Bitcoin is much more important than the Internet

Don't get me wrong, of course the Internet is a very important technology that has significantly changed all of our lives. Nevertheless, it's fair to say that the Internet was not a fundamentally new thing. It simply made the transmission of information more efficient. Sending information without a transport medium has existed since the invention of the telegraph or the telephone.

Bitcoin, on the other hand, is something completely new: a "perfect" store of value that can be sent over the Internet. Bitcoin uses the Internet, because it's the most efficient way to share information with the world.

Bitcoin is "perfect" money. But what exactly is money? I would argue that most people have never given this question much thought, despite the fact that money directly and indirectly determines our entire lives. As long as buyer and seller agree, anything can function as money. The only question is whether the object is good money or not. The value of raw materials depends on their utility. But money is something different. It must meet certain characteristics:

There are several characteristics that a good money should fulfill. These properties can be divided into the following three overarching monetary functions:

1.) Store of value

2.) Medium of exchange

3.) Unit of account

A new money is established in the above order. Before an object can be used as a medium of exchange, it must first be accepted as a store of value. If I do not (yet) assign a value to the object, I do not want to receive it. As soon as you use an object for saving and trading, one automatically begins to nominate prices in the new money. It's finally used as an unit of account.

Primitive forms of money were seashells and stones. Shells are easy to transport, robust, divisible and scarce. To expand the money supply, you had to give a proof of work by searching for shells on the beach. Nobody can create shells out of thin air. This ensured that shells were scarce and therefore valuable.

But all forms of money had the same problem: the money supply could be expanded more and more easily with technical progress. While seashells were initially scarce, over time people developed fishing nets and fishing boats that could be used to collect shells much more efficiently. As a result, shells became increasingly worthless. It made less and less sense to save your purchasing power in this increasingly inflating money. Inflation comes from the Latin word inflare, which translates as to bloat (the money supply).

In order to be able to store their purchasing power in the best possible way, humanity constantly searched for the scarcest money. Before Bitcoin, gold was the object that best fulfilled the characteristics of good money. The supply of gold was the hardest to expand (highest Stock-to-Flow Ratio). Therefore, gold was used worldwide for many centuries as a store of value, a medium of exchange, and a unit of account.

Due to the scarcity of gold, inflation under the gold standard was very low. From 1789 to 1913, the annual inflation rate was 0.1%. That's a total of about 12.50% inflation in a period of 124 years.

By comparison, the Euro just reached official inflation rates of over 10% in a single year. So, what happened to our money?

In 1913, the Federal Reserve (FED) was established in the USA. It's quite inconvienient to pay with physical gold, so the task of the newly founded central banks was to issue paper bills (IOUs) for the gold stored by the state. Paper bills are much lighter than gold, easier to transport and can be checked for counterfeits more quickly. Since people could exchange their paper money for real physical gold at a fixed price at any time, its value was directly linked to gold.

Because physical gold and paper bills are two completely independent objects, everyone had to trust the authorities that they would only issue as many paper bills as they owned real gold. But for an easier financing of World War 1 in 1914, the warring countries began to suspend the gold standard and print paper money out of thin air. With exception of the USA, which officially continued to keep the link between the US Dollar and gold until 1971.

Since the Bretton Woods Agreement in 1944, the US Dollar has been the world's reserve currency. Due to increasing government spending, e.g. to finance the Vietnam War, the USA inflated the monetary supply of the US Dollar without having deposited gold for it. This led to dwindling confidence in the world reserve currency. In 1971, when several countries wanted to exchange their Dollars for physical gold, US President Richard Nixon announced a temporary suspension of the convertibility of Dollars into gold. Over 50 years later, this "suspension" of the gold standard remains in effect today.

Earlier forms of money could always be politically controlled to a certain extent, e.g. in the form of coinage. But since officially 1971, we have a purely political money, also called fiat money. Unlike the millennia before, money now has no link to the real world. The currency we are forced to use isn't scarce anymore.

We no longer have to do a proof of work to inflate the money supply. Central banks and commercial banks can create any number of paper bills or digital numbers out of thin air at the push of a button and use them to try to steer the economy. You have to exchange your limited lifetime for fiat money, while others can print the exact same money in any amount.

Today, new money is created when debt is incurred. Instead of basing the value of paper bills on real work in the form of gold, promises of hopefully performed work in the future are deposited:

The monetary system is now exceedingly bureaucratic, with multiple kinds of money supplies, controlled by different parties and governed by complex processes that are almost incomprehensible to the layperson.

The word inflation has also been redefined. Inflation is no longer the expansion of the money supply. Now it's the price increase of a basket of goods with various products and services, made up by central banks who steer the money supply.

I think, almost everyone would like to buy a house at some point in his live. However, in the inflation calculation of the European Central Bank (ECB), house prices are not even taken into account. Each person buys individually and thus has his or her own price basket. Therefore, official inflation rate is at best only a rough estimate of the actual inflation.

Meanwhile, the official price basket for the Euro has been "readjusted" to artificially lower the inflation rate. Prices for rent, electricity, fuel and water have simply been weighted lower, resulting (of course) in a lower inflation rate. Unfortunately, this does not make the prices we have to pay any cheaper.

The ECB has over 3,500 employees whose sole job is to maintain price stability. But according to the central banks of the world, price stability does not mean that we have stable prices, but a "healthy" 2% loss of purchasing power. Have fun explaining this logic to a 5 year old. Historically, every recession was caused by central banking.

But why exactly 2% inflation? Why not 10%? Why not 0%? The answer is simple: This figure was simply made up by central bankers. When asked why the world's central banks have set themselves an inflation target of 2%, Jerome Powell, chair of the FED, replied:

"The 2% inflation target "really anchors inflation" because "the modern belief is that people's expectations about inflation actually have a real effect on inflation. If you expect inflation to go up 5% then it will,".

