What is Bitcoin?

It’s not money.

It’s also not a currency.

Those are the byproduct of what it really is.

Bitcoin is the next step in the evolution of value system.

Whether it is sea shells, gold coins, paper money, or digital currency like bitcoin, the intent is to use it as a tool.

A tool to value, transfer value, and store value.

Let’s put Bitcoin aside for a second, and look at other digital money.

For those who have experienced using credit cards, Apple pay, Wechat pay, and other digital payments, it’s tough to go back to carrying cash and coins. If you live in an environment where digital modes of payments are available, for 99% of cases, digital is better than physical. Unless of course you are an OG, ready to make it rain at any moment on unsuspecting strangers.

Focusing on Wechat Pay and Alipay, China is slowly and surely taking over the world, one POS at a time. From China’s perspective, it’s incredibly powerful if Chinese people can go around the world, carrying only their smartphone and pay for anything and everything they want with Alipay and Wechat pay.

All denominated in Chinese Yuan.

It is powerful because both Alipay and Wechat pay keeps the money within China’s control. While keeping the “keep the money in China’s control” in mind, let’s take step back and look at how modern money is created.

How Modern Money Is Created

What we call US dollars, Canadian dollars, Chinese Yuan, Japanese Yen, are all manifestations of the specific monetary systems and policies of respective countries.

This is what I mean.

Say we take Elon’s rocket to Mars and start a country there. We might start out by using the US dollar as a tool to value, transfer value and store value. Eventually, Martians are going to want independence. ’cause what do those Earthlings know about Mars anyways. When they do, they will want to create their own version of this tool that can be used to value things, transfer value between citizens and store value.

Let’s call it Martian Dollars.

Now, we have our Martian dollars, it’s not very useful outside of Mars. We don’t like that and would like our Martian Dollars to be accepted everywhere. We scratch our heads, and think about how to proliferate the use of our Martian Dollars.

Why?

Well… the more demand there is for Martian Dollars, the more valuable it is relative to other currencies. The best part, we will have the ability to print more if we ever ran out.

One smart person in our colony says: “Hey guys, we have lots of Martian oil, let’s make it mandatory to pay in Martian Dollars for those who wants to buy this oil. Since the whole planet Earth is pretty much running on gasoline, and we happen to have lots of it, if we make our oil cheaper, and require payments in Martian Dollars, everyone will want to use our money!”

Throw in a central bank, some national debt and we have a basic blueprint of how modern money is created. It almost always starts out with a commodity universally valuable and limited in supply.

And then Martians wanted more

In human history, we have had period of time where private banks issued their own money based on the amount of gold that they had. However, in the last 200 years or so this game of money creation and management has been reserved for the select few. (Shout out to B. Franklin!)

If we go back long enough in history, we can always trace paper money to some sort of commodity. When this paper money proliferates to an extend at which the general public’s “money experience” is significantly removed from the commodity itself, taking it off the oil peg, or the gold peg, is the necessary next step.

This step is necessary because why would you what your version of money to be limited by the amount of a commodity when everyone else’s is not? In order to grow the money supply and keep up with the demand of it (shoutout to the oil marketing department), we either have to have infinite oil or we can just forget about the peg all together and print Mars Dollars ad infinitum.

When everything works out as planned, we then have the emergence of an economic powerhouse. The risk is if Martians don't figure out something other than oil as the basis for the demand of their money. When that happens, their Martian Dollars will become worthless. (See Venezuela)

Oh $h!t… We Ran Out of Gas

What if Mars runs out of oil? What if the Martians accidentally printed too much money?

Just like everything else in economics, money is about demand and supply.

When our Martians had all the oil in the world, the demand for Martian Dollars was through the roof, so it was more valuable than other money. That demand was because our Martians required payment in Martian Dollars for the cheaper Martian oil. Now that demand is gone, the whole monetary system will collapse if there is no other demand for Martian Dollars.

Repeat after me: “Keep the money within China’s control.”

Good.

What if the Martian government had the ability to control every single Martian Dollar, and basically making it illegal to transfer out from Mars to other more valuable money.

Okay maybe not illegal, because that would spook everyone and tank the currency but definitely limited. If the Martians could figure how to be self sustainable without having to buy from other economies (they will still sell to other economies, bill is payable in Martian Dollars of course!) then the demand and supply of Martian dollars will balance out and hence keep its value.

“Are you saying that the value of a currency used to be dictated by a commodity, and now fluctuates by its government’s prowess in the economic super bowl?” (See trade war between China and US)

Yes.

I’m not the only one that thinks it will not last forever. Luckily someone came up with...

Plan B

Bitcoin came out of the economic collapse of 2008. You can find numerous articles and Youtube videos about it, so I’ll skip the intro.

What I want to bring to your attention is how money all started with commodities and then taken off the peg later because the money supply was capped.

The fact that money started out as a limited supply was a good thing. The argument that money had to be taken off the peg for the economic growth, is self serving. The byproduct that arises from human intervened monetary system is greed and over printing of money. The current solution to the aforementioned negative byproduct is complete control. Aka the China way.

Can’t argue with that, because it’s working for now.

However, if the saying “history always repeats itself” is true, my bet is that subjectively managed monetary system will always be at the mercy of human greed. Hence, will eventually fail.

The logical evolution is to keep the supply limited based on something that’s universally valuable, and also no one gets to change the rules once it is decided upon.

Even though most currencies are not backed by gold anymore, most central banks around the world are acquiring gold reserves. Interesting isn’t it? On one hand you and I can’t go to the bank and get gold for our money, on the other hand the banks are using profits to acquire more gold reserves.

The real OG of the money games know what's more valuable if they had to choose between paper money and gold.

Let’s look at gold, limited in supply, something that most humanity considers of value, and no one has been successful at convincing the world otherwise.

Why Is Gold Valuable?

For most of the recorded human history, gold played a role as money, status symbol and often a base for a monetary system.

Why was gold used and not silver?

There are many explanations, all of which are in hindsight. In my books, that doesn’t count.

To me, it’s like the metrics system. The USA still uses the system that doesn’t make any sense while the rest of the world uses something more sensible. The cost associated with the change is too high. All the factories will have to change, textbooks, instruction manuals…etc. That’s a lot of change for not much benefits.

For a combination of reasons gold stuck.

The cost of changing it is too high. You have to go around the world convincing that some other metal should be the metaphor used when talking about “a pot of gold at the end of the rainbow.” and many other such metaphors which are ingrained in cultures globally.

In other words, gold is valuable because of the stories that we tell to ourselves. It’s a myth turned into a self fulfilling prophecy.

Bitcoin’s story is very similar.

Why Is Bitcoin Valuable?

Bitcoin is valuable for the same TYPE of reasons that gold is valuable.

It’s a story, albeit with less historical track record. Arguably a better story in the digital age, because it’s digital.

This means, it does gold better than gold, unless we are nuked back to stone age and the internet goes away.

In conclusion

When learning about Bitcoin, people often gets lost in the technical details, their own preconceived notions about what money is, and biases against new technology. We take money for granted, and because it's so much of our lives, it's psychologically difficult to imagine that there's a 10x better way.

Like everything else that has been touched by technology, it's difficult to conceptualize at first, until it almost takes over the world. In the case of money, the learning curve is steeper and the biases that we have are numerous.

Now it’s up the the rest of humanity to catch up to this trend and the next step in the evolution of our value system.