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Created on July 14th, 2022
Dedicated to all the people worldwide whose wealth and fruits of labour are destroyed by reckless and arbitrary monetary inflation.
This article summarizes why I think bitcoin (both as an asset and network) is important monetary technology and why I think its worldwide adoption will be beneficial for the human kind and environment.
It is inspired by my long pursuit to leave the world better than I found it.
Purpose of this article is not to convince you of anything. These are my personal views. At best, purpose of this writing is to make you think.
Bitcoin is a generational breakthrough. Let’s start with that.
Preface
Out of chaos rises the dancing star.
Nietzsche
I have never written an article before, so bear with me here. Also, before I start let me establish that I don’t know much about anything, especially in relation to what I would like to know. All the understanding about life that I have is a result of curiosity to find out what we (life/human kind) are here for. I have had several multi-disciplinary breakthroughs that come primarily from evolutionary biology coupled with modern social disciplines studying human behaviour, such as economics. I think nature’s forces and individual/social behaviour could be coupled well to explain the world we live in. Evolutionary biology gives us a framework for what is possible for us as species, while economics (Austrian school of thought primarily), political economy, psychology and sociology can help us navigate day-to-day reality and help us build a better world within the biological and environmental frameworks.
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Now, I have always tried to play my part in making the world a better place. Tried, I say.
Fast forward to the present date, soul-searching for an action which if I do — I can make a meaningful difference in the lives of a large number of people — bitcoin simply presented itself. To be more specific, I realized that my effort in accelerating the worldwide adoption of the bitcoin standard (bitcoin to become the global reserve currency, main unit of account, main medium of exchange and main asset for the store of wealth) is an effort worth pursuing, an effort that can improve lives of millions of people — wherever they are, at whatever stage of poverty or wealth they are.
Being alive is truly magical. We should do everything possible to sustain and improve quality of life while not doing it to the detriment of future generations and environment, in the broadest sense possible.
I identified bitcoin as the most scalable and potent solution to a variety of serious problems of the modern age, that primarily result from the centralization of power (both through democratic process and autocracy — just to a different degree) and state monopoly on money within a certain territory (self-proclaimed mandatory legal tenders and centralized (and arbitrary!) control over the monetary inflation rate).
In this article I would like to share personal views and some facts (not exhaustive) on why I think that the worldwide adoption of the bitcoin standard as an emerging monetary technology can change the world for the better and why I think its adoption is, frankly, inevitable. And I want to do that the simplest way possible.
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Now let’s take a step back. To understand bitcoin it is critical to understand money as a social phenomenon, why money emerged in society and what roles it plays.
Before we start, think for yourself. What is “money” for you? Also, ask yourself, what is my sentiment (if any) towards bitcoin? You can write the answers down and keep them for later to see if they changed after reading this article.
1. Introduction — brief history of money — from stones to computer software
People have always tried to find a way to express externally how much they value some things internally
1.1. Trading as a reaction to the signal from the environment
Early on in my life, I was fascinated by Darwin’s theory of natural selection. This non-dogmatic idea from first principles thinking that we were just one species in the evolutionary tree, explained a lot to me. We are simply animals with advanced (nb. arguably) brains.
I already mentioned that I use evolutionary biology to understand the roots of modern social behavior. Evolutionary biology tells us that the most adaptive species with the strongest survival instinct, on average over extremely long periods of time, tend to be the ones that are able to pro-create and extend their genes to new generations. The way that adaptation and survival work is that we react to the signals from the environment and act on them, being either rewarded, punished or killed for our reaction.
Fear is an important factor to consider in the study of human behavior, especially in the context of financial markets.
The higher we go in the evolutionally tree, life forms develop more sophisticated signal receptors and more sophisticated techniques for reacting to the signals. To illustrate my point, for example, bacteria only have limited signal receptors and limited ability to react (if any). They survive as species by the simple fact that those that do not die pro-create (anti-microbial resistance). Birds, on the other hand, as more complex life form, can interpret the external signals so well that they form murmurations (note here that all this behavior is intended to bring some benefit to the species).
