collect revenue through the arduous and contentious task of raising people’s taxes.
As you can see from the graph on the left, if you are holding your wealth in dollars or any other paper currency, your lifelong accrued “monetary energy” is getting diluted away and quickly.
How do you think that report will come back? Perhaps they may come back with the yearly report of achieving 2% inflation? If you look at home prices in your area, your education expenses, how many hours needed to work to buy one share in the S&P 500 index, would you say this has been appreciating at more or less than 2%? You don’t have to know anything about economics to understand this fallacy.
Common consumer goods are, for the most part, inherently deflationary are also inherently deflationary as the variable cost to produce more is essentially zero.
In short, electronic, technological and digital goods are inherently deflationary.
There are seven billion people living with inflation that is even more pernicious than the United States, with hundreds of millions of global citizens experiencing hyperinflation.
I know the inflation issue can seem dreary and dark, but the good news is we have brilliant sunlight in the form of Bitcoin.
Using vague, commonly perceived generalities in addressing our national financial problems, one prevailing ideology tends to cast blame at immigrants and the welfare state, while the opposing ideology aims to blame anyone with financial success and is seen as demonizing productive citizens.
It would be naïve to contend that a broken system of money is the only factor contributing to inequality; however, this writing will go on to show it does contribute enormously to the problem.
Another way to look at it is, because you are a wage earner, you haven’t had excess capital to keep in the stock market and because of this you’ve missed out on all the inflation gains that have occurred in the stock market.
The graph on the right is a very compelling representation of the impressive growth in real GDP per citizen but also sadly depicting those gains are not being shared by a large part of the population.
If you are skeptical about this point, that is to be expected; however, I implore you to ask yourself one question: In 2020, during the greatest public health crisis we have seen in three generations, with nearly the highest unemployment rate in the history of the United States, how was the stock market still reaching all-time highs? Ponder that for a moment; take your time.
As you can see, unemployment reached levels just below the Great Depression, with the stock market reaching all-time highs, or a 16% return during one of the highest periods of unemployment.
People with excess capital get wealthier as “stocks only go up”; however, this is being subsidized through rising asset prices at the real cost of the poor and middle class which, sadly now, may never afford a home.
In many areas of the world, cash acts as a lifeline, as it can be used without surveillance, and transactions can be conducted privately.
It has become very evident that the vast majority of transactions taking place are now digital, either through cards or web-based applications, with all of these digital applications of money being controlled by a central authority.
If you are a Russian dissident and maintain an opinion that is in opposition to Putin, you would prefer to support the opposition party anonymously out of fear of reprisal from the ruling regime.
Many are trying to flee the country with the impending tyrannical communist rule taking place, or at the very least, support the pro-democracy movement.
The list of instances in which money is being used as a tool for oppression globally is endless: Burma, Myanmar, Venezuela, North Korea and broad swathes of the Middle East.
Bitcoin doesn’t care about your color, religion, political persuasion, sexual preference or value to society; Bitcoin recognizes human value.
The idea is that Bitcoin creates competition to monopolized money, so governments will have to treat their citizens like a valued customer again.
A common phrase in Bitcoin circles you’ll often hear is “Bitcoin Fixes this,” which is applied to a myriad of issues.
We’ve discussed the benefits of money being managed by a centralized ledger to that of a physical money being improved in fungibility, divisibility and security from theft, albeit with the enormous drawback of trusting that this central party will not debase the currency you’ve chosen as the battery to store your life’s energy.
A common lexicon of speech in Bitcoin circles is “Don’t Trust, Verify.” With Bitcoin, we verify the monetary system and ensure that regulations of the protocol are being enforced.
The number of sats one dollar can buy you is coming down nearly every day, demonstrating the increasing purchasing power of bitcoin and the decreasing purchasing power of dollars.
One bitcoin is the exact same quality as any other bitcoin in existence, the software you run can independently verify that it is real and is not a counterfeit.
Bitcoin guarantees the scripts you run; if you choose to send money to someone no one can stop that transaction from happening.
The applications that can be built out on top of Bitcoin are endless; smart contracts, escrow, streaming money and immutable messaging applications are able to be built on top of this technology stack.