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Bitcoin is deep frozen
As humanity continues to excel in the production of goods, services, knowledge, and financial assets, we are now being made acutely aware of new challenges. That’s how inefficient our savings are when everything we save could be produced in larger quantities or devalued by competitive markets. Traditional methods of saving, from dollars to real estate, are increasingly challenged by our own productive capacity, resulting in a decline in the value of these assets. Another way to think about this is that these assets are just “bad money”, but what do you compare them to?
“Bitcoin is the only thing in the world that is not price sensitive.”
– Michael Saylor
The arrival of Bitcoin is a paradigm shift in the concept of savings. Bitcoin stands out as a novel financial tool with unique properties that redefine what we think of as money. Unlike traditional assets, Bitcoin is designed to be immutable and in fixed supply, and because there are only 21 million bits of Bitcoin in existence, the inflationary tendencies that plague fiat currencies and all other asset classes Not affected by Bitcoin operates on a programmatic exponentially decreasing supply schedule, allowing for initial distribution and reinforcing long-term scarcity, allowing more miners to mine more Bitcoin. As you attempt to do so, the mining difficulty increases indefinitely to ensure you stay on track with your given supply schedule.
“There are two common arguments against Bitcoin scarcity. We will distill them here.
People can still create other currencies so it’s not scarce
It’s not rare because I don’t know fractions.”
– Phil Geiger
“There will only be 21 million Bitcoins in existence from now on, and the element of trust will be completely removed from the equation. A fixed supply of Bitcoin will be enforced by a decentralized-based network consensus mechanism. No one will trust anyone. As a collection of these two features, Bitcoin is becoming the rarest currency to ever exist.”
– Parker Lewis Bitcoin will make all other money obsolete
Immutable scarcity is at the core of Bitcoin’s value proposition as a savings tool. In a world where other assets can be permanently produced or depreciated, the fixed supply of Bitcoin provides a permanent solution. The monetary nature of Bitcoin is consistent with the economic principle that systems tend to concentrate on the most marketable tool: money. Just because something is in low supply doesn’t mean it’s valuable. The value of Bitcoin is that it is the best money due to its excellent monetary properties.
It is the world’s first truly scarce good with sufficient monetary properties. In contrast to all the melting assets that people use as a savings vehicle today, Bitcoin is extremely frozen at absolute zero.
Parker Lewis, in his book Gradually Then Suddenly, describes the reliable and forced fixed supply of Bitcoin as well as anyone else.
Realize that there is nothing on the blockchain that guarantees a fixed supply, and that Bitcoin supply schedules are dictated by software and cannot be trusted. Rather, the 21 million number is reliable because it is managed on a decentralized basis and by an ever-growing number of network participants. The number 21 million becomes a more reliable constant as more individuals participate in the consensus, and eventually becomes a more reliable constant as the share of the network each individual controls becomes smaller and smaller over time. Become.
– Parker Lewis Bitcoin will make all other money obsolete
Money solved the problem of double coincidence of desires, the need for two people participating in a barter system to get exactly what the other person wants at the same time. In a barter system, if you have apples and want bananas, you must find someone who not only has bananas but also wants your apples. This makes trading very difficult. Money solves this problem by acting as one universal tool for transactions. The problem of double coincidence of desires is solved by the individual in the economic system concentrating on her one optimal tool, which is used as money. The best tool for that is currently Bitcoin. This is objectively true considering its excellent financial properties.
Ultimately, all the value comes from the fact that Bitcoin only has 21 million bits in existence, but that’s not the only improvement on previous currencies. It is also fungible (no unit of Bitcoin is distinguishable from any other Bitcoin) and portable (no unit of Bitcoin is distinguishable from another). It can be moved around the world without permission and at very low cost), durable (data can be physically stored on many mediums), and divisible (1 Bitcoin is equivalent to 100 million Satoshis; Bitcoin can be used for commerce at various scales).
With Bitcoin’s superior monetary properties in mind, we can begin to view the market landscape through a Bitcoin lens. These properties are in stark contrast to the properties of all other goods, and since monetary systems have converged on one currency, we visualize the traditional store of wealth measured in this superior asset. That’s not only reasonable, it’s wise.
your wealth is melting away
As human ingenuity and technological innovation increase the efficiency with which we produce goods, services, and information, we find that we primarily hoard assets so that we, as a society, can generate more assets. . Are traditional savings methods, including holding fiat currencies, bonds, stocks, gold, and real estate, all fundamentally tied to assets that can themselves increase in volume or decrease in value over time? Either.
Of course, investing in different asset classes can provide short-term, medium-term, and even long-term gains. How much of a particular asset can exist in the world, or its supply, is not the only factor that influences its price over the long term. But in a world with Bitcoin, you have to start thinking about whether Bitcoin is overvalued based on risk-adjusted returns.
If the capacity to produce CPI goods were to double, and the Federal Reserve would have to respond to that productivity increase by devaluing the currency to maintain its 2% inflation target, why hold on to the US dollar? Is it wise?
A bond is simply a contract for future U.S. dollars. Is it wise to hold a certain amount of future U.S. dollars with added potential default risk when these U.S. dollars are by design likely to depreciate as well?
Apple has a 30 P/E ratio (for every $1 of annual revenue Is it a good long-term store of wealth for you (paying $30 for $30), with the potential for margins to eventually shrink and a return?
Despite its physical scarcity, gold is a commodity that can be mined infinitely with sufficient technology. Is it wise to hold onto it when you can produce it forever?
Considering that the real estate market is becoming saturated and the influx of new developments can result in a commoditized housing market with intense competition and shrinking rental yield margins, investing in multifamily housing is a long-term, healthy wealth strategy. Will it become a storehouse?
All of these investments may make sense for a while, but over a long enough timeline, they all end up facing the consequences of the innovation trap. This means future cash flows and yield streams can be competed for and taken away. Or the supply could simply be in short supply. Increased by free market forces. This ruthless competition is part of the reason we live in such an era of intense financialisation. None of these savings vehicles will adequately store your wealth in the long term, so you will need to hire a money manager or become a money manager.
The promise of Bitcoin is to reintroduce the concept of true savings.
“There was, and is, a fundamental difference between savings and investment. Savings are held in the form of financial assets, and investments are savings exposed to risk. As economic systems become more financialized, the dividing line is As blurred as it may have been, Bitcoin will blur the lines and make the distinctions clear again.Money, with the right incentive structure, will overwhelm the demand for complex financial assets and debt products. I guess.”
– Parker Lewis, Bitcoin is the great definancialization
Bitcoin exists and its supply is definitely finite, so once you start accepting that it’s unwise to use traditional assets for long-term savings, Bitcoin itself measures up against other asset classes. It only further illuminates the problem it solves by acting as a constant for . As measured by a completely scarce asset like Bitcoin, the long-term potential of all these asset classes, especially in an era of rapidly expanding production capacity and increasingly globalized, interconnected, and competitive markets, is It becomes clearer than ever how our values are being challenged. .
(End of excerpt. Click here To download the full report: “Your Wealth is Melting” by Joe Burnett, for Unchained)
It was first published Unchained.com.
unchained is Bitcoin Magazine’s official U.S. co-custodial partner and an integral sponsor of related content published through Bitcoin Magazine. Please visit our website to learn more about the services we offer, our custody products, and the relationship between Unchained and Bitcoin Magazine. Website.