Fast forward to mammals, monkeys and humans, we developed even more sophisticated ways to deal with the signals from the environment. We developed stone tools and weapons, clothes to protect us from heat and cold, and we engage in certain types of social patterns (from rituals to whole cultures) that all aim to help us (at least we think so), improve or lives, survive, pro-create and ensure well-being of our descendants.
One of the social patterns that emerged among humans, that is of particular interest of this writing, is the phenomena of trading (exchange of value) among humans. Trading in simpler form exists in many other species but these types of trading are not of the interest of this article.
1.2. Early trade — direct exchange of value by engaging in barter trade
Allow me illustrate a point on how an early trade worked. Imagine that one group of nomads would catch a lot of rabbits and the other group would catch a lot of fish. As they came to (peacefully) interact, they would observe other tribe eating something they don’t usually eat (or at all). It is easy to imagine that both tribes were curious to try food from the other tribe and find a way to exchange goods at some ratio. They would each value their own good and give away their good only if they value other good more. So, for example, 1 rabbit would buy 2 fish. And the price of rabbit/fish is born! (1 rabbit costs 2 fish).
This is a known story, but it is an important one. Now imagine as humans started to be more productive (there were many more goods on the market), direct exchange (barter) became highly impractical.
Barter trade was not great at a large scale because it required:
Coincidence of wants — each party wants the good of the other party;
Coincidence of time — if you possess apples and you want to trade them for house. Apples (accumulating enough to buy a house) will go bad before you can trade them for a house;
Coincidence of scales– if one cow cost 10 fish and you need just half the cow, well…good luck, you’ll still eat fish.
As humans started to move from nomadic lifestyle (high mobility, low levels of accumulated goods and capital) to agricultural societies (lower mobility, higher accumulation of goods and capital) some 12,000 years ago, and started to cultivate plants for food (jury is still out to who domesticated who), what happened is that, depending on the crop yield in a particular year — they would either have shortages or surpluses of food.
Although trading started long before the dawn of agricultural societies, it was limited in scope and scale because early humans did not have many things to exchange, simple as that.
Therefore, the meaningful birth of trading can be associated to the birth of agricultural societies, where food surpluses (one person can produce food for more than one person) allowed for the division of labor as some people were liberated from agricultural work to focus on building weapons or domestic tools, for example. This resulted in a wider range of goods (and services) that people started exchanging among themselves. We can consider early agricultural society (ancient Egypt, for example) as a prototype of the society we are living in right now. The way I look at reality is that we still live in agricultural societies that were just upgraded by various forms of political, industrial and technological (r)evolutions. The real revolution was the agricultural revolution.
1.3. Advanced trade — indirect exchange of value and emergence of the medium of exchange
Now imagine great swats of time in which people traded only through barter. It must had been exhausting in the end to know all those prices expressed in ratios (1 cow is 7 fish, while 500 rabbits is 1 house).
Out of thousands of goods that were on the market, some goods naturally emerged as the ones that were accepted more often in exchange for other goods. As the wheel of time and trade continued to grind, some goods emerged as particularly well accepted by everyone.
Indirect exchange was born. You buy a widely accepted good for the sole purpose of trading it for ultimate good that you want. That good is called a medium of exchange. Now think well. What could the traits of a good medium exchange be? This is a key question that will later lead us to bitcoin. Can apples or houses be a good medium exchange? Well, not that great. Good medium of exchange has to be widely accepted (salable), possible to move through time and space and durable. What we call money is just a widely accepted medium of exchange.
Let’s stop here and remind the reader that whatever emerged as medium of exchange and became so widespread that we call it money (be it precious metals, stones, etc) — it emerged organically through extremely long periods of time and through extremely dense trading within those long time frames — we are talking thousands of years. Note also that no one imposed money on humans. Humans invented money to solve problems that barter entailed, all for the purposes of acquiring goods that they did not have — in exchange for something they had (in abundance or more than needed).
