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Replacing The U.S. Dollar With Bitcoin: Building The Layers Of Bitcoin Architecture
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The Language of Bitcoin: 2
TL;DR – The government has pulled us into the deep waters, financially, to keep us vulnerable. Vulnerable people have the highest time preference, because they have the most future uncertainty. We’ve gone from a society that proudly claims to protect and nurture its most vulnerable populations, to a society that creates them as a matter of course. This is why you find yourself treading water financially. Vulnerable people consume without future regard.
If I were to hazard a guess as to what being a Bitcoiner is about, I’d say it’s about the restoration of order to the monetary system so that we can collectively progress in a more honest and efficient way.
Order can be thought of as the arrangement of people or things in relation to each other according to a particular sequence, pattern, or method. The key word here is “particular”. The dollar has no “particular” pattern. It is issued and debased arbitrarily.
As discussed last week, a centralized currency such as the U.S. dollar cannot hold. Moreover, markets run inefficiently on this ever varying unit of monetary measure. All fiat currencies fail because no one can resist the temptation to simultaneously print more money for themselves and debase the holdings of others. Bitcoin however, has unforgeable costliness, and a supply cap of 21,000,000.
Bitcoin’s systematic order looks markedly different from that of the U.S dollar. There is no single point of issuance or failure. The supply is fixed, and everyone can participate in the issuance or validation of new coins, and they wear the energy cost of that participation on their sleeve, or at least in a fairly transparent and calculable manner. On the other hand, the energy cost of U.S. dollars is computationally intractable.
What does progress mean? Progress to my mind means we are able to accrete values and goals with increasing efficiency over longer time scales, as individuals but also collectively. Bitcoin promotes honest value development and goal accretion by rewarding time spent pursuing both. The key words here are “time spent”.
Dollars do not store value long enough to promote the accretion of long-term goals. Dollars incentivize debt and instant gratification.
When you buy Bitcoin, you are buying yourself time later. You are exchanging time now for time later. Conversely when you buy debt-based dollars, you are wagering time later for time now.
Progress means we are able to meet our ends in increasingly efficient ways over time. I make no promises as to what this may look like. Work introduced into a system has no guarantee of yield. But through Bitcoin, the trade made for your time, and the incentive to work and provide maximum value in exchange for it is tremendous. Bitcoin is an incredibly resolute form of money.
Bitcoin is money with purpose. It promotes its own production, and inhibits its own destruction, at the expense of energy and its competitors. Dollars are printed arbitrarily, to no discernible purpose. With dollars, one is always playing with imperfect, incomplete information. Bitcoin is a game of more perfect though incomplete information. This means that knowledge about the fundamental operations of Bitcoin is available to anyone who is interested, although you may compete in the system as a miner, for example, without broadcasting complete information about your strategic business moves, making Bitcoin a game incomplete though fundamentally perfect information.
Efficiency can be thought of as the work performed or energy expended by miners to secure the bitcoin network divided by the monetary savings the network secures. One way to calculate this would be to take the net mining energy expenditure, and divide it by the market cap. The current state of this equation is left as an exercise to the reader, and I challenge you to find or invent a monetary technology that is more efficient.
As a hard store of value, Bitcoin is essentially a monetary battery, with the quirk that inside this battery your buying power has historically increased over time even without the additional input of more Bitcoin, making the system exponentially more efficient, time-wise, than saving in dollars.
So saving in Bitcoin is efficient, and inversely, saving in dollars is deficient. Yes, saving in dollars is counter productive. This is why wealthy people spend time recasting their wealth into objects which they pray will leak value at a slower rate than the dollar.
The whole housing market and stock market are massively inflated bubbles. People turn to them, and other strange assets that simply don’t hold value very efficiently, because they understand that holding value over time in dollars is deficient and costly.
As the adage goes, Bitcoin is the pin. Bitcoin is the most efficient store of value there is. You can choose to ignore it, but you cannot insulate yourself from money that is harder than yours.
Bitcoin will drain the housing market and the stock market of all the monetary energy that is desperately stored there in hiding from the dollar.
