This is our first article talking about why we think the BTC Standard will eventually be introduced as the de facto replacement to the gold standard for the digital age.
Please let us know your thoughts and suggestions in the comments section below!
Benjamin Franklin ponders BTC and its potential impact on USD (courtesy of bermixstudio)
Throughout human history, we have wrestled with how best to exchange value between each other. The efficient exchange of value enables cooperation and cooperation enables us to flourish as a species.
The most basic system is bartering - e.g. I'll fix your roof if you make me some shoes. This has some pretty obvious shortcomings as it relies on a double coincidence of wants - not only do you have to have something the other person wants, those things have to be of a similar value.
I actually wanted some comfy trainers... (courtesy of Raoul Ortega)
That is where money comes in. It acts as a medium of exchange and eliminates the need for a double coincidence of wants. I can fix a roof and get money, I can then use that money to buy shoes. There is no need for the two things to be required at the same time or for them to be of similar value.
In order for money to function it needs to be a store of value and hold its value over time. People will not be happy being paid in something if its value then degrades over time.
The fact that money is used as the medium of exchange and as a store of value means it also becomes the common unit of account, providing a common measure of value and allowing informed decisions to be made on supply and purchase of both goods and services.
For the purposes of this article we are just going to focus on the three overall types of money:
(Fun as it would be to get into the insanity of things like Commercial Bank Money / fractional reserve banking we will avoid that here and just consider it a subset oddity of the fiat money printing machine.)
Live footage of the money printing machine in action from https://moneyprintergobrrr.com/
We are currently in the midst of a failing experiment with Fiat Money. Fiat money is a government issued currency that is not backed by anything physical. This means:
All current major currencies are fiat currencies - they are backed by nothing except the government that issues them (even thoughup to up to a third of Americans believe the USD is backed by gold.)
Governments can and do print money as and when they feel it is necessary. If you hold your life savings in Great British Pounds (GBP) and the UK Government decides to print £100 billion more to fund bond buying (as they announced they would do two days ago) they are devaluing your savings.
This is all most of us have ever known but it is an experiment that was only globally adopted in 1971 when President Nixon formally left the gold standard
Fiat in some forms has been around for a long time but our de facto current reliance on it for powering the economy is a 40 year experiment.
We at Million Fiat Homepage believe that the experiment is failing. The US Government is now even buying junk bonds with printed USD and the supply of major currencies continues to rise with each new crisis. The current COVID-19 crisis comes before the system has recovered from the previous sub-prime mortgage collapse ten years ago.
The value of money is being degraded and natural cycles of 'boom and bust' are not being allowed to occur. Failing companies are propped up, bad debt is bought out and the general public bears the cost.
Interest rates remain at record lows and money continues to get printed. Central banks are running out of ways to prop things up, even as they consider things like negative interest rates (yes, charging you for having saved money)
When confidence is lost in a currency it tends to be lost fast. There is a run on cash as people realise it is losing its position as a reliable store of value.
Hyperinflation occurs. The value of life savings are lost. Economies collapse and barter or commodity systems take hold.
If a collapse has been artificially delayed and systems have been propped up the collapse can be more sudden and more aggressive.
Hyperinflation in Berlin 1923
Increasingly it is recognised the current fiat system is broken and even the President of the US is known to be an advocate of rejoining the gold standard.
This seems to have its merits but gold is an imperfect store of value in a lot of ways:
There is talk of moving onto a new gold standard using cryptocurrencies in some way but the cryptocurrency representation of the physical asset would still rely on trust that the gold behind it is held somewhere centrally.
Gold was a reliable commodity for pegging currencies because of scarcity and demand. People wanted gold and universally accepted its value as a scarce resource.
The difference with Bitcoin is that it is a scarce digital resource rather than a physical one. Detractors paint this as a negative because there is nothing physical you can hold in your hand but in reality this is its greatest strength.
A physical asset requires trust to verify its existence and is ill-suited to being a globally recognised store of value in a digital age. BTC holdings can be verified trustlessly by an individual at any time. It is transparent and less open to abuse. Even gold's role as 'wealth signaller' is more reliably done with BTC.
Digital gold (courtesy of Dimitry Demidko)
There are a couple of primary arguments against BTC taking the role of 'digital gold':
The BTC Standard is more logical than a return to the Gold Standard. Its perceived weakness as a purely digital commodity is actually its greatest strength as it removed the need for trusted third parties to verify holdings.
Bitcoins volatility is because it is a new asset class and we are only just realising what it will become. The price will stabilise enough for it to be used as standard underpinning currencies but not until it has stabilised at a level far above its current price.
Over to you!
Open mic courtesy of Matt Botsford
Let us know below what you think - tell us what we've missed, why we're wrong, why we're right and what we need to add / expand on in future versions of this article!
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