1.4. Gold as money and the subsequent Gold standard
Thousand years in the agricultural revolution, gold emerged as the pristine money while trade became global. There were other precious metals and other objects used as money, but let’s focus on gold, for simplicity.
Before it became a medium of exchange and then a widespread money, gold was used for many practical purposes from jewelry to gold teeth. Some people observed that it held fair value across time and space and that it was easy to exchange for other goods, so they started buying it for the sole purpose of saving it for exchange at a later date. They effectively created a monetary good (a good that serves as money and not for consumption) that had a purpose of storing wealth (and value, in loose sense). Therefore, any good for which there is a demand beyond the demand for it its practical use and when that demand is for the purposes of storing wealth and for exchange at the later date — that good is called a monetary good. To this day, gold serves this dual purpose. People wear gold jewelry (practical use) while central banks also hold gold as a store of wealth (monetary use). Some people even buy gold products for both purposes, wearing it like jewelry and storing wealth at the same time.
Gold had good underlying traits of sound money:
– Gold is hard money. Its “stock to flow” ratio is high and hard to change. Stock to flow ratio is defined as a ratio between gold above the ground and below the ground. Historically, no matter how much gold miners dig gold, annual new supply of gold does not exceed 1–2% of the total supply above the ground. What this practically means is that no one can “print infinite gold”, flood the market with new gold and therefore devalue the currently available gold above the ground. This is an extremely important trait of gold which made it global money for thousands of years.
– Salable across time and space. Gold does not change while changing hands in millions of transactions (immaterially, yes) and it does not alter through time — it is chemically stable.
– Fungible — gold is interchangeable / 100 small units of 1g of gold are equivalent to 100g
However, as technological advances in transportation (trains) and communication (telegraphs) started to permeate society more, it be became convenient to transfer value in paper certificates, bills, cheques, etc and not carry physical gold.
1.5. Government money — from gold standard to fiat standard
Gold standard
Bear with me here as I simplify the history of gold, gold standard and its subsequent abandonment and the birth of fiat money.
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Humans started making gold coins around 700 B.C. and used them as money, among many other metals and alloys. Fast forward to 1821, Great Britain was the first country to adopt the gold standard. Many other countries quickly followed.
But what is gold standard?
Author Arthur Bloomfield, characterized it in this way: “The national monetary unit was defined in terms of a given quantity of gold; the central bank or treasury stood ready to buy and sell gold at the resulting fixed price in terms of the national currency; gold was freely coined and gold coins formed a significant part of the circulating medium; and gold could be freely exported and imported.”
As we dig deeper in money as social phenomena, note here that paper notes (under the gold standard) were just claims on gold, nothing else. The sole purpose of paper notes was to enable more efficient trade. Also, note that governments that respected their gold standard — were always redeeming national paper notes (in a fixed ration) in gold.
There is really an important point here. Gold was still main money under the gold standard, not paper notes. Paper notes (currency) were just a “second layer” to gold, something that derived value from its convertibility to gold, while gold still remained the underlying money.
Another important point here is that governments took a pledge (that’s what gold standard is all about) not to print paper notes beyond the underlying gold stock and to always be ready to exchange 100% of paper currency in circulation for gold.
Also note that paper money as we know it today started as claims on gold. Without that transition “gold” to “paper currency as claims on gold” to “paper currency as claims on nothing”, we would not have had paper money as we know it today. No one would accept some paper back in the day that meant nothing. Only because paper currencies established themselves as “valuable” being claims on gold — governments were able to perform a “trick” — abandon gold standard and keep control on the issuance of paper money — where people kept attributing to it some value as it historically had value due to the convertibility to gold.
What followed after 1821 is that many countries were coming on and off gold standard, while de facto end of (global) gold standard happened in 1971 when USA president Nixon stopped US Dollar convertibility to gold, effectively marking the birth of fiat standard as we know it today (simplification).
I will not discuss details of these historical events in the 20th century, but rather I am asking the reader to think why governments have incentives to opt out of gold standard.
