Is bitcoin hard money or bad money?
15th February 2021 |
Bitcoin is not money. It’s too volatile.
Bitcoin is not a store of value. There’s nothing backing it, where’s the value?
Bitcoin is just magical internet money.
Bitcoin is an environmental disaster.
Get used to those phrases. These are a few of the most common reasons people give when trying to make an argument as to why they’re not holding any bitcoin, and why they think you’re stupid for holding any at all.
You should get used to these, because you will hear them. Now that bitcoin has reached a global audience, it’s going to be cause for great debate.
Now that the mainstream is again covering bitcoin with great interest, the naysayers will try and cut it down and anyone that’s involved.
If you’ve found your way into bitcoin recently, then these are some of the things that will be thrown at you. After a while, you’ll just roll your eyes and murmur to yourself, “here we go again,” as these things become quite the broken record.
But I think it’s also important to arm yourself and prepare for some robust debate.
Over the next couple of updates, I’m going to tackle these. Understanding why their nonsense is important and will go a long way to understanding the bigger revolution in play and how those who do nothing, in my view, are going to be left far, far behind.
You see, I think people who make these claims are afraid more than sceptical. I think they’re trying to find excuses as to why they’ve decided to ignore a massive technology and financial revolution and bend the knee to centralised, authoritarian monetary control.
They’re likely a little bit “salty” about having waited this long, expecting it to “go to zero” or to buy it when it crashes again. But the reality is they’re just waiting at a bus stop for a bus that’s never coming.
Value and “price”
I got some mail during the week that asks a question that I get a lot. A question I’ve got for as long as I’ve been in crypto markets (edited for brevity).
When something is rising in value so quickly (or is just volatile in nature), it is not an effective form of money. You need to be able to buy and sell knowing that the value will be stable from one day to the next.
It does raise the question of whether something with its characteristics can ever be money?
The question goes on to say that while it might not be very good money, it appears like a decent store of value.
So, which is it? Money or a store of value?
Here’s the thing. It’s both. Also, it’s neither.
Bitcoin is money. It is also a store of value relative to fiat money. It’s also property. It also has hallmarks of a commodity. And with certain developments in the works it could also display properties of a value stock.
That’s what makes things so interesting, and so debateable. It’s everything and nothing like we’ve had before. And that very idea is what makes it wildly confusing for people.
You see, we’re all shackled to the traditional monetary and financial system. We think in pounds and pence, in dollars and cents. We’re tied to mortgages on properties, loans on cars, credit on cards.
When we think of an asset like a stock, we think of its value in our domestic currency of choice. When we seek dividends, it’s to provide income in the money that we believe to be stable and sound, the fiat money we’re geographically coupled to.
When those stocks sell goods and services, they pay their suppliers, their staff, their supply chains in the fiat currency they’re all tied to. The fiat currency they need to pay their loans, their debts, their staff, their suppliers.
Money makes the world go around – or at least the money we’ve been told makes the world go around, makes it go around.
But what if you were shackled to another fiat money system?
A system that “priced” things differently? A system that had no shackles and ties to a fiat money system?
When you went to a Greggs, there was no pound sign, things didn’t cost a couple of quid. A meal deal wasn’t £4.95.
Instead a meal deal was 99sat.
Or at the petrol bowser, fuel wasn’t £1.20. No, instead it was 24sat/L.
What if things were priced differently? What impact would that have on your thoughts on something like bitcoin being priced in pounds and cents? If your day-to-day life was priced in BTC and “satoshi” (the lowest denominator of BTC) then the fiat money price doesn’t come into things at all.
That requires a major change in how supply chains work. But that’s the direction things are heading. That change will take a while to move, but we’re already seeing the signs. That’s why companies are looking to add bitcoin to their balance sheets – a monetary reset is coming – and it will enable companies, and people like you, to break the shackles of the flawed fiat money system.
That idea is powerful and it challenges the very concepts that we’ve been told are the foundations of a functional financial system. But what if the system isn’t functional? What if all the thinking is wrong?
The idea that an economy need to be inflationary doesn’t have to ring true. Why does it have to be inflationary? Says who? The designers and developers of the current money system we know. It’s only inflationary to ensure its existence is justified.
But what if they’re wrong.
People are tied to the current fiat money system because the sole benefit is an increase in wealth. People want to be richer because they want to be able to buy more stuff with the money they have. And if they want to buy more stuff with their fiat money in the future, they’ll need more fiat money to do that.
It’s all driven towards getting more and more fiat money because if you don’t, you can’t buy stuff in the future you want to. As governments and central banks continue their money printing, asset price inflation and inflation creeps even more into the system, and that thirst for fiat money wealth gets stronger and stronger.
It’s a self-fulfilling prophecy. The idea that everyone gets richer because you have to is the base line equation.
Bitcoin smashes that idea into pieces.
Yep, priced in fiat money it might appear as bad money. But it’s not. The bad money is the fiat money. Bitcoin is remarkably stable. By design it’s stable, secure, accurate, functional, transparent, borderless – it’s perfect hard money.
There’s only one system when you look at bitcoin and fiat money that’s flawed. And it’s not bitcoin.
Crypto to Know
We’ve currently got five crypto on our “Crypto to Know” watchlist.
- Bitcoin
- Ethereum
- Tezos
- Uniswap & 1inch
I’ve coupled Uniswap and 1inch together because they’re both forms of decentralised exchanges.
A decentralised exchange (DEX) is where people can trade assets without having a centralised custodian.
For example, imagine a world where you could put your property on the market, for a set price, let’s say 12 BTC. Then you could have people check it out, look at it, assess if it’s something they want to buy.
Then when someone is ready to pay the asking price, they simply log on to an exchange, and make a trade – say, 12 BTC for “Property X”. Instantly, funds are transferred to your wallet, and ownership of the property passes to the person who made the purchase.
With that, you don’t know who it was that bought it. You just got the funds you wanted and the property was sold with legal transfer of ownership.
Sounds wild doesn’t it? But that’s how decentralised exchanges could work one day.
Or think about a simpler exchange. You own some stock in Rolls-Royce. You want some Glencore stock. You go to a decentralised exchange and add your RR stock with the exchange pair being GLEN.
You’re not selling RR into GBP and then buying GLEN with your GBP. You’re not paying commissions on each side of the trade. You’re swapping RR for GLEN and you perhaps pay a small transaction fee on the blockchain used to action that swap.
That’s a way of trading stocks that’s never been done before. But that’s what decentralised exchanges hold great promise for. The idea that you can swap, exchange, buy, sell any asset for any other asset anywhere, anytime, all the time.
That kind of asset transaction and transfer is ground breaking. That’s why I want you to continue to learn about these kinds of exchanges. Keep looking into the likes of Uniswap and 1inch to understand how they work, and how swaps and exchanges on them are undertaken.
This will inevitably lead you to other decentralised exchanges and platforms. Test them out, see what they’re like. Test, learn, understand. The decentralised exchange is here to stay, it will grow in popularity and functionality. But it’s absolutely the future of markets and trading all assets.
Regards,
Sam Volkering
Editor, Sam Volkering’s Crypto Network
PS This week I’ll have a couple of new reports up on our site that you will be able to check out.
One is called the “Crypto Treasure Chest” which has a whole bunch of links, terminology, definitions and goodies that I think are important to know and understand when getting involved in crypto.
Another is called “How to spot and avoid crypto scams”. This does what it says on the tin. It will help as a guide to understand what scams look like and how you can avoid them.
You can expect to see these reports in your user login by the end of the week. So keep an eye out.
