December 1, 2023

A better world with Bitcoin

Central banks and the system of continuous money creation have led to devastating wars, inflation and inequality in the world for the past 100 years. Bitcoin and blockchain are changing everything.

Preserving purchasing power

Bitcoin is a store of value. There can never be more than 21 million bitcoins, so if you own a percentage of that total number, your portion will never decrease (unless you use it, of course). So when you work hard for your money and can store value in bitcoin, it does not lose value through random money printing.

You do not have this guarantee if you save a euro or a dollar. Euros, dollars and other fiat money issued by governments can be created without limit. So your stake in this system will diminish significantly over time.

On paper, governments limit this by controlling inflation and even trying to keep it at no more than 2% a year. However, at 2% inflation, you lose nearly 20% of your purchasing power over 10 years. This official figure is called the consumer price index (CPI). However, this is a limited sample of what people buy and does not accurately reflect actual inflation. Not everything is included here; real estate is the best example: it is one of the most important necessities of life, but buying and renting prices continue to rise hard. It also does not take into account changes in buying behavior ("a steak is too expensive, so I buy a piece of chicken") and "shrinkflation" (a decrease in quantity or quality of the same product).

In a world where bitcoin is the main currency, there is no monetary inflation. The government has no influence on the amount of bitcoin, so there is no inflation. If I can save and secure a loaf of bread with bitcoin now, I can buy another loaf of bread in 10 years. Consumers in the Western world benefit a lot from this, but also and especially consider what inflation means for people in Third World countries, where monetary policy is much worse and money is losing value every month.

No monetary inflation by governments randomly printing money, scarcity assured with a maximum number of units of 21 million.

Companies can hold capital again

For the moment, it is not attractive for companies to have capital (euros and dollars). Companies buy back their shares, make acquisitions and try to keep their cash reserves as low as possible when the value of euros and dollars falls. So no long-term investments are made, but everything has to make money as quickly as possible and all the money has to be used as soon as possible.

In a world where bitcoin is the main currency, companies can put value (in bitcoins) on their balance sheets. This value is not subject to inflation. As a result, companies are better protected against this phenomenon.

No depreciation, so companies no longer feel compelled to have to make money quickly and spend it. Resulting in fewer acquisitions, fewer share purchases, but more long-term investments.

Better products and more innovation

Planned obsolescence means making products designed to break down quickly. This is the effect of inflation; because money will be worth less tomorrow, it must be spent quickly. Companies have to keep selling junk to maintain their value because they have no cash.

In a world where bitcoin is the main currency, people spend less of their money due to deflation, so there is less waste. People want better products for their money. Companies no longer have to produce bad products.

It is more valuable to become a trusted brand where people buy for good quality rather than low price. Capital in bitcoin on the company's balance sheet ensures its long-term survival.

Planned obsolescence or products made to break down quickly is another consequence of inflation. Because money becomes worth less tomorrow, it must be spent quickly.

Lower consumption

Thanks to the ability to store value again, you no longer have to spend all your money on useless junk.

In a world where bitcoin is the main currency, value can be stored. As a result, people are saving again, buying less junk and throwing away less.

We call this 'Low Time Preference'. In the book called The Bitcoin Standard, Saifedean Ammous describes what the world was like when people had little time preference (when paying with 'hard money' (gold) was a common practice). A world where time was spent making things and buildings as good and beautiful as possible. Ammous describes how art, resource production and society as a whole have changed since the gold standard was abandoned. From the moment unlimited money could be printed and inflation began, people started looking for short-term savings goals. Low-quality products that are cheap but quick to buy weigh less than high-quality products that are more difficult to transport.

This shows that inflation is reflected not only in the prices of goods, but also in their longevity, portion size or recoverability.

The current consumer society we live in is a direct result of the sharp depreciation over a long period of time when holding capital. So, once again, holding value can lead to a greener world with less junk and better products.

Less inequality

Anyone can and may participate in Bitcoin. No central entitity can stop people from spending or saving money in bitcoins. Banks no longer decide if something is illegal, it goes back to where it belongs: in the hands of the people themselves and the judges.

In a world where bitcoin is the main currency and people manage their bitcoins themselves, it is harder to exclude people from the financial system. In 2017, for example, about 1.7 billion people were excluded from the financial system. This is mostly due to corruption, lack of infrastructure, distrust of financial institutions and sometimes poor creditworthiness of individuals. Bitcoin can help with this because it is an open and transparent system. These people often have smartphones and can therefore install a digital wallet. This allows them to receive, send and store bitcoins directly in a digital environment, offering several advantages.

No central authority, anyone can and may participate in Bitcoin.

Less war

Traditionally, war has usually been financed by inflation. A country can create money to fight war. Inflation often goes relatively unnoticed and is therefore much easier than having to explain to people that taxes must be increased by a certain percentage because they want to continue a war in another country.

In a world where bitcoin is the main currency, governments cannot print money to finance war. One potential advantage this could offer is that it would be more difficult to finance wars using the bitcoin standard, as this would remarkably increase the tax burden. Another advantage is that wars could be less prolonged because the money press does not exist to finance war in the long run. This should give an advantage in theory, but cannot be confirmed without an actual bitcoin standard.

The state can create money to make war. Inflation goes relatively unnoticed and is thus easier than having to introduce additional taxes. It is no coincidence that two world wars occurred after the abandoning of the gold standard.

Using energy efficiently

Producers who cannot get rid of green energy must divest energy and leave it to generators. Thanks to Bitcoin, these power plants can generate money even at times of low demand. This makes green energy sources more profitable, increasing the development of renewable energy.

In a world where bitcoin is the main currency, crypto miners try to use energy as efficiently as possible. They do this by using energy that would otherwise be wasted.

It creates a better market for energy. Cryptocurrency mining can be used as an energy buffer, where energy is most used where it is most economically leveraged.

Reduced prominence of (central) banks

Because there is no central entity to regulate transactions on Bitcoin, fewer entities such as central banks are needed. Some contracts can even be programmed into the money itself through 'smart contracts'.

In a world where bitcoin is the main currency, everyone can participate fairly with money. Central banks are not needed to manage money. Therefore, they will also use less energy.

Everyone can participate in a fair way and there is no need for other parties to handle transactions. Smart contracts can be programmed on a cryptocurrency's network.

Reduced risk of economic emergencies

Every euro or dollar is lent out by almost a tenfold, if everyone goes to the bank for their euros or dollars, we will have a systemic problem.

This is largely because of the banking system. Fraudulent banking destabilizes the monetary system.

In a world where bitcoin is the main currency and people are more their own bank (by holding bitcoins themselves), it is no longer possible to borrow the same bitcoin 10 times over. This makes the system more stable.

Fractional banking makes the monetary system unstable. Everyone's own bank for a more stable and sustainable system.

First published on dutchcryptonews.com

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