BITCOIN: WHY WAS IT CREATED?

When Satoshi Nakamoto, the inventor of Bitcoin first released his Bitcoin white paper, he sent the following message to a mailing list:

"The root problem with conventional currency is all the trust that's required to make it work.?The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible".

To put things into context, he invented Bitcoin at a time when the whole financial system was collapsing, due to Lehman brothers bankruptcy. The centralised nature of our financial system makes banks and central banks interlinked, which lead to a full blown worldwide financial crisis caused by the blow up of one bank. Bank depositors all around the world saw their savings at risk because of the over leverage positions taken by a US bank on the subprime mortgage market. The subprime bubble was created by banks using clients deposits as ‘fractional reserve’ in order to financially engineer products that look stable, but weren’t.

Satoshi’s view was the the trust we put in traditional forms of money is constantly breached, as this money is used without our approval and is constantly devalued by central banks to fuel their inflationary goals. If you look at each currency over a long period of time, you will notice that it constantly looses its purchasing power instead of gaining purchasing power because of all the technological advances that make production costs lower.?

The graph below highlights the loss of purchasing power of the US dollar, who has been on a constant descending curve, specially since the introduction of the Fiat monetary system in 1971.

And finally, Satoshi Nakamoto was trying to find a technological solution that would make micropayments more efficient.

The Bitcoin creation was therefore ignited by a need to find a technological solution for a problem that our traditional financial system has not been able to solve.

Indeed, since Bitcoin’s invention, there are still credit bubbles, latest being Evergrande, that jeopardise the whole financial system.?The next credit bubble will probably come from Sovereigns, as we used the same techniques (Quantitative Easing) to fight against Covid then the one we used to fight against the 2008 financial crisis. This will probably lead to the same Sovereign debt crisis we experienced in the years following Lehman Brother's bankruptcy that brought Europe to the brink of collapse.

If one look at the money creation, it has massively accelerated with the fight against Covid-19 pandemic, thanks to central bankers of the world addressing the problem by adding 30-40% more money into the system. This was done by leveraging governments, which will increase the risks of defaults in the coming years;

And finally, micropayments are still overcharged, specifically in the remote regions of the world, where remittances for examples are charged a whopping average rate of 6,3% according to the World Bank.

Fast forward 13 years after Bitcoin’s creation, the problem Satoshi Nakamoto was trying to address is still there and no one has came up with a solution to address it. On the contrary, most Bitcoin detractors accused it of crimes it didn’t commit. Yet, the sole focus of attention is Bitcoin’s inefficiencies instead of being the inefficiencies of our financial system.

So, next time you hear a Bitcoin detractor ask him if he has a better solution than Satoshi’s.

More on Bitcoin: https://www.melanion.com/article/the-bitcoin-transition