Fiat money is thus based only on blind faith, like a church or cult. A currency that is only used by the population because they are forced to do so is unstable and highly dangerous. If people lose faith in the stability of the currency, it collapses and becomes completely worthless. This happens - without exception - to every fiat currency. The task of the central bankers is to delay the death of the currency as far into the future as possible.

When a currency loses more than 50% of its purchasing power every month, we speak of hyperinflation. This is the moment when fiat money ultimately dies. The Weimar Hyperinflation from 1914 to November 1923 was one of the most radical devaluations of money in major industrialized nations. The Mark became so worthless in a very short time that it made more sense to use the paper bills for heating than to buy anything with them. The currency died and people went back to bartering. Widows exchanged the gold watch of their husband killed in the war for few sacks of potatoes.

The solution to the Weimar Hyperinflation was very simple: A new fiat currency was introduced, the Rentenmark. The Rentenmark was supposed to be backed by land, but this was only a psychological trick. It was not possible to exchange the Rentenmark for real estate. But the desperate and starving people did not care. They simply wanted to have a more stable money and live a better live, so they accepted the new currency and the Rentenmark became stable. The empty belief in a new stable currency was the solution to the Weimar Hyperinflation.

In the few decades that states have experimented with purely political money, over 55 currencies have already died, according to the Hanke-Krus Hyperinflation Table. Without exception, all of these currencies were fiat currencies. All people suffer from inflation, some more and some less. Today, especially in large parts of Africa and South America, many people live under high 2 or 3 digit inflation rates.

The Cantillon Effect describes that inflation always distributes wealth from the bottom to the top. The gap between rich and poor is widening because of fiat currencies. If, for example, failing banks are being rescued with new printed money, this money is stolen from the general public and redistributed to certain entities.

In the long run, this leads to an increasingly unequal distribution of wealth. Prices rise, while wages cannot keep up with the inflation rate. The newly created money that comes into circulation tends to allocate itself in limited goods such as commodities and real estate. House prices are rising. That's good for home owners and bad for people wanting to buy a home.

Actually, all prices should fall, because technological progress is deflationary. Deflation is a good thing and inflation is bad. But we have built a monetary system over the last decades that is purely based on centralized money creation and is inflationary. In such a system, deflation is harmful. Deflation is only bad if there was inflation before.

Why funny internet money (Bitcoin) is the solution for these problems is a whole different story. But very briefly summarized:

Bitcoin is the discovery of absolute and verifiable scarcity. There will only be a maximum of 21,000,000 Bitcoin for all eternity. No one can change that. Each person can be their own "Bitcoin Bank" and verify that they own a part of the 21 million Bitcoin without needing to trust a central party. Bitcoin transactions can be made in real time, free of charge and anonymously.

The inventor under the pseudonym Satoshi Nakamoto is anonymous, has disappeared and verifiably never enriched himself with his coins. I can't think of a fairer way to distribute a neutral money. Bitcoin is "objectively" the best and probably the last money of mankind.

Bitcoin is not software. It is what people think Bitcoin is. For me and all other "Bitcoiners", Bitcoin is a decentralized, open, alternative money system with a fixed supply of 21 million coins. In this monetary system, everyone has the same rights, whether they are individuals, businesses or central bankers. We implement the rules of Bitcoin in the form of open source software.

Everyone benefits from the world's hardest money, so everyone is interested in spreading and protecting the Bitcoin Network. Bitcoin, with its fixed supply, is a savings technology. We can't invent anything scarcer than Bitcoin. Therefore, in the long run, everything else will forever continue to decrease in value compared to Bitcoin.

Bitcoin is safer than any savings account or store of value in human history. To use Bitcoin, you only need to remember 12 words in your head. This is the access to your coins, which you can secure as well as you like.

Because of fiat money, everyone has to be an investor in order to compensate for the trend of falling wages with stock gains and to be able to save for retirement. But even supposedly "safe" diversified Exchange Traded Funds (ETF) such as the MSCI World, which is supposed to represent the entire world market, trends - like everything else - towards 0 compared to Bitcoin.

Bitcoin is not an investment. It's the only way to save your money. Because of its true decentralization, Bitcoin cannot disappear or "fail" (unlike every other "cryptocurrency") .

If, purely theoretically, quantum computers "cripple" Bitcoin, it would be bad, but not the end of Bitcoin. Some persons like you and me will improve the Bitcoin code. Everyone can decide for themselves which quantum-safe Bitcoin software to switch to. Which solution most closely matches your idea of bitcoin? The "real" Bitcoin software will prevail. Your wealth will not be lost in the process.

Money is a winner-takes-it-all game. No one wants to use multiple forms of money. The network effect will do the rest.

Fiat money is purely political money. Bitcoin is bound by the laws of physics. Growing Bitcoin adoption makes wars, monopolies and dictatorships unprofitable, steadily reduces the gap between rich and poor and makes the planet more sustainable in a natural way. As mentioned in other articles, Bitcoin mining subsidizes renewable energy and may even become CO2 negative in the future.

Just as state and church were separated, we are now experiencing the separation of state and money. The question is not if, but how quickly this system change will happen. Our most important task in the coming years and decades is to make this change as smooth as possible. Bitcoin is truly decentralized without a single point of failure. It can't be stopped or destroyed. But if adoption happens too quickly and unsustainable, it has the potential to severely damage our civilization in the short and medium term.

So please, for the sake of our society, study Bitcoin.

“This is a historical lesson of immense significance, and should be kept in mind by anyone who thinks his refusal of Bitcoin means he doesn't have to deal with it. History shows it is not possible to insulate yourself from the consequences of others holding money that is harder than yours.”

Saifedean Ammous,?The Bitcoin Standard