On gold standard, the buying power of government is limited by the stock of gold it has. On fiat standard, government is limited by the wealth of nation as it can print (unbacked) currency until it becomes worthless — while profiting from the delayed effect of inflation. (See more online: Cantillion effect.)
Fiat standard
Merriam-Webster dictionary defines fiat money as “money (such as paper currency) not convertible into coin or specie of equivalent value”. Word “fiat” is further defined as “an authoritative or arbitrary order/decree”.
Fiat money (paper currency not backed by gold, or in other words, paper currency backed by the trust in government — dollars, euros, pesos, etc) is an interesting social phenomena. Its creation marks the separation from the thousands of years trend in which people were individually and rigorously (by accepting and rejecting goods in trade) valuing goods for what might become a good to store value in, then medium of exchange, unit of account and, therefore, money. Instead of something that became money being tried and tested for ages (like gold), we got to use a piece of paper that an authority mandates us to use. Pretty backwards, if you ask me.
Fiat money is not money in its original sense — money that naturally emerged as individuals chose what they will use as a monetary good. Fiat money is money by decree (top down) that is usually enforced by the fact that governments:
– Collect taxes solely in national (fiat) currency;
– Mandate people to use the national currency as legal tender (for any transaction within the country);
– Prohibit the use of other currencies for trade within the national territory where fiat decree rules.
Please see below two similar USD bank notes (on the eye), that are extremely different in nature. First USD 100 bill, is nothing but a gold certificate. With this note you could freely transact on the market, but always redeem it for the “real” money — gold. Government would set the exchange rate between gold and dollar bills and stick to this ratio when redeeming dollars for gold. But more importantly, under the gold standard, government basically pledges not to print paper dollars beyond government’s gold reserves — keeping this ratio sustainable.
However, governments could not resist to print more dollars than they had gold (to respect a certain ratio) and that is how fiat money came to existence. This gave birth to fiat money — paper bills not backed in gold. Incentives for government’s over-printing of dollar bills are beyond the scope of this article, but they usually include: waging a war, welfare state (like printing around Covid-19) and usually centralized national projects.
USD 100 bill — from 1928 — redeemable in gold, it was basically a gold certificate (actually it was written on the note — please look closer)
Current USD 100 bill — from 2009 — not redeemable in gold
The decoupling of paper bills and their redeemability in gold, marks the birth of fiat standard — where money in circulation is arbitrarily printed (or nowadays digitally given to banks), based on analyses of central banks around the world. What is interesting is that, even on fiat standard, governments still hold enormous gold reserves, maybe not trusting their own judgement where reckless money printing could bring hyperinflation and implosion of the government.
We come now to an important topic of the fiat standard — inflation. Inflation, in simple terms, is nothing else but the rise in general price levels in a country. On fiat standard, government usually has inflation targets — around 2–3% of the growth in general prices per year — so they excessively print money to reach these inflation targets.
Please note here that government and central banks’ goal is to increase prices every year! How does that work in the interest of people? Just ask yourself this basic question.
But why would a government make prices higher every year — making it harder for its citizens to buy goods and services? They say that fiat money has to lose its purchasing power every year — so that you cannot sit idle on your personal fiat money (cash). This high opportunity costs of sitting idle, they say, make the economy going (heat it up) by forcing you to invest or spend so that it does not lose value in your pockets. What it actually does is that it forces you to make choices which otherwise you would not make under the sound money standard where these inflationary policies basically do not exist (as they cannot print sound money like gold).
Nature is deflationary. What it means is that as time passes nature combines resources more efficiently to produce even more resources. Similarly, as humans become more ingenious and productive, costs of goods naturally fall — both because same goods are now produced with less resources, and because humans invent completely new ways of doing things. Look at computer industry, for example. Cost per unit of processing power is getting lower and lower. Deflationary forces in computer industry are basically beating the forces of arbitrary inflation, but not all industries are this productive to beat the inflationary forces. Anyhow, without arbitrary inflation that takes the purchasing power of our income every year, we would be on the track of living in abundance. I understand the frenzy of central bankers that want to prevent deflation due to their short term world views, but allowing market driven deflationary correction and then living on a sound money standard that would bring long term and slow deflation, is the only healthy way to organize society. We need to bite the bullet.
