3 Reasons Why Bitcoin Will Be The Global Store of Value in the Future
Bitcoin represents a technological solution to the Fiat money problem
Photo by Aleksi Räisä on Unsplash
Technology has defined our monetary system since the beginning of time.
The invention of boats and sailing allowed the import of foreign rocks to invalidate primitive economies based on the exchange of rare stones and beads.
Mining allowed rare commodities and such as copper, silver and eventually gold to be extracted from the earth and made into exchangeable currency around the world. Displacing rocks and beads as money.
Gold had its moment in the monetary sun until it was too inconvenient to mine, transport and store safely. It is heavy, large and can be easily stolen.
Modern government and centralized banking are the current iterations of this development.
Sovereign governments have a monopoly of guns, violence and laws to decree (the literal meaning of ‘fiat’ currency) their money the only money allowed on this patch of dirt.
In short, nothing about money is eternal.
It’s always changed to suit the needs and wants of society.
Our history books tell us that money has always evolved as technology has evolved.
There is no natural law preventing us to use anything else as money.
Author of the Bitcoin Standard, Saifedeen Ammous observes:
“Every step of the way, technological advances and realities shaped the monetary standards that people employed and the consequences to economies and society were enormous.”
While there are no natural laws governing money, there are characteristics that make money valuable.
These are:
Time (durable)
Place (easily transportable)
Scalable (easily divisible to smaller or larger units)
The last characteristic has been the hardest to manage: high stock to flow ratio, meaning that it is not easily inflated.
Money used to take the form of rocks, beads, salt, sugar, stones, copper, silver, gold. Natural commodities that we could find in our immediate environment.
The problem is that when the value of these commodities goes up, more people are incentivized to mine them. Flooding the market and diluting the value of the medium of money.
Besides the chemical characteristics of gold, all of these commodities are easy to find and produce. This ability to produce a lot of it renders them useless as money.
Thus, the utility of money is proportional to its scarcity.
The Problem With Modern Money
The delicate balance between the stock of existing money and the flow of new money is one of the problems with modern government fiat money.
The COVID-19 pandemic taught us what governments would do in the event of an alien invasion: print more money.
Called quantitative easing, governments can print themselves money whenever they like. With a click of a button, a few ones and zeros appear on a screen.
Voila.
You’ve got more money, congratulations.
Let’s force people to spend it to stimulate our economy.
Our parents told us that money doesn’t grow on trees. Our government hides the fact that money grows on digital servers in a central bank.
Modern Monetary Theory is based on the premise that sovereign currencies can be debased over and over again to fund urgent policy priorities. Taxes are then used to control inflation.
Like using seashells, this makes the modern currency a terrible store of value but fantastic at transactions. The government can literally print your wealth out of existence causing a lack of belief in the currency by the population.
The death spiral of hyperinflation awaits. Just look at Venezuela.
Aljazeera reports that citizens of Venezuela, experiencing hyperinflation, are using their currency to make art such as wallets and animal figures to sell for more on the streets to foreign tourists in foreign currency.
Many Venezuelans are using euros, US dollars or cryptocurrencies to conduct transactions.
“Government will always find a reason and a way to print more money, expanding government power while reducing the wealth of the currency holders,” writes Saifedean Ammous.
The Bitcoin Future
What’s next for money? The internet and Web 3.0.
Bitcoin was engineered by an anonymous programmer, Satoshi Nakamoto, to solve problems associated with centralized government money.
My prediction is that we will all use bitcoin or a cryptocurrency equivalent in the future to store our wealth.
Not magically, but through economic evolution.
Selective pressures of the 21st century will mean bitcoin will be chosen as the best store of value with government fiat currency being used for daily transactions.
Here are 3 characteristics that will make Bitcoin the future store of value:
#1 Finite Supply and Digital Scarcity
“Bitcoin’s elimination of intermediary control and the near-impossibility of any authority debasing or confiscating it renders it free of the main drawbacks of government money.” — Saifedean Ammous
There are only 21,000,000 bitcoins available, programmed to fully be mind by 2140. The number of bitcoins cannot be altered no matter how much effort and energy is expended.
Why is this important?
The digital revolution allowed for digital abundance. The marginal cost of replicating a piece of data was zero. You can copy and paste pictures for free and send them to anyone in the world.
Bitcoin allows for digital scarcity and therefore value to be transmitted across the internet. Remember that the value of something is proportional to how difficult it is to get.
Bitcoin’s immutable monetary supply makes it the best medium to store the value produced by humans. Bitcoin is the cheapest way to buy the future, because bitcoin is the only medium guaranteed to not be debased, no matter how much its value rises.
With limited supply and increasing belief, Bitcoin will become a better store of value than fiat currencies. Gold became the store of value in every civilized society precisely because it was hard to produce.
Bitcoin can replicate the scarcity associated with gold with less physical mining needing to take place.
#2 Relies on Zero Trust
“Government control of money has turned money from the reward for producing value to the reward for obedience to government officials. It is impractical for anyone to develop wealth in government money without government acceptance.” — Saifedean Ammous
Our money relies on trusting our government and politicians to always act in our best interest. But trust is fickle. Politicians regularly change the rules of the game to suit their agenda and election platform.
Using any fiat currency implicitly relies on trust in the government and banks. The 2008 financial crisis rocked the confidence of society as the biggest banks engaged in regular fraud and deception.
Bitcoin allows for a trustless transaction. Through its Proof of Work mining algorithm, nodes on the blockchain can verify the authenticity of every transaction.
All records on the blockchain are public, anyone is free to view a history of all the recorded bitcoin transactions. This ensures that no coins are being double-spent and legitimizes transactions that have been checked against the existing ledger.
As Charlie Munger famously said, “show me the incentive and I will show you the outcome.”
Through self-regulation, accountability and transparency are incentivized into the structure of Bitcoin. Bitcoin relies on economic incentives, making fraud far costlier than reciprocity.
#3 Decentralized
“For as long as the money was controlled by anyone other than the owner, whoever controlled it would always face too strong an incentive to pilfer the value of the money through inflation of confiscation and to use it as a political tool to achieve their political goals at the expense of the holders” — Saifedean Ammous
No one owns the Bitcoin network.
Blockchain technology allows for the decentralization of the Bitcoin network to exist on computers and servers all across the world. Any individual coder, miner, or node operator is dispensable to the Bitcoin network.
If you shut one down, another will just take its place. There is no single point of failure, no physical land to invade and no centralized authority that can be coerced to make arbitrary changes.
Validation of transactions occurs through distributed networks (or nodes) rather than a centralized authority. The consensus rule of bitcoin makes it very resistant to change by powerful individuals or corporations.
Each individual node contributes to the integrity of the network. But each node is also powerless to force other nodes to change their code and creates a strong collective bias to remain on the current consensus rules.
This is what allows the Bitcoin network to remain outside the control of any government. And that’s what makes it so powerful. Ethereum and other coins are mostly controlled by a core group of developers who can institute changes as they see fit.
Bitcoin is the decentralized and antifragile alternative to a centralized and vulnerable banking system.
Summary:
There is nothing eternal or natural about our current centralized monetary system. Monetary status is a product of human action influenced by technology, not a rational product of human design.
The inherent characteristics that made gold a primary store of value, will be the same reason why Bitcoin will become the global store of value.
Digital scarcity allows value to be transmitted through the internet without the need for trust or third-party verification. Decentralization prevents a concentration of power that could monopolize the network.
As the belief in Bitcoin continues to rise, its ability to function as a store of value will increase too.
Here is to the Bitcoin future!
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