Dear Readers,
I believe that Bitcoin is the most perfect monetary system that humanity has ever had. The Bitcoin blockchain is open to all and cannot be controlled by any group, corporation, or government as long as we, the rest of the network, refuse to allow it. And its monetary policy is rock solid, with only 21 million Bitcoin that will ever exist and those units being released through a mining process that anyone is free to join. Any other financial system, including those built on fiat, simply cannot compete.
That said, fiat financial systems are still trying to compete. Even though Bitcoin has been around for over a decade, most of the world’s population still uses fiat currencies for transacting and most of the world’s wealth is still denominated in fiat currencies.
Why is that? If Bitcoin is the most perfect system we’ve ever had, then why are people realizing it so slowly? In large part, it comes down to a very simple lie that has captured the minds of people around the world for decades:
The Lie: Governments Must Control The Currency For Economic Growth And Security
I recently had a conversation with an individual on social media who emphatically believed that fiat was necessary for the continued growth and security of the world’s economies, large and small. To paraphrase, his logic in support of his argument was as follows:
Central banks print money so commercial banks can lend money to companies and people.
Companies and people use the printed money to make investments and buy goods and services.
The revenue from those investments, goods, and services goes to companies.
Stock prices for those companies go up and employees have jobs.
He went on to tell me, without a hint of sarcasm, that he believes that economic activity could not exist without fiat systems controlled by central banks and governments.
That idea, albeit a pervasive lie espoused by entire schools of economic thought, is nonsense. It implies that economic activity, which in its simplest form is just the conversion of a person’s time into goods and services, did not exist until fiat currencies were invented around 1,000 years ago.
Fiat is simply money, though a poor example of it. Fiat exists simply to allow users to maintain an accounting of economic activity across markets as people convert their time into goods and services, but don’t feel like immediately trading the goods and services they created for the goods and services someone else just created.
That is the purpose of money after all. Money allows, or should allow, us to store our value across time, exchange our value for goods and services, and price the value created by others relative to our own. Those goals were accomplished historically by monies like shells, salt, and gold for thousands of years before fiat existed and will be accomplished by Bitcoin for many more years after fiat ceases to exist.
But fiat does not create economic activity. In fact, it steals the economic activity of billions of people through inflation in a process known as the Cantillon Effect. Fiat benefits a few people at the top, while everyone else suffers the consequences.
So if fiat is so terrible for their people, why do governments use it?
Walk A Mile In Their Shoes
Imagine for a moment that you, and perhaps a group of your compatriots or cronies, are now in control of your nation’s government. Among other things, you now have the ability to control your country’s money supply, which essentially means you have the ability to print money at will and steal the wealth accumulated by your citizenry.
Would you use that power to benefit yourself? Of course you would. The only question is how quickly you can do it.
But wouldn’t people stand up against being robbed?
Many wouldn’t. Many people would buy into the lie that your self-serving money printing is actually for their benefit. Maybe you would even buy into it yourself.
But SOME people wouldn’t buy that lie, right?
True. Some people would notice that everything is getting more expensive, including even their salary, but that they’re still getting poorer. And they would ask why they should use your disastrous currency at the expense of their financial future.
But you control the government, or if you live in one of the many pseudo-democracies around the world, you control the Congress. You make the laws. And when you make a law requiring that your fiat currency be used, anyone who doesn’t use it is breaking the law and goes to prison. Prison is a powerful deterrent for many people.
Even that wouldn’t work on some people though. There are those who would be willing to risk prison to get out from under your control. But in addition to controlling the government, you control the military. And militaries are powerful tools for quelling rebellion.
Wouldn’t companies resist though to protect their bottom line?
That’s even more unlikely. Why? Because companies are usually next in line to benefit after government leaders and their cronies. If they’re willing to fall in line, you would happily print money to lend to them at very low interest rates or even bail them out directly, on your citizens' dime of course, if economic conditions get tough for them.
And for those few companies who try to maintain some level of morality, you have tax, legal, and regulatory systems that can be leveraged to bully them into complying.
This Is The Reality…
Think the scenario above is too dark? That it could never happen to your country?
Ask yourself what will happen if you refuse to pay your taxes, regardless of whether you agree with what they’re being used for. Taxes have to be paid in whatever fiat currency your country uses after all.
Ask yourself whether the government bureaucrats that either you elected or, if you live under an authoritarian regime, replaced the last dictatorship have actually stopped stealing your economic activity through inflation.
Ask yourself who really paid the price for corporate bailouts over the years as recession after recession battered world economies. Did your suffering end as quickly though?
…But It Doesn’t Have To Be
Bitcoin is money that is resistant to both censorship and confiscation. No one can print more Bitcoin and devalue the Bitcoin you hold. And if you protect your Bitcoin, no one can forcibly take them away.
In a world where governments are unable to steal, by force or through inflation, from their citizens, they’ll have to actually serve their people rather than people being forced to serve them. That is the world that Bitcoin offers us.
Read the next article in this series:
Scams.
Rugpulls.
Shady companies that will take away your hard-earned money the first chance they get.
That’s what most content creators in the Bitcoin and Crypto spaces offer their communities in exchange for the *free* content they promote in newsletters, on talk shows, on social media, and anywhere else they can peddle their wares.
YOU DESERVE BETTER.
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This is not financial or business advice. This newsletter and related content are for informational purposes only. Cryptocurrencies and digital assets can be risky. Always do your own research before making any sort of investment.
Letter #103: Bitcoin vs. Fiat - Round 3