So not to lose money in your pocket, you start investing in index funds, stocks, etc, thinking you have a clue what you are doing (average citizen). What is more, when a government has the sole right to print money, they come up with many crazy ways to do it. My personal “favorite” malinvestment is the House of Soviets in Kallingrad (photo below). It is a symbol of political, economic and human misery imposed by a central government (that controlled all aspects of people’s lives — of course, including the fiat money.) Ask yourself with what money was this building built? Where is that money today? Is it worth anything?
You can google the story of Königsberg Castle, that was demolished to clear the way to for the building of the House of Soviets. Truth to be told USSR had far bigger (centralized political) issues than just its money, and I am not solely blaming its fiat currency for this.
Mainstream economists say that current fiat money is backed by the trust in government. But why would you trust the government? Probably because you have to. We have seen so many government defaults in the 20th century that resulted in chaos and hyperinflation — and the total loss of trust in any authority. Why do we allow governments to say what money is when we have sound money alternatives?
Properties of sound money
Now that we compared gold, gold standard and fiat standard, it is time to define what good (sound) money is and we’ll come back to this later when we discuss bitcoin.
Table 1. Sound money properties across different types of money
Scale, from best to worst trait: Excellent — Very good — Good — Weak — Poor
Before any good can be considered for sound money, it needs to have limited supply. Limited supply or scarcity is the main feature of sound money. This is because people always try to find ways to increase the supply of money if they can. Simply, incentives are too strong to resist. In history, we have had alchemists (trying to create gold), or people going to neighboring islands to procure seashells at mass that were considered money, or today’s central bankers that simply start the printing press and print as much paper money as they want to fund government’s initiatives (btw, this is the main reason for today’s high inflation worldwide, not war, not supply chain issues).
All other properties listed above are only enhancing properties of money. They are really important to make money a sound money, but without limited supply, goods used as money — regardless of the quality of other properties, are worthless for the function of money, for the reasons explained above.
The graph above is a case in point for gold as being sound money. You can see that, regardless of the demand for gold that humans make, over the last 130 years, annual gold supply did not increase more than 2% per year. In other words, as much as people would like to “print” gold, it is impossible.
Now look at US dollar.
Just in 2020, US Federal Reserve printed (digitally too) more than 26% of the total supply of US Dollars. It is important to note that US Dollar is global reserve currency and that many global prices are indexed in dollars. Therefore, when this extremely big supply of dollars hit the market — we have a situation we are in now, high inflation around the globe.
As we move forward, please note here that to print 26% of the dollars in existence, what is required is just an agreement between several people. They have the authority to devalue your dollars in your pocket. This is the same for any country and any currency. Why would such a small group of people control the money supply? If money printing is solution to all problems, why is there still hunger in the world?
But there is an alternative to this.
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Until the invention of bitcoin we have had gold as the best money on earth. Allow me to offer my views why I think that if we “fix the (fiat) money, we can fix the world”.
Simply put, I think the worldwide adoption of bitcoin as money is first inevitable (in long run, though) and secondly, extremely beneficial for societies at large.
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Bitcoin is a controversial subject in the mainstream media, primarily because it challenges the fiat money system and therefore, governments don’t like it (not all though).
I know I might lose the reader here. But this is exactly the point where reader should pay extra attention and not be biased by prior knowledge and swayed by the information from the mass (government) media. My conclusions to follow seem obvious to me, but I know it is not immediately obvious.
They say 100 hours of reasonable study is needed to understand bitcoin. I agree with this, but I will still try to offer a shortcut to its understanding within this article. Bitcoin (and the whole topic of sound money) offers numerous lessons and its offerings that do not end with the understanding of money. Low time preference (deferring unnecessary consumption), capital accumulation, new food and life choices are all truly reported by people understanding bitcoin. I know this sounds a bit weird at first, but those are facts (as reported by people) of the transformational power that the understanding of bitcoin (or importance of sound money in general) can bring.
