Elon gets it. Do you?
29th March 2021 |
On 1 December 2020, I paid $653 for several cases of beer that should have cost me $224.
You know what, though? I don’t care. Didn’t care then. Don’t care now.
You may be wondering why on earth I don’t care that I paid almost three-times more than I should have for cases of beer.
It’s because in real money the price of that beer actually hasn’t changed between now and 1 December 2020.
That is, if you’re operating in the most stable financial system in the world, prices don’t move. In a stable financial system you don’t pay for something only for it to require three-times more money only just a few months later…
Unless you lived in the Weimar Republic perhaps.
Inflation nation
The Weimar Republic was the German government state from 1918 to 1933. And around 1923 it experienced a financial crisis that will forever be etched in history.
Germany was required to pay reparations to Britain and France from the aftermath of World War I. But in late 1922 Germany defaulted on a payment.
This led to a chain of events which saw British and French troops occupy German factories and essential industry key to the Weimar Republic economy. They would confiscate goods in lieu of the reparations payments.
The Weimar Republic decided it would continue to pay its workers in exchange for passive resistance to this occupation. In other words, cease to co-operate with the foreign troops and still get your wages.
But in order to do this, the Weimar Republic had to print hoards of cash to cover those wages payments considering industry had ground to a halt.
This rampant money printing resulted in a period of extreme inflation – hyperinflation – which pushed the prices of goods and services to crazy levels.
The most gleaming example of this hyperinflation was the price of bread. According to the BBC,
A loaf of bread, which cost 250 marks in January 1923, had risen to 200,000 million marks in November 1923
And that by autumn 1923 it cost more to print a note than the note was worth. This obviously further led to great disruption and rebellion. Wages were unable to keep pace with inflation, and workers could no longer afford basic goods and services to function day to day.
It also was a spark which saw the rise in extreme political groups, most notably the fascist Nazi party.
Now when you read all this, there is some striking resemblance to the world we live in today. It’s hard not to draw parallels to the very situation the world finds itself in now.
Industry grinding to a halt, governments rampantly printing money to bolster workers who are effectively in the midst of passive resistance, the rise of extreme political groups…
Scary stuff. You’d think history would teach us a thing or two… apparently not.
What we’re not seeing right now however, which many forecast we may see, is hyperinflation.
The bread and milk at the corner shop isn’t skyrocketing in price. You’re not paying for goods to only find a couple of months later it’s two or three-times more expensive than before…
… oh… hang on a minute… what was I saying at the top of today’s update again…?
Increasing or decreasing value?
Inflation is already creeping into the world’s “traditional” financial system. You’re beginning to see bits of it – for example, check your latest Council Tax notice. Mine shows an increase of 2% for the council, 3% for the council’s Adult Social Care, 9.2% for the Police and Crime Commissioner and another 2% for the Fire and Rescue Authority.
But according to the Office for National Statistics, the Consumer Price Index (CPI) only rose 0.7% for the 12 months to January 2021.
Hmm, guess CPI doesn’t count real things people pay for… like Council Tax.
As I say, this is just the start of prices creeping up that you really notice. What you don’t really notice is the impact that mass money printing and currency devaluation have on the economy.
It’s not something that leaps up and punches you immediately in the face. It’s more of a death by 1,000 cuts situation.
Unless there’s a measure to see just how fast your fiat money – the money in your bank account – really is being devalued by the central bank.
Luckily, there is a measure.
Bitcoin. More specifically, bitcoin’s fiat-converted value.
If you want to see what happens to the value of your money when the government goes on a money printing binge, just take a look at the “rise in price” of bitcoin.
On 1 December 2020 the “price” of one bitcoin was $19,609.
Today it’s $57,000.
Those dates I remember because that’s the date I paid for my beers… in bitcoin.
Yep, when I bought those cases of beer, I paid for them with bitcoin. 0.011472 BTC to be exact.
Now almost four months later that transaction is “worth” $653.