Bitcoin, AI or general technological advancement won’t displace jobs anymore than the wheel or the loom did. But this is a discussion for another time.
People adapt, becoming more productive over time through collaboration. Capital accumulation and the successful redeployment of capital should function in such a way as to make work more efficient. Many people in first world countries have more capital, property, and time at their disposal than people living just a century ago would have ever thought possible. Although at the same time, some parts of the world remain basically as they have for centuries, as if isolated at a local technological optimum.
Technological advancement could cripple or destroy a society (Think of nuclear war.) but we tend to perceive the benefits of new technologies as outweighing their anthropic risks (Think of nuclear power.) What is important to remember is that you cannot put the genie, in this case Bitcoin, back in the bottle.
When a new technology is socially proven, its invention cannot be undone, for better or worse. Again, this is a discussion for another time. The takeaway here is that Bitcoin took the innovations of proof-of-work, distributed ledger, issuance halving and difficulty adjustment, and packaged them together in a way that is virtually unstoppable. So Bitcoin as a technology cannot be revoked or uninvented, but it can be improved. Although as it stands Bitcoins is a spreading societal meme, its adoption has historically only grown over time.
Bitcoin is built on leaderless, transparent economic principles that reward both cooperation and competition, and diminish future uncertainty. What is the dollar built on?
What is the dollar built on? This is an exercise to the reader. What energy is expended to secure the U.S. dollar? Remember it is issued by mandate and maintains its place in the world with the threat of and through violence. The dollar is an inherently authoritarian tool.
Dollars are used in America to meet our coincidence of wants because dollars have enjoyed enough longevity for the population to have forgotten they are making a choice to trade for these things.
Do not take dollars for granted as your currency. Think of them as a choice you make. You spent a lifetime working and trading your time for dollars, and in 2020 they created trillions more of them, debasing your savings by at least twenty percent, and that is only one recent example. You’ve chosen to store up all your time, all your purchasing power in U.S. dollars and yet every year they issue more. Your money is losing purchasing power every year.
Going forward, you have a choice. There are no legal repercussions for exiting the U.S. dollar individually. Many would tell you this is the trade of a lifetime.
One particularly American tragedy:
We allocate our time and the capital we have at our disposal to unproductive ends, ends which meet our immediate needs, rather than making low-time-preference, highly-collaborative investments with our bodies, minds and property in order to alleviate future uncertainty.
Delayed gratification is key to a successful life of capital accumulation
Owning capital is a responsibility and not a privilege. In order to become a capitalist, one must first produce something of value to others.
At every moment, successful capitalists must choose to abstain from taking payment to satisfy their own needs, but instead redeploy the capital to further provide value to others through increasingly productive processes.
Bitcoin is the meeting of our ends, the ending of our needs.
I would call this procedure of Bitcoin ending our needs a demonstrative teaching of wants. Over time, hodling has demonstrated to its practitioners the rewards of delaying gratification and adopting a low-time-preference lifestyle.
Your $1,200 stimulus check would be worth around $8,765 today if you’d bought Bitcoin with it in April 2020. Within a year, that same stimulus check held in a bank has lost value, irrevocably.
Your money held in banks is worth less over time. Rather than alleviating future uncertainty, U.S. dollars are its root cause.
Your wealth held in dollars will never regain value to outpace inflation. The value of dollars melts away day after day. Sure, some money is taken off the table when debts are paid to banks, but whenever the central banks issue a loan, they are bringing new currency into existence, and that is all on top of government printing.
There is an insidious misconception that we need inflation to support a growing population. Inflation is a covert, slow form of taxation. It thrives on your time.
So we’ve lost our ability to save effectively through U.S. dollars. We’ve lost our ability to use dollars as an honest unit of account over time. We were born inside a debt trap, a trap set to alleviate our basest desires in exchange for all of our productive energies.
In America, our money teaches us to serve and appease our limbic system first, and America promises in exchange we will be able to finance our dream future through debt.
Delaying acting out our immediate desires, or acting now in anticipation of future wants and needs is thought of as a low-time-preference mindset.