Now let’s talk about bitcoin.
2. Bitcoin — a digital and decentralized alternative to fiat money
A bit of Bitcoin pre-history first.
Bitcoin was not born overnight. Bitcoin protocol uses ideas and technologies that were in development since 1970s and probably before that (please see image below). There were many attempts to create “digital cash or gold” in the recent history but all failed basically due to their centralized nature (just a bunch of computers sitting in one place holding all information). Super simply put, when these computers were switched off, all the “digital cash/gold” disappeared. Google, for example, DigiCash (1989).
Technologies that enabled creation of bitcoin are outside the scope of this article but they include cryptography (study of secure communications, encryption, hashing, proof of work, etc) and other.
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I said earlier that I link evolutionary biology and socio-economic phenomena. In that order. We all came first from life and then built social structures to (arguably) improve our lives. Centralized nature of any endeavour inherently has a “one point of failure” by an attack from any malevolent system or individual. To the degree that that was evolutionary useful, that is why, for example, we have redundancy in our bodies, two eyes, two kidneys, two ears. (Redundancy and decentralization are not interchangeable terms, but both support the idea of not having the “one point of failure”.)
Life itself is decentralized via species of many kinds and sorts.
What this practically means is that life as a system is resilient (able to withstand adversity) and anti-fragile (able to improve from adversity). It does not have a “single point of attack”. Life finds ways to “live” even if entire species become extinct (e.g. dinosaurs).
Landmark work on decentralization is Hayek’s paper “Use of Information in Society” (1945). This paper later inspired founder of Wikipedia to create a way for people to access information that is both global and local in nature, enabling people to make informed decisions worldwide.
The Bitcoin Genesis Block
In the midst of the global financial crisis, on 31 October 2009, Satoshi Nakamoto (pseudonym, true identity unknown to this day), published the so called “Bitcoin white paper” (reader can Google it and read it in full) on an online forum dedicated to cryptography. It is basically a summary of the bitcoin protocol and a case for its use.
On 3rd January 2009, Satoshi mined the first bitcoin block (Genesis block) that had 50 bitcoins as block reward. Ok, there is a lot to unpack here and we’ll do it in the lines to follow, but for now take a moment and check out the statue that was erected in Budapest in Satoshi’s honor.
Finally, the star — bitcoin
The most succinct way for me to describe bitcoin is: “The best money available to human beings”.
End of article. Thank you for reading.
Kidding. Read on.
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Bitcoin, loosely defined and more loosely described
I define bitcoin in terms of bitcoin network and bitcoin asset. Bitcoin network is a computer network of bitcoin nodes (storing the ledger of all bitcoin transactions on thousands of computers scattered worldwide — decentralized in nature) and bitcoin miners (ensuring the immutability of the bitcoin system by being rewarded for it in bitcoins).
Bitcoin network is a decentralized ledger of bitcoin transactions where users of the network can send each other bitcoins. The bitcoins that they send each other around — is the bitcoin, an asset. Bitcoin network can have infinite number of nodes and mining computers (so network can be infinitely intertwined), but bitcoin as asset, there can only be 21,000,000 of it.
Sometimes I imagine the bitcoin network as a global water pipe system. This type of water is of high quality, unique to this pipe system and not interchangeable with the water from outside. Pipes are extremely strong and no one can alter the main structure of the pipes, while users can send each other water freely without anyone being able to interrupt the water you are sending. Currently, there are 19,000,000 litres (bitcoins) of water in the pipes and each litre can be be divided into 100,000,000 water drops (satoshis). Those that protect the pipe structure are currently rewarded every 10 minutes by 6.25 litres of water (bitcoins) and there will never be more than 21,000,000 of litre of water in the system. On every kilometer or so, there is a point where all water transactions are stored so everyone knows how much water each user has. No one knows the names of users. Every 4 years, 10 minute water reward for protecting the network is halved making the new water issuance scarcer in the network until it reaches the top of 21,000,000 litres of water (bitcoin). Once no new water is being issued around year 2140, those that protect the system and send water around will be rewarded by water transactions fees.