But there’s something important here that I want you to understand. Perhaps the most important lesson you’ll get when it comes to the traditional financial system and the crypto-financial system.
The actual “price” of bitcoin is incredibly stable. Due to the design of how bitcoin enters the bitcoin network, there is a finite number of bitcoin that will ever exist. There is no government that can add bitcoin whenever they like.
This is the very antithesis to how central banks work.
And when you see the “price” of bitcoin rising, it’s not actually the price of bitcoin rising…
It’s the value of your money decreasing.
Bitcoin has become an incredible measure for the devaluation of “traditional” financial system money.
It’s a very different view to take when you’re looking at your money and what it represents.
If I were to buy the same cases of beer today, they actually become cheaper for me. I’m not paying 0.11472 BTC any more – I’m paying 0.00392 BTC.
To understand truly what’s happening with bitcoin and how it relates to the traditional financial system, you need to think about things in a different way. Think about the devaluation of the money from the central bank and the stability that decentralised money like bitcoin can represent.
I have discussed this very idea many times over the last ten years. The idea that bitcoin and cryptocurrency can provide a completely decentralised, fully functional financial system away from authoritarian control.
But in order to function on the level it should, the whole supply chain needs to accept and trade in bitcoin. From the suppliers of raw materials through to the whole supply chain and to the end product, it all needs to be paid in bitcoin.
Only then will we really see how stable a financial system built on bitcoin can be. In fact, I suggest you listen again to my video chat with Chris Lowe which I pointed you to in our 1 March update.
You can revisit my chat with Chris here.
I talk about this very idea and how it will take time to change.
What’s exciting though is there is change taking place now. For example, there’s a good reason Tesla bought bitcoin in January. There’s a good reason why Tesla is going to accept it as payment for its products.
It’s so Tesla can take payment in bitcoin and “not convert to fiat currency”.
That’s what Elon Musk (founder and CEO of Tesla) said. The idea is to accept bitcoin and keep it on its balance sheets. I also soon expect its suppliers will consider taking bitcoin as payment, and soon enough we might see the whole supply chain for a Tesla operating in bitcoin as the currency of choice – not USD, not GBP, not any fiat currency.
That’s the future I’m talking about. Musk understands this. Others are starting to come around to the idea too that perhaps bitcoin is more stable than they realise.
Perhaps it really is the panacea to the problems we face from out-of-control central banks leading us towards the reborn Weimar Republic.
It’s also why I consider the fiat price of bitcoin now to be almost irrelevant. “Stacking sats” (accumulating more bitcoin as you can) isn’t about converting back to fiat money any more, it’s about building yourself a war chest of future money that isn’t going to suffer from the controls and manipulation of central banks.
Bitcoin to me is protection from central banks. A hedge against inflation and hyperinflation. A way out from the traditional system and into the new one.
Crypto to Know
Below is our “Crypto to Know” list where you’ll find several crypto that we think you should be taking the time to learn and understand.
They each form an important part of the burgeoning crypto ecosystem, some doing very different things to others.
What’s key is to learn that every crypto has different use cases, different guiding principles, different potential. They are all to be judged and assessed on their own merits.
Our aim here is to introduce you to and help you to learn about these crypto and the wider crypto ecosystem. These aren’t specific recommendations but a guide to help you learn and build your confidence in operating in this space.
We will add more to this list, but if you’re new to crypto, these are the ones where we think you should start your education and learning. We’ve also added links to each with the best resource we think is out there to help you start and learn about each one specifically.
“Crypto to Know” watchlist
- Bitcoin – en.bitcoin.it/wiki/Main_Page
- Ethereum – ethereum.org/en/what-is-ethereum
- IOTA – docs.iota.org
- Tezos – tezos.com/get-started
- Uniswap & 1inch – uniswap.org/faq and help.1inch.exchange/en
- Filecoin – docs.filecoin.io
Regards,
Sam Volkering
Editor, Sam Volkering’s Crypto Network
