Bitcoin is Hope for Humanity
Inflation is theft - Money printing - Cash is trash - Bitcoin - Fix the money Fix the world
Hello, I am Nicolas Bustamante. I’m an entrepreneur and I write about long-term company building.
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Today, let's discuss why the government's manipulation of money is the biggest obstacle to the harmonious development of civilization and why, in the middle of the current monetary chaos, Bitcoin is hope for billions of people.
Governments fund their expenditures by taxing citizens and companies. Tax as a percentage of GDP varies between, for instance, 27.1% for the United States and 46.2% for France. One might think that collecting that many private resources is enough. Taxation is, however, unpopular and frequently precipitated revolutions, so governments had to find another way to extract more resources: printing money.
It's an inalienable law that governments, throughout the ages, inflate the money supply to fund their expenditures. From kings seizing the monopoly of minting coins to debase the currency to modern fractional reserve banking, the history of money is the chronicle of inflation engineered by governments. The monopoly on money production was never intended to offer people good money.
Inflating the money supply means that the purchasing power of that currency declines over time. As more time passes, people holding cash are getting poorer. The dollar, one of the most stable currencies on the planet, had an average inflation rate of 3.87% per year between 1973 and today, meaning that the purchasing power of one dollar in 1973 is now 0.15 dollars. Today, 1.4bn people are living under double digits or more inflation per year. If you live in Argentina, for example, the yearly inflation is over 50%. Raging inflation is one of the most significant humanitarian crises of our time.
The poor suffer the most from inflation because they don't own assets to offset the decline of the purchasing power of money. On the contrary, the rich are getting richer because assets value, such as stocks, rises faster than the consumer price index. Money printing shrinks the middle class and increases the gap between the rich and the poor. Inflation is thus a violation of property rights leading to an illicit redistribution of income from the poor to the rich. But there is even worse than that; manipulating the money supply destroys the social cooperation between individuals.
A free society is based on the voluntary exchange of property rights between people through money. Prices act as signals to allow economic coordination for the utilization of resources. If the price of a specific good rises, people modify their behavior to buy less or find a way to produce more of the good. Messing up the value of money creates a gigantic misallocation of productive resources because the capitalist system ceases to work.
In the form of freshly printed money, the new purchasing power creates a wealth effect leading to systematic errors in both production and consumption. Entrepreneurs take on risky loans to invest in unviable projects, and consumers spend on unnecessary goods. People and businesses can't refrain from participating in the widespread misallocation of resources because they follow market incentives that are alas distorted. The wrong economic calculation throws society off balance and prevents its harmonious development. When the inevitable crisis hit, governments print more money to postpone the unpopular recession, encouraging the vicious cycle. Politicians don't care about the disastrous long-term effects as long as the short-term morphine shot allows them to win the next election.
The boom and bust cycle led by the manipulation of money and credit seems endless. Nobel Prize recipient Friedrich Hayek stated that: "that there was no hope of ever again having decent money, unless we took from the government the monopoly of issuing money and handed it over to private industry." Many economists and experts claim that issuing private money isn't possible. Relying on the government's paycheck makes them disregard history.
According to Murray Rothbard, money is a "useful commodity chosen by the free market as a medium of exchange." Many commodities have been used historically as money; for instance, tobacco in colonial Virginia, sugar in the West Indies, or copper in ancient Egypt. The free market chooses the most convenient commodity, and the law of supply and demand determines the money's purchasing power. For the past several centuries, humanity has settled on gold because of its fungibility and scarcity. The gold standard was also the only method found to place discipline on the government's money printing.
Alas, over time, governments did their best to separate the name of the paper currency for the underlying commodity backing it. The US eventually devaluated the dollar relative to gold in 1934 before announcing in 1973 the "temporary" suspension of the redeemability of dollars into gold. Since then, we have lived in a new monetary experiment called the fiat standard, where money is only backed by the credibility and threatening power of the issuer.
Enter Bitcoin, the cryptocurrency born out of the 2008 crisis ashes and the infamous government bailout of banks with taxpayers' money. Bitcoin is the largest and most successful monetary experiment in human history. It's an engineered commodity designed to become the internet's native currency. With a limited and auditable supply of 21 million coins, Bitcoin is the soundest money on the planet. The best part is that there is no monetary authority to inflate its money supply, and the network's decentralization makes it censorship-resistant.
Bitcoin is today used as a store of value. The limited supply and the rising demand for a scarce and censorship-resistant asset in an inflationary environment lead to an appreciation of the price of Bitcoin. The credibility of Bitcoin lies in its monetary policy backed by maths, not politicians. It has never been easier to be your own bank which is good news for the 1.7bn people who are unbanked. Today the $1tn asset class is a saving technology for millions of individuals who buy and self-custody their bitcoin. The short-term volatility is not an issue when your time horizon is in decades.
It's, however, a brake on the adoption of bitcoin as money because there is no incentive to spend money that appreciates over time. People use their worthless fiat to acquire sound money that they don't spend because its value rises over time. Adding to that, not so many merchants accept Bitcoin today. I believe that the hyperbitconization of the world will come thanks to the usage of the bitcoin protocol as a new payment infrastructure for the internet.
The underlying protocol of Bitcoin the currency might be the new payment rail of the internet. The bitcoin protocol is already a competitive way to transfer value over the internet. Today's average transaction fee is $3, meaning that the cost is 1% for $300 and only 0.1% for $3000. Even better, the lightning network, a payment protocol on top of bitcoin, allows the transfer of bitcoin instantaneously and for an average base fee per transaction of 1 satoshi meaning $0.0006125680. It implies the bitcoin protocol combined with the lightning network is the fastest, cheapest, most resilient open monetary network on the planet.
I venture to guess that people and merchants will use the lightning network to transfer value over the internet and then settle in their local fiat currencies. Consider an example with Bob, who lives in the US and wants to buy a SaaS product from Alice, who lives in Turkey. Bob will use an app to convert his USD to bitcoin and send them over the lightning network to Alice, who will immediately exchange the Bitcoin to Turkish Lira. The lightning network outcompetes all other closed payment networks such as Visa, Paypal, or China Union Pay. Because Bitcoin is a saving technology, people won't convert everything into their fiat currency. The bigger Bitcoin will grow, the more stable it will be, and the fewer people will choose fiat paper money over the soundest money.
I'm excited about this ongoing process. Bitcoin has been the most critical technology protocol since the advent of the internet. It's our best chance to fix our monetary systems and thus to end the boom and bust economy from which we all suffer. There are thousands of reasons why it might not work. However, if there is one chance it might succeed, it's one of the most critical projects worth working on today. It seems hard to believe today, but Bitcoin might achieve the separation of the government and the money. Quoting Hayek: "Three hundred years ago, nobody would have believed that government would ever give up its control over religion, so perhaps in three hundred years we can see that government will be prepared to give up its control over money."
The government's monopoly on money printing prohibits competition for issuing sound money. Bitcoin gave birth to a new industry of competing blockchains and tokens. We now have a global free market for issuing monies, which is a historic achievement. Entrepreneurs now compete fiercely to provide the most valuable currency to people. Providing money is a winner takes all market, and today no token comes close to Bitcoin's trustworthy monetary policy, decentralization, brand, security, and network effect. Bitcoin is hope for a better future.
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