Children often want what they feel they want precisely when they want it. One way the dollar maintains its position of power is by using American consumerism to prey on your limbic system. The dollar does not encourage the deferral of consumption in exchange for future reward. Your ability to alleviate future uncertainty is in direct proportion to the extent to which you are able to stave off immediate desires
The government has drug us into the deep waters, financially, to keep us vulnerable. Vulnerable people have the highest time preference, because they have the most future uncertainty. We’ve gone from a society that proudly claims to protect and nurture its most vulnerable populations, to a society that creates them as a matter of course. This is why you find yourself treading water financially. Vulnerable people consume without future regard.
Invulnerable people hodl Bitcoin.
Selling fear is an effective smoke screen. It is a great filter that keeps people from accumulating enough power to effectively protest the government. Fear keeps one from effectively planning for the future. As you busily prepare yourself for the next pandemic, the next war, the next virtual emergency, the next environmental disaster, you lose sight of your long-terms goals.
Do not pursue what is illusory.
Hodl Bitcoin instead.
Wait but aren’t you selling fear of fiat money and the government?
Bitcoiners do not promote fear of the U.S. dollar. They promote education about it and the freedom of monetary choice. I’m urging you not to trust me. I need you to look into the validity of what I am putting forward for yourself and come to your own conclusions.
At the heart of this country is central banks, and in the heart of the heart of this country, is trust. Which is touching, but poor strategy at best, and a fly-by-night operation of theft that perpetuates oppression and is enforced by violence at worst.
At the heart of Bitcoin is transparency. Don’t trust, verify. Edify. Do your own research. If you need a goal, make your goal to increase your future certainty.
The goal may be to live the longest life allotted to you, in the company of people you care about, doing whatever it is you enjoy.
What does this have to do with Bitcoin?
Bitcoin alleviates monetary future uncertainty insofar as one can. Do you understand?
Bitcoin is dependable. I am not talking about the price. Every operation of Bitcoin is independently verifiable, and unlike the dollar, Bitcoin encourages the self custody of your wealth, which is the strongest form of property ownership. The rules of Bitcoin can change slightly, but rarely, with notice in advance and only when bitcoiners come to a majority consensus, in an open and public way.
Because our time is scarce, it is valuable. We can use it to provide ourselves with means. There is always an alternative, more valuable use of time for us, and that must always be taken into account.
Opportunity cost is the cost of an activity in terms of the forgone alternative one would have engaged in.
Bitcoin is a constant that can define the value of your time and become its organizing principle.
A seller always values a good less than its price, while a buyer values it more.
The goal is not to buy Bitcoin to sell at a later date for an objectively worse asset such as dollars. The goal is to exit U.S. dollars. Period.
What happens to dollars after you’ve traded out of them is irrelevant. They are unconscionably flawed. Holding Bitcoin is owning superior monetary technology. It is the hardest form of money.
You will likely see the value of your Bitcoin rise when denominated in dollars over time. Instead of selling your Bitcoin at that time for dollars, ask yourself why the buyer values Bitcoin more than its dollar price. Consider the opportunity cost of this trade. Consider the absolute savings advantage of the buyer.
Financial savvy requires the ability to compare both sides of any trade in your mind at once. I’m not talking about the stock market. I’m talking about the countless trades you make every day with yourself. I’m talking about for what you have traded your time.
Trading time for dollars is an objectively poor strategy. More and more, people are realizing there is a superior asset out there, one that is truly scarce, and relatively easy to acquire. Once you’ve traded your dollars for bitcoin there is no reason to trade them back.
There is always an alternative, more valuable use of time for us, and that must always be taken into account.
With regards to the dollar it’s time to determine the length of your torture, the limits of your endurance, your own fate.
As to the future, if the path we are walking were clear, we’d be on someone else’s. Bitcoin is singular. No one knows how this will play out, but Bitcoin is the best explanation for the way money is so far.
Bitcoin is the black swan. It is spooky action at a distance. Bitcoin is the singularity. It is the event horizon. It is the monetary technology that will subsume and eclipse the rest.
Bitcoin has no incentive to deviate from its initial strategy. For what it does, it has no competition. It is the final settlement layer. Bitcoin is the Nash Equilibrium of sound money.
Between Bitcoin and fiat, there is an extreme contrast of approach to solving the problem of money. People often smooth over these differences by classifying Bitcoin as an investment. Bitcoin is not an investment. Bitcoin is property and money at once. Once you’ve realized Bitcoin as your operating unit of account, there is no reason to ever exchange it for dollars.
The dollar is deliberate noise. Bitcoin is deliverance from noise.
Bitcoin has an opaque definition. You either control a positive sum of Bitcoin, some fraction of 21 million, or you do not. With dollars, there is no such clarity.
On the one hand you count with no more than five fingers, yet with just those five fingers you’ve managed thousands of sums, a lifetime of arithmetic, despite the fact that in actual practice no more than five objects were ever counted. This is Bitcoin.
On the other hand you have fiat, an unlimited series of digits, innumerable dysfunctional fingers, sprouting at all angles like a cancer, in service of nothing.
Any fixed amount of a money will suffice for the world to meet its coincidence of wants.
22 August 2021
There’s been lots of talks about the U.S. dollar losing its status as the world’s reserve currency. While most people still wonder when this is going to happen, I’m here to bring you the shocking truth: It’s already happening right in front of us. But most people fail to realize this because they don’t understand the signs. So, let me break it down for you so you know exactly how this is unfolding and, most importantly, how to protect yourself.
Since the 1700s, we’ve seen 750 different currencies in the world and only 20% of those remain. All have been devalued. This means they buy less today than they did originally, and the U.S. dollar is no exception.
According to Ray Dalio, founder of the world’s largest hedge fund, Bridgewater Associates, currencies die when a country racks up too much debt. The country ends up with four different options:
Of all these options, governments always choose to print money because that’s the “easy” route. They don’t have to cut down on spending, piss off creditors or hurt the rich. But that’s how things start to go south for a currency. Let me clarify this for you with historical examples.
In 1914, when WWI broke out, many European countries abandoned the gold standard so that they could pay for military expenses with paper money instead of gold. The United States became the lender of choice for several countries and, as a result, the USD unofficially replaced the British pound as the world’s new leading currency by 1919.
During WWII, the United States found itself in a privileged position to profit from the war. Before joining the conflict, we sold ammo, weapons and other supplies to the Allies in exchange for gold. As a result, we ended up amassing two-thirds of all the world’s gold.
When countries came together at the Bretton Woods Agreement, they realized it was time to have a worldwide currency system that was linked to gold. Since the United States owned most of the world’s reserves, and the U.S. dollar was also backed by it, USD officially claimed its world’s reserve currency position.
While most people think that the transition from British pound to U.S. dollar happened when the agreement was signed, it was actually a 30-year transition that started way back in 1914 when countries started to borrow dollars from the United States.
So when people ask me when the next transition is going to happen, I say, “We’re in the middle of it.” The world is already de-dollarizing and the signs are clear; you just need to know which ones to look at.
According to the International Monetary Fund (IMF), USD dominance is already declining. In 2017, the dollar composed 64% of the world’s reserves. Today, it’s down to about 59%.
Another obvious sign is in the U.S. Dollar Index (DXY), which is down 10% this year alone.
Of course, the pandemic plays a role in all this and the mainstream media is taking notice.
But here’s the big problem: The metrics above only tell you part of the story because you’re comparing USD with a basket of other currencies. In other words, you’re only looking at fiat currencies.
Instead, we should be looking at what money is used for: purchasing goods and services. That means we need to look at the dollar’s purchasing power. Here’s what I mean: If you compare gold to the dollar over time, you can see it cost $20 to buy an ounce of gold in the early 1900s. It jumped to $35/oz in 1933, then it went haywire after 1971.
Today, an ounce of gold costs over $1,800. Does this sound like the USD is holding its purchasing power? I don’t think so.
What about real estate? How has the USD held its purchasing power when compared to real estate? You might think home prices are going up, hitting all-time highs. But is real estate really going up or is the dollar simply losing its value?
The index below highlights the loss of USD’s purchasing power compared to real estate. The truth is home prices aren’t just going up; it just takes more dollars to buy them.
