Can bitcoin become money?

Photo by Bermix Studio on Unsplash
Tuomas Malinen on Silver Bullion TV Apr 29, 2020

In borderless cyberspace, money is needed that’s limitless (free) but limited (scarce). Now that the option exists, I don’t believe people will settle for anything less.

What and why is money?

Let’s first define what money is and what are the most important features of a good money. The most important thing to remember is that all value is assigned according to the subjective theory of value. This means that goods and services used by people in their daily lives are produced by human action because they fetch a desired price on the free market because there is demand for them.

For supply and demand to ever realistically meet in a global economy, we necessarily need money that works as a store of value, a medium of exchange and a unit of account.

Since the dawn of times, favors, objects and food have been traded for whatever was needed in the time and place and whatever was available. The need for a commodity money increases for instance because it is difficult to trade internationally with spoiling goods. Thus is better to utilize beads, furs or even decorated, giant stone slabs.

May 22nd is the official Bitcoin-pizza day

Nothing has intrinsic value, but instead the price of everything is defined according to subjective value theory: the individual decides how much they are willing to pay for a product or a service based on their personal marginal utility in that specific circumstance. The individuals together form a mechanism known as the market, that adjusts the prices based off the balance between ex-ante and ex-post experience of the trade between countless of pairs of individual traders. The individuals choose their money based on the most important monetary qualities: salability, divisibility, durability and portability.

Precious metals fulfill most of these qualities quite well, for which reason they emerged as sovereign money for thousands of years. The era of sovereign money ended when the gold standard was finally ran down to fund the First World War in 1914. Modern fiat currency is a relatively new experiment and represents weak, unsound money in the light of history. The value of fiat currencies may only wither away with time, the most obvious use case for them being to fund eternal war that no-one could afford in the world of sound money.

Bitcoin is not a virtual currency like the US dollar

The widely adopted term “virtual currency” is not an accurate depiction of bitcoin, as nothing is more real than mathematics that is a strictly defined language for expressing physical and conceptual relations. “Virtual” is a much more fitting description for fiat currencies whose value may dissolve overnight like a whisper in the wind.

Fiat currency is a cheap knockoff of real money and the maintenance costs are collected from its users in the form of inflation.

Venezuelan Bolivar is literally worth less than the paper it’s printed on.
https://cdn-images-1.medium.com/max/800/0*STrp5ArionePkJWY
Hyperinflation in Weimar Republic (now Germany) in 1921–1923, not so long ago in a place not that exotic.

The global fiat currency experiment is ending

The Bretton Woods agreement that was dissolved in 1971 is probably unknown history to most people alive in 2020 and thus its repercussions are probably unknown to them today. Many might have cultivated an understanding that the fairly young and experimental fiat currency peddled by central bankers would somehow be sovereign money just because it is the most widely used. Gold and other metal monies are perceived as difficult and rightly so: the difficulty (hardness) gives them an entirely different value proposition than elaborate stories and the signature of a random boomer do to paper notes (of course the valuation of these paper notes is propped up by the fact that taxes still need to be paid in fiat currency).

In the end the ordinary consumer will pay the bill of reckless currency printing as the prices of goods and services rise. It is the greatest heist in human history.

https://cdn-images-1.medium.com/max/800/0*kFN5vE9uQ45dIxrq
Currency printer goes Brrrrrrrr

Forced and ill-advised, hysteric consumption can’t be good if the goal is to develop humankind ever stronger and wealthier.

Mainstream pop-economists (Keynesians) see inflation as an important feature to increase money velocity. Without reckless spending the economy would grind to a halt, and should the purchasing power of money increase (as with bitcoin) instead of decreasing (as with fiat currency), people would just save their money and the businesses would go bankrupt. Or so goes the story. There is no denying the consumption would decrease. Then again it is also a popular opinion that we are living in a world dominated by opulent consumerism with multitude of issues ranging from global warming to waste management that might just be easier to solve with lower consumption. People would still not entirely stop spending if reckless money creation would end; the spending would just gravitate from malinvestments towards more sustainable investments that are anticipated to yield greater benefits over time than simply saving the money for later.

In other words, bitcoin makes saving sexy again.

Hyperinflation is not caused only by gross incompetence of self-proclaimed monetary authorities, even though reckless monetary policies surely enough expedite the activation of the hyperinflatory time bomb. It would be naive to take confidence in the lie that in “civilized western countries” there would not be such a problem as hyperinflation or that the issue would be limited only to “developing countries”, as the fact remains that all fiat currencies have failed and will fail eventually with no exceptions.

It may even come to pass that the modern age “developing countries” emerge as super states of the information age or perhaps some sort of gathering places for sovereign individuals as hyperinflated geopolitical regions had to adopt bitcoin before other areas where fiat currency still “works”.

https://cdn-images-1.medium.com/max/800/0*XLalVpgvixJqE193

Gold boomers give way to Bitcoin millenials

It is clear that new technological innovations raise suspicion especially in older generations, but on the flip side they are more interesting to younger, more curious individuals that are not prepared to accept the established world views of complacent Kens and Karens.

The whimpers of generations past are simply met with a laconic statement: “OK, boomer.”

The millenials, that is the largest generation in human history, prefer to live in the digital world. While unintuitive for many, the digital world is just as real as the physical world. Millenials prefer investing in bitcoin over gold or real estate and a variety of digital tokens and in-game money are already familiar to them from video games. Once they reach the best earning age, they will likely be interested in free money that can be earned in any way they prefer (like playing video games) and can be transferred without permission to anyone, anywhere in the world, in seconds, affordably. Bitcoin is also not interested in office hours or public holidays like many bankers.

We are living in the information age where it is possible to be our own bank and to produce value to others regardless of physical constraints, earning and spending money that can’t be debased, confiscated or even stopped.

https://cdn-images-1.medium.com/max/800/1*JEP0qyZLqj9vq-qh2xhQtg.png
I see two options: Either bitcoin goes to the moon or to zero. There is no in-between. (English subs included)

Should you buy bitcoin now?

We can’t begin to imagine what Bitcoin is capable of in the end. Similarly like we couldn’t predict Netflix while downloading music with Napster. This does in no way imply that Bitcoin wouldn’t have immense utility already today.

One way to think about buying bitcoin is investing in the absolutely scarce monetary infrastructure of the future.

Bitcoin has potential to change human lives and through them the whole world, for better I think: in succeeding bitcoin enables storing and transferring wealth through time and generations without giving any chance for anyone to meddle.

I can justify 1–100% allocation for bitcoin in anyone’s portfolio, but I can’t justify a 0% allocation. That would simply be mad, as the potential upside is practically infinite while the downside is limited to zero. In other words, bitcoin has a high reward/risk -ratio.

I recommend thoroughly studying the Bitcoin-protocol as it is the surefire way to be convinced of the utility bitcoin offers in a world with increasing control and regulation. No value can be assigned objectively, instead the individual defines all their values alone. Everyone is free to choose their own money.

The original Bitcoin white paper by Satoshi nakamoto.

Thank you for reading.

Let me know what you thought of the piece. I would be happy to write more. niko@konsensus.network

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Niko Laamanen

Niko Laamanen

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CEO of Konsensus Network. Open Source Entrepreneur. Generalist Engineer. Bitcoin Publisher. World Denizen.