Originally published in Unchained.com.
Unchained is the official US collaborative custody partner of bitcoin Magazine and an integral sponsor of related content published through bitcoin Magazine. To learn more about the services offered, custody products, and the relationship between Unchained and bitcoin Magazine, please visit our website.
bitcoin is a freezer
As humanity continues to excel in the production of goods, services, knowledge, and financial assets, we are now painfully aware of a new problem: how ineffective our savings are when everything we save can be produced in greater quantities or devalued in competitive markets. Traditional savings methods, from dollars to real estate, are increasingly challenged by our own production capacity, which in turn devalues these assets. Another way to think about this is that these assets are simply “bad money,” but compared to what?
“bitcoin is the only thing in the world that is price inelastic.”
-Michael Saylor
Enter bitcoin, a paradigm shift in the concept of savings. bitcoin stands out as a novel monetary tool with unique properties that redefine what we consider money. Unlike traditional assets, bitcoin is designed with a fixed, immutable supply (there will only be 21 million bitcoins), making it immune to the inflationary trends that plague fiat currencies and all other asset classes. bitcoin operates on a programmatic, exponentially decreasing supply schedule, allowing for its initial distribution, cementing its long-term scarcity, and ensuring that as more miners attempt to mine more bitcoins, the mining difficulty increases indefinitely to maintain the supply schedule. default supply.
“There are two common arguments against bitcoin scarcity. I'll distill them down here:
It is not scarce because people can still create other currencies.
“It's not scarce because I don't understand fractions.”
-Phil Geiger
“Only 21 million bitcoins will exist and the element of trust is completely removed from the equation. The fixed supply of bitcoin is implemented through a network consensus mechanism in a decentralized manner. No one trusts anyone and everyone enforces the rules independently. As a combination of these two functions, bitcoin is becoming the scarcest form of money that has ever existed.”
– Parker Lewis in bitcoin makes 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 perpetually produced or devalued, bitcoin's fixed supply offers a permanent solution. bitcoin's monetary properties align with the economic principle that systems tend to converge on the most marketable tool: money. Just because something is in short supply doesn't make it valuable. What makes bitcoin valuable is that it is the best money due to its superior monetary properties.
It is the world's first perfectly scarce good with sufficient monetary properties. In contrast to all the melting assets that people use as savings vehicles today, bitcoin is frozen at absolute zero.
Parker Lewis explains the credibly enforced fixed supply of bitcoin as well as anyone in his book, Gradually, Then Suddenly:
Recognize that there is nothing in a blockchain that guarantees a fixed supply, and that the bitcoin supply schedule is not credible because the software dictates it so. Instead, 21 million is only credible because it is governed in a decentralized way and by an increasing number of participants in the network. 21 million becomes a more credible fixed number as more individuals participate in the consensus, and ultimately becomes a more reliable constant as each individual controls a smaller and smaller portion of the network over time. time.
– Parker Lewis in bitcoin makes all other money obsolete
Money solved the double coincidence of wants: the problem of requiring two people in a barter system to have precisely what the other 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 incredibly difficult. Money eliminates this problem by acting as a universal tool for trade. The problem of double coincidence of desires is solved by individuals within economic systems converging on a better tool to use like money, and that better tool is now bitcoin. This is objectively true, given its superior monetary properties.
While all value ultimately derives from the fact that there will only be 21 million bitcoins, its improvement over previous money does not end there: it is also fungible (no unit of bitcoin can be distinguished from another), portable (it can be moved without permission and globally at a very low cost), durable (it is data that can be physically preserved in many media) and divisible (one bitcoin is equivalent to 100,000,000 satoshis, allowing bitcoin to be used for commerce on many scales) .
Considering the superior monetary properties of bitcoin, we can begin to look at the market landscape through the lens of bitcoin. Because these properties contrast sharply with the properties of any other good, and because monetary systems converge on one currency, it is not only reasonable but prudent to view traditional stores of wealth as measured in this superior asset.
Your wealth is melting
As human ingenuity and technological innovation drive greater efficiency in the production of goods, services and information, we find that we save predominantly on assets that we, as a society, can create in greater quantities. Traditional savings methods, including holding fiat currency, bonds, stocks, gold and real estate, are themselves vulnerable to increasing in amount or depreciating over time or being fundamentally tied to assets that may be.
Of course, short, medium and even long-term profits can still be made by investing in various asset classes. The amount of a given asset that could exist in the world (its supply) is not the only factor that affects its price, even in the long term. However, in a world with bitcoins, we must start to wonder if they might be overvalued in light of their risk-adjusted returns:
Is it wise to hold the US dollar when, if there is a 2x increase in CPI goods production capacity, the Fed should respond to that productivity increase by devaluing the currency to maintain its 2% inflation target?
Bonds are simply contracts for a future amount of US dollars. Is it prudent to hold a fixed amount of future US dollars, with potential added default risk, when these dollars will also be intentionally debased?
Is Apple a good long-term store of wealth with a P/E ratio of 30 (paying $30 for every $1 in annual earnings) when a plethora of consumer technology companies could produce similar devices or disrupt its walled garden ecosystem, diminishing the unique value proposition? Are margins and potentially revenues ultimately reduced?
Gold, despite its physical scarcity, is a commodity that could be mined indefinitely with enough technology. Is it wise to maintain it when it can be produced perpetually?
Is investing in an apartment complex a solid long-term store of wealth, considering the potential for saturation of the real estate market, where the influx of new developments could lead to a commoditized real estate market, full of fierce competition and rental yield margins? increasingly smaller?
All of these investments may be logical for some time, however, on a long enough timeline, they all face the consequences of the innovation trap: their future cash flow streams or performance can, and will, be eliminated by competition. or your offer may simply be removed. augmented—by free market forces. This cutthroat competition is part of the reason we live in such a severe time of financialization: none of these savings vehicles sufficiently preserve your wealth over the long term, so you need to hire or become a money manager.
The promise of bitcoin is that it reintroduces the concept of true savings.
“There is and always has been a fundamental difference between savings and investment; Savings are held in the form of monetary assets and investments are savings that are put at risk. The lines may have blurred as the economic system became financialized, but bitcoin will blur them and make the distinction obvious once again. “Money with the right incentive structure will overwhelm demand for complex financial assets and debt instruments.”
– Parker Lewis on bitcoin is the great definancialization
Once you begin to accept that using traditional assets for long-term savings is unwise because bitcoin exists and has a credible finite supply, bitcoin itself only further illuminates the problem it solves by serving as a constant to compare others to. asset classes. When measured in a perfectly scarce asset like bitcoin, the ways in which the long-term value of all of these asset classes is being questioned becomes clearer than ever, particularly at a time when production capacities are rapidly expanding. and markets are increasingly global, interconnected and highly competitive. .
(END EXTRACT. Click HERE to download the full report: “Your Wealth is Melting” by Joe Burnett, for Unchained)
Originally published in Unchained.com.
Unchained is the official US collaborative custody partner of bitcoin Magazine and an integral sponsor of related content published through bitcoin Magazine. To learn more about the services offered, custody products, and the relationship between Unchained and bitcoin Magazine, please visit our website.