Bitcoin, more technically defined
First sentence of Satoshi’s White Paper tries to define Bitcoin as: “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
Website bitcoin.org defines Bitcoin as: “Bitcoin is a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. From a user perspective, Bitcoin is pretty much like cash for the Internet.”
Bitcoin is a computer protocol that was designed to have qualities that make it the best money available to humans.
Why is Bitcoin the best money available to humans?
Limited supply — bitcoin protocol introduces absolute digital scarcity — something not available to humans until the invention of bitcoin
I mentioned earlier that we’ll come back to the Table 1 and examine why Bitcoin is the soundest money available to humans. Bitcoin protocol defines the absolute maximum of bitcoins that can be issued through mining and that number is 21,000,000 bitcoins. Miners are incentivized not to vote for the change of this protocol because they understand that if they change the protocol by consensus (which is extremely hard) bitcoin can become another “shit-coin” (yes, that’s the widespread term) where total supply is in the hands of few people or few computers thus making it susceptible/vulnerable to the whim of small interest groups.
In order to change the bitcoin protocol, 51% of computing power on the network needs to vote for the change. Mobilizing 51% to attack is technically possible, but practically hard to perform. This is primarily because mobilizing 51% of the already capitally intensive endeavour (bitcoin mining) entails that someone (be it government or individual) needs to command 51% computer power on the network. To do that, even if the money was not the issue for the attacker, buying such a computer power (computers, equipment, etc) and applying it at once is nearly impossible — because buying such a huge computing power would raise prices of computers for mining, therefore incentivizing new suppliers to enter the market — so the attacker would play “catch the mouse game” that they can never win.
Conclusion: Bitcoin supply is capped at 21,000,000 and immutable. Change of this number is technically possible, but practically impossible. Bitcoin is the only known absolutely scarce digital asset.
Durability
Bitcoin has been around for 13 years now and while it does not have proven durability like gold since gold is a chemical element and was around since supernova, I expect bitcoin to be around as long as there are humans and there is a sort of internet connection. I see bitcoin as a (digital) idea that can be passed on forever, basically.
Bitcoin durability compared to paper money… who are we kidding. I don’t want to give value to paper money in this comparison. Try putting gold or bitcoin on fire and see what happens.
Conclusion: Bitcoin has not been around long enough to challenge durability of gold, but I think it will be around for hundreds of years.
Divisibility
Each bitcoin is divisible into 100,000,000 satoshis or smaller units of bitcoin. And that is only on the bitcoin blockchain. Lightning network that is being built as a Layer 2 of the bitcoin blockchain will be able to further divide satoshis into smaller units.
Conclusion: Bitcoin is a pristine and incomparable asset in terms of its divisibility. No other asset comes close. This is extremely important for smaller day to day payments.
Portability
Each bitcoin address (simply put, equivalent to a cash wallet) can generate a 12–24 word recovery phrase. Knowing those words is the equivalent of having bitcoin (money). In other words, you can carry your bitcoin in your head. This is true, so its portability is extreme and unparalleled compared to cash and gold. On the bitcoin blockchain, bitcoin transaction speed is such that every 10 minutes transactions are processed. Bitcoin Lighting network solves this — where transactions in bitcoin are instantaneous.
Conclusion: Bitcoin portability is extreme and unparalleled compared to cash and gold. Speed of transactions on the bitcoin Lighting network is greater than currently available digital payments with fiat money (such as Visa an Mastercard, not to mention Swift transfers that take days).
Uniformity (fungibility)
One satoshi will always be equal to one satoshi. It is like 1 will always be equal to 1. One dollar is in majority of cases equal to one dollar, but in some (extreme) cases people might value it less when it is old, wrinkled or damaged. Digital fiat money is uniformed, no question about it. One gram of gold will always be one gram of gold, but it is not like that in practice. One gram of gold of cold coin sometimes can weigh 0.99 grams of gold due its extended use, not making it fully uniformed across gold as currency.