We can also take a look at oil. It’s been going up similarly to gold, so is it increasing in value or is it just another sign of the dollar losing its purchasing power?
Of course, I couldn’t leave out one of the hottest assets today — bitcoin. This is the price of BTC compared to USD. Do you see any resemblance with the other assets I just showed you?
Now, let’s bring it all together and compare our current situation with a historic example. Before we proceed, let me warn you: This will give you a “zoomed out” perspective and most likely flip your mindset entirely.
This is the case of the Weimar Republic (Germany) in the early 1900s.
In 1922, Germany defaulted on debt to repay WWI reparations. In order to recoup their funds, France and Belgium invaded the Ruhr Valley — the German industrial epicenter.
As a response to the invasion, the German government ordered all workers to stay at home and not work — this is called “passive resistance.” Here’s where the Weimar Republic’s death spiral starts.
The country was already crippled by debt, but they still had to find a way to come up with cash to pay its workers. So what did they do? They started to print money (the fourth option we talked about earlier).
Now, take a look at what happened to their Consumer Price Index (CPI). The CPI measures the average change in prices that consumers pay for goods and services (aka inflation).
How did this affect the population? A good example is a loaf of bread, which cost $0.13 in 1914. That same loaf of bread cost $0.19 two years later in 1916. By 1919, the price had doubled to $0.26, then $1.20 in 1920 and $3.50 in 1922.
Once they started to print money in 1922, that same loaf of bread went from $3.50 to $100,000,000,000 ($100 billion!) by December 1923. That’s when the German mark collapsed.
During that period, you literally needed wheelbarrows to move your cash around. Eventually, the currency was worth less than wood, so they burned cash to heat their homes.
It’s important to note that, at the beginning, the loaf of bread went up very slowly. At that time, most people didn’t realize what was happening until it was too late. Like the boiling frog fable.
We can’t go back in time and change the past. But we can look at historical examples and compare them to our current reality, so we don’t repeat the same mistakes.
The first parallel between the United States and the Weimar Republic is money printing. Take a look at the United States’ M1 and M2, which are measurements of the amount of dollars in circulation: M2 is also a key economic indicator used to forecast inflation.
It goes without saying, the resemblance between these indicators and the German CPI is astonishing.
The third parallel we can draw from the Weimar Republic is our crippling debt. Defaulting on debt was the first “domino piece” that led to other events unfolding. In 2021, the United States grew to a record budget deficit of $1.7 trillion in the first half of the fiscal year. It means we’re spending more than we’re bringing in — exponentially more than in previous years.
The reason I bring you all these data is so you can zoom out and see things from a better perspective. In the book, “When Money Dies” by Adam Fergusson, he says most Germans couldn’t see what was really happening. A lot of them literally thought they were getting rich because they thought their assets were going up in value.
But now you know that was not the case, it was actually the German mark losing purchasing power. So they started banking their cash, selling their assets and trading them for currency. At the end of the day, they ended up with a literal pile of worthless paper.
Now, if you were in the Weimar Republic at that time, what would you have done?
The chart above shows the price of gold from 1915 to 1935. If you’d bought gold around 1920 and held on to it until 1935 that would’ve been the trade of the decade for you. But here’s the biggest takeaway: It’s easy to see the upward trend from this perspective, but it wasn’t a clear, straight line for people living at that time. It was a very volatile period.
So let me ask you: What are you doing with your money now? Some people are cashing out, trading their assets like real estate, gold, bitcoin or even stocks for dollars because they’re at all-time highs. The same way the Germans did.
If we continue to increase debt and print money, the USD will continue to lose its value and its position as the world’s reserve currency. The loaf of bread is going up and you don’t want to end up with a pile of worthless cash.
My advice to you is to find inflation hedges, assets that are going up with the rate of inflation. Most importantly, start now before it’s too late. Don’t wait for the “next Bretton Woods Agreement,” the transition is already happening — and it’s happening right in front of you.
This is a guest post by Mark Moss. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.
Somehow it’s “acceptable” to ask this but you can’t ask someone how many dollars they have.