Have you ever wondered why the cost of goods and services constantly rise? It is due to inflation and the constant printing of money by our banks and governments. They are able to do this because there is nothing backing fiat money. Bitcoin and precious metals do.
Paper money has been around since the Tang Dynasty created it around the 7th century, but it wasn’t really adopted worldwide until around the 17th century. Until then, whether you were Roman, Egyptian, Greek, or Persian your money was predominantly gold or silver coins (other metals like copper and bronze were also used), it just had a different face or symbol on it. So no matter where you were in the known world, one gram of pure gold was valued very similarly. The reason it was used for money then (and still valuable today) is due to its scarcity and the inability for anyone to create their own “gold.” In order to get it, it had to be bargained for, worked for, or (in some cases) stolen.
Fast forward to today and our money looks nothing like it did before, and I’m not talking about the physical bills. It is estimated around 8% of the world’s currency is in physical bills, the rest of it is in a digital ledger held by many different parties (banks, credit institutions, etc…). The reason this is brought up is to show that we already have digital money and have been using it for many years now. So when it comes to cryptocurrencies, they are very similar to what we already are using and comfortable with. The only difference is that with Bitcoin and many other cryptocurrencies, no one party holds the ledger, no one party has the ability to change that ledger, and no one party has the ability to “print” more of it.
Bitcoin is seen by many as digital gold, it can’t be created (like gold), there will only ever be 21,000,000 Bitcoin, minus those lost or forgotten. According to Robert Kiyosaki, investor and author of bestseller: ‘Rich Dad, Poor Dad,’ cryptocurrencies like Bitcoin are “people’s money,” while gold and silver are “God’s money,” and fiat currency, like the USD and EUR, is “fake money.” He calls fiat money fake because banks are able to create wealth out of thin air using the fractional reserve system and the Federal Reserve manages that money supply. When more money needs to be added to the economy, according to their monetary policy, they lower the interest rate and if the money supply needs to be lowered, they raise the interest rate.
Printing money causes inflation, in some unfortunate cases (Venezuela, Democratic Republic of Congo, Argentina, Kazakhstan, and now Turkey) monetary policy is mishandled and crazy amounts of inflation occur. Unfortunately, the people who suffer the most are the average civilians of those countries.
In the past week the Turkish Lira has dropped about 30% compared to the US Dollar due to the continuous printing of money. In Venezuela this year, inflation rates have gone over 80,000%, and once again the people who are hurt are the average citizens trying to make a living. Almost overnight they lost their entire lives savings due to centralized mishandled monetary policy.
When westerners hear about Bitcoin they aren’t thinking that this might help protect their families lives or it might protect them from losing their entire savings, yet in a lot of countries an asset like Bitcoin or gold/silver are needed because even as volatile as Bitcoin is, it is more stable than their national currencies.
Going back to the Turkey situation, volumes of BTC surged over 100% on their two top exchanges within one day of the cliff that the Turkish Lira has fallen. Just to put this in perspective, in the last week it now costs 10,000 TRY more to buy one BTC than it did one week ago when it was about 33,000 TRY/BTC. Compared to the USD comparison, one week ago the USD valuation remains very close to $6,300/BTC.
The problem with monetary policy in fiat currencies is that they are never managed properly and end badly. Even going all the way back to the Roman Empire they still managed to “print” more money by decreasing the amount of silver in each coin. Thus by creating more coins with less silver, they can artificially spend more silver than they really had. Today The Federal Reserve prints more money than it ever has, hundreds of billions every year. On a last point, if the US Government were to pay the $22.3 trillion in debt (going up rapidly) with all of the physical USD bills in the world, it would only cover a small fraction of that number.
While there is nothing physically backing Bitcoin, the trust of the network is where, in my opinion, the value is. We don’t have to worry about someone mishandling our money and inflating it to the point where it is useless. I know some of you might be thinking that they could fork BTC and create all the currency they want but that’s not true at all. Look at all of the Bitcoin forks over the last year, very few of them have any real value, that is because people (markets) decide what is real and what is fake. If you go to any store and try and pay with Monopoly money, they will laugh at you. Why? Because it is fake, and even though it is very similar to the USD, people refuse to accept it as real money.
Andreas Antonopoulos did a really good presentation on this topic. If you would like to watch it click here.
