Bitcoin is Money

The History of Money

In the earliest days of human society, barter was the way in which value was exchanged. Trading one good or service for another was the only way we knew how to exchange value. As you can imagine this was a very inefficient way for us to exchange value. As our societies and economies became more complex we required a more advanced way of exchanging value, and preserving said value. This is where using a medium (money) came into play. We realized we could use a physical medium (money) to initiate the transfer of value and even use that medium (money) to store value for later use. This medium (money) has taken many forms over human history such as shells, salt, cattle, rare stones, gold, etc. At the time of their prominence as a form of money, these items fulfilled five distinct characteristics. Some better than others but all of them fulfilled the characteristic of being SCARCE. These items were hard to produce and were not abundant in society, thus they were highly valued. The exception to this framework is fiat currency (paper money). Fiat is not scare but it is able to function as money because the governing bodies around the world make it so.

Various Forms of Money Used in History
Vijay Boyapati “The Bullish Case for Bitcoin”
  • Gold durability is great. It has been used for thousands and thousands of years while retaining its physical properties.
  • Fiat is fairly durable. Sure, they can rip or be taken out of circulation but for the most part it fulfills the characteristic of being durable. Today most transactions are done online so the durability has increased for fiat and will increase even more once central banks issues their own digital currencies. In the grad scheme, unbacked fiat monies like the US dollar have only been around for about 50 years so they have a long way to go in order to match gold durability.
  • Bitcoin is infinitely durable as it can be transacted with over and over millions of times without losing any of its value due to its digital nature. Bitcoin has only been around for 11 years so it is hard to give it a definite position in the durability pecking order. The longer Bitcoin is around the more it will become universally agreed upon that it is never going away, similar to how the internet is thought of today.
  • Gold can be broken down to ounces or grams but this is labor intensive and does not compliment a complex economy/society. This was a major reason fiat money was created.
  • Fiat is relatively divisible. You can own $100 in many different forms. One hundred $1 bills, five $20 bills, etc… Fiat solved for golds lack of divisibility.
  • Bitcoin is divisible down to the hundred millionth. So theoretically you could own and send .00000001 of a Bitcoin and transfer any amount of value, large or small. This makes Bitcoin the most divisible form of money in the world.
  • Gold as long as it is real when melted down holds the same exact elemental properties all across the globe.
  • Fiat is relatively fungible. However, counterfeiting has always been a problem with fiat currency. There have also been instances like in India when the government unexpectedly decided to take the 1000 and 500 rupees out of circulation. These fiat bills started trading at a discount as people rushed to get rid of them. Digitizing the currencies will help improve fiat fungibility.
  • Bitcoin fungibility is one of its minor downfalls. All bitcoins are created equal however since the general ledger or blockchain of Bitcoin is public and verifiable it can be seen if certain coins are used for illegal or frowned upon transactions. For instance, if someone used 10 Bitcoins for a terrorist activity those coins would become “tainted” in a sense and no one would want to possess those coins anymore. (anyone who tells you Bitcoin is only good for doing illegal stuff on the internet doesn’t actually understand Bitcoin). Privacy is actively being worked on and is a main priority for ₿itcoin development.
  • Gold is not great at this. You can carry around gold in your pockets but that is cumbersome and transfering gold in our complex global economies is not feasible. This is the other main reason fiat money began being used in society.
  • Fiat is easily transportable. It can be taken with you anywhere in the world in a wallet or pocket, however carrying larger sums becomes a problem. Today dollars can be transacted with around the world via the internet banking systems, making it extremely transportable.
  • Bitcoin is the most transportable form of money humans have ever seen as it is digitally native and can be sent anywhere in the world with the push of a button. As ₿itcoin continues to develop, it is becoming faster and easier than ever to transact with.
  • Gold is very scarce. There is a very limited supply of gold and it only increases a small amount every year. This is why Gold has functioned as a premier form of money for thousands of years. It is able to hold its purchasing power over long periods of time and preserve wealth. Gold does not get an A+ in this category because we do not know how much gold is actually on the earth and therefore it is not by the truest definition finite.
  • Fiat is the exact opposite of scarce. Since Fiat is controlled by the central government issuing it, its supply base can be expanded infinitely. This is the major downfall of fiat currencies (will discuss this more in the next section)
  • Bitcoin is the only truly finite money on the planet. There are only 21 Million ₿itcoin that will ever be mined (created). Currently around 18.5 Million of those are in circulation with the remaining 2.5 million to be mined by the year 2140. This true scarcity separates Bitcoin from any other form of money in human history.

Centralized Control of the Money Supply

Scarcity is the defining differentiator when comparing Bitcoin to any other money and it is the key factor for determining the long term success of a form of money. Gold for instance has been around and valued for thousands of years because it extremely scarce. If gold could be produced on a whim by anyone it would not be anymore valuable than the other common metals. Sure it is shiny and extremely durable but so is Platinum. In fact, platinum is actually stronger and more durable than gold. So why isn't platinum valued in the way gold is? It all comes back to scarcity. Gold is the scarcest metal and there is nothing any entity or government can do to increase the amount gold earth has to offer. On the opposite end of the spectrum we have we have hundreds of different currencies all around the world that are simply pieces of paper. Pieces of paper that have an infinite supply which is continuously manipulated by whatever central bank issues it. This constant manipulation leads to currency failures like the ones we saw in Germany and Hungary in the 1900s. As well as the ones we are currently seeing in Venezuela, Sudan, Argentina, Lebanon, Zimbabwe, etc… Take a look at these countries current inflation rate percentages below.

Zimbabwe 100 Trillion Dollar Bill
US Monetary Base

How Bitcoin is different:

First let me provide a scenario: Currency A has an undetermined expandable supply, while currency B has a finite fixed supply. Currency A is controlled by a central entity that can expand the supply when deemed necessary. Currency B is not controlled by any central entity and has a supply that cannot be manipulated. Currency B is continually increasing in value compared to currency A. Holding currency B gives you more purchasing power each year where holding currency A gives you less. Which of these two currencies would you want? Any logical thinker is going to want to hold Currency B. It helps you as a citizen live a better life by incentivizing saving and by giving you more return on your most valuable asset — time.

Stock to flow model by @100trillionUSD

The Digital Dollar

Will Bitcoin become obsolete if central banks digitize their currencies? The answer to this is a resounding NO. Digitizing the US dollar does not actually change the underlying form of money, it is simply putting the fiat (paper) money online, which you can argue it already is. Yes, this increases the portability and durability of the money but it does not solve for the inherent lack of scarcity due to the centralized control of said money. They can still print or create as many dollars as they wish, which is turn devalues the money and takes purchasing power away from you the holder of the money. Bitcoin on the other hand is continuously increasing the holders purchasing power and is not controlled by any central entity, therefore it cannot be manipulated AND people all around the world have the ability to freely transact with it. Do not be fooled by the hype of a digital dollar. It is still just a centralized fiat currency with a shiny bow wrapped around it.

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