Conclusion: Bitcoin is a pristine asset is terms of uniformity and fungibility (ability to exchange one unit for another without loss of value). Other moneys have some good traits, but bitcoin has the best qualities of uniformity and fungibility.
Acceptability
Ok, bitcoin did not win this battle yet. Fiat money is still the global unit of account and accepted across the globe, much more than bitcoin. Gold is less acceptable than bitcoin, though.
Conclusion: Bitcoin is yet to claim worldwide acceptability for payments. Currently, fiat money holds the first position.
Privacy
In my opinion, privacy is an important feat of money, that is why I put it here. Well, truth to be told, transacting in cash and gold is more private (provided that no one marked the bill or followed you) than transacting in bitcoin where each transaction leaves digital trail in the bitcoin ledger. That said, people can still be anonymous on the network but transaction trail is always there, unlike with cash or gold. For fiat money digital transactions, there is zero privacy as both banks and government can see who you sent the money to, simple as that.
Conclusion: Transacting in cash and gold are still more private ways of transacting than in bitcoin. However, transacting in digital fiat money (Visa, Mastercard) is the least private way to transact. Bitcoin transactions leave digital record and could be anonymous, but record of transactions is permanent on the bitcoin ledger. I believe software developers will find a way to solve this issue and make those digital trails non-existent (somehow someday), but that can only happen on the Layers outside the bitcoin blockchain. Challenging but not impossible (maybe this is already in development, but I am not aware of it — email me if you know more about this).
So, why is worldwide bitcoin adoption inevitable?
Let’s be clear about one thing. There is a non zero chance that bitcoin will fail, thus making it “evitable”. I cannot think of reasons good enough how this can happen but I am trying to be realistic, any system can fail, be it life, be it bitcoin.
Bitcoin is not inevitable because someone there will make its use obligatory. Bitcoin is inevitable because its underlying qualities as money will, over the long time frame, be recognized as much better than holding ever depreciating fiat currencies. Bitcoin adoption will not be won by force, bitcoin will win because of its underlying characteristics. Bitcoin is a peaceful revolution.
To put it simply, good money eats bad money. Extreme example could be if you wanted to hold your wealth in apples, compared to silver, you would realize that after several weeks, your wealth disappeared. This is how the money competition works. The soundest money wins. People will choose to store wealth in bitcoin, compared to all other alternatives including real estate, simply because it is the soundest asset available.
General conclusion
Why I am writing about bitcoin?
I think worldwide adoption of the bitcoin standard is really important. When issuance of money is entrusted to a small number of people, it inherently leads to situations where incentives to produce money (out of nothing, simple printing of money) are so high they cannot be neglected.
By the virtue of owning the money printing press, governments can fund needless wars, welfare states and unnecessary endeavors — while the inflation is passed on to regular people who earn fixed salaries. Just read the news, this is happening as I am writing this article. This is the latest title: “German inflation reached its highest level in nearly half a century in May. Consumer prices increased an annual 8.7%, highest since winter of 1973/1974.” Source: CNBC
We need to wake up. We need to think about money, not only in quantity, but in quality. We need to think who have we entrusted to tell us what money is. We need to live on a sound money standard.
I hope this article made you think and I am deeply grateful for the time you took to read it.
Special thanks goes to Jeff Booth (www.twitter.com/JeffBooth) for his kind review of this article. I deeply appreciate his help and comments on the article.
There are points such as individual sovereignty, ownership rights and the world on bitcoin standard that I did not touch in this article, but I would like to explore these topics in my following writings.
Until then, stack sats, stay foolish.
It’s time for Plan ₿.
Un abrazo grande,
Marko Benovic
Founder of InevitableBTC
InevitableBTC is a bitcoin consultancy company with the mission to accelerate the worldwide adoption of the bitcoin standard. We help individuals, companies, organizations and nation states adopt bitcoin standard.
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Books/papers that inspired me do learn more about Bitcoin: