Originally published on Unrestricted.com.
Unbound It is the official US collaborative incubation partner of Bitcoin Magazine and the primary sponsor of related content published through Bitcoin Magazine. For more information about the services offered, custody products, and the relationship between Unchained and Bitcoin Magazine, please visit our website.
Bitcoin is deep freeze
As humanity continues to excel at producing goods, services, knowledge, and financial assets, we are now becoming painfully aware of a new problem: how ineffective our savings are when everything we save can be produced in greater quantities or devalued in competitive markets. Traditional saving methods, from dollars to real estate, are increasingly challenged by our ability to produce, which in turn reduces the value of these assets. Another way to think about this is that these assets are simply “bad money,” but compared to what?
“Bitcoin is the only thing in the world that is price inelastic.”
-Michael Saylor
Enter Bitcoin, a paradigm shift in the concept of saving. Bitcoin is emerging as a new monetary instrument with unique properties that redefine what we consider to be money. Unlike traditional assets, Bitcoin is designed with a fixed and immutable supply – there will only be 21 million Bitcoins – making it immune to the inflationary tendencies that plague fiat currencies and all other asset classes. Bitcoin operates on an exponentially decreasing programmatic supply schedule, enabling its initial distribution, which enhances its long-term scarcity, and ensures that as more miners try to mine more Bitcoin, the difficulty of mining increases indefinitely to keep the predetermined supply schedule on track. the correct.
“There are two common arguments against bitcoin scarcity. I'll distill them down here:
It is not rare because people can still create other currencies
“It's not rare because I don't understand fractions.”
-Phil Geiger
“There will only be 21 million Bitcoins, and the element of trust will be removed from the equation entirely. The fixed supply of Bitcoin is enforced through the network’s consensus mechanism on a decentralized basis. No one trusts anyone, and everyone applies the rules independently. By combining these two functions, Bitcoin will become rarer.” A form of money at all.
-Parker Lewis Bitcoin invalidates all other money
Immutable scarcity is at the core of Bitcoin's value proposition as a savings tool. In a world where other assets can be permanently devalued or devalued, a fixed supply of Bitcoin provides a permanent solution. The monetary properties of Bitcoin are consistent with the economic principle that systems tend to converge on the most marketable instrument such as money. Just because something has scarce supplies doesn't make it valuable. What makes Bitcoin valuable is that it is the best money because of its superior monetary properties.
It is the world's first completely rare commodity with sufficient monetary properties. In contrast to all the melting assets that people use as a means of saving today, Bitcoin is in a deep freeze at absolute zero.
Parker Lewis explains the fixed supply of Bitcoin being imposed as credibly as well as anyone in his book, Gradually, Then Suddenly:
We realize that there is nothing in the blockchain that guarantees a fixed supply, and that Bitcoin's supply schedule is not credible because the software dictates it. Instead, 21M is only credible because it is governed on a decentralized basis and by an increasing number of network participants. 21 million is a fixed number that becomes more reliable as more individuals participate in the consensus, and eventually becomes a more reliable constant as each individual controls a smaller and smaller share of the network over time.
-Parker Lewis Bitcoin invalidates all other money
Money solved the double coincidence of desires, the problem of requiring two people in a barter system to get exactly what the other wants at the same time. In a barter system, if you have apples and want bananas, you have to find someone who not only has bananas, but also wants your apples. This makes trading incredibly difficult. Money eliminates this problem by acting as a universal tool for trading. The problem of double coincidence of desires is solved by the convergence of individuals within economic systems on the single best instrument to use as money, and the best instrument is now Bitcoin. This is objectively true, given its superior monetary properties.
While all the value is ultimately derived from the fact that there will only ever be 21 million Bitcoins, their improvement over previous money doesn't stop there: they are also fungible (no unit of Bitcoin is indistinguishable from another), and portable (it can be so). It is transferred without permission and globally at a very low cost), permanent (it is data that can be physically saved in many media), and divisible (one Bitcoin is equal to 100,000,000 satoshis, allowing Bitcoin to be used for commerce on many levels.
With Bitcoin's superior monetary properties in mind, we can begin to look at the market landscape through the lens of Bitcoin. Because these characteristics stand in stark contrast to the characteristics of every other commodity, and because monetary systems are converging on a single currency, it is not only reasonable but wise to envision traditional stocks of wealth as measured by this superior asset.
Your wealth is melting away
As human creativity and technological innovation drive greater efficiency in the production of goods, services, and information, we find that we are mostly saving assets of which we, as a society, can create more. Traditional saving methods, including holding fiat currency, bonds, stocks, gold, and real estate, are all likely to either increase in quantity, depreciate in value over time, or are primarily tied to assets as they may be.
Of course there are still short, medium and long-term profits to be made by investing in different asset classes. The size of a given asset that can exist in the world – its supply – is not the only factor that affects its price, even in the long term. However, in the world of Bitcoin, we must begin to question whether its value might be overvalued in light of its risk-adjusted returns:
Is it wise to hold the US dollar when there is a two-fold increase in production capacity for CPI goods and the Fed should respond to this increase in productivity by devaluing the currency to maintain the 2% inflation target?
Bonds are simply contracts for a future amount in US dollars. Is it wise to hold a fixed amount of future US dollars, adding potential default risk, when those dollars are devalued by design as well?
Is Apple a good long-term store of wealth at 30 P/E (pay $30 for every $1 in annual earnings) when a plethora of consumer tech companies could produce similar devices or disrupt the walled garden ecosystem, reducing the value proposition Unique ultimately shrinking margins and revenue potential?
Gold, despite its physical scarcity, is a commodity that can be extracted indefinitely with sufficient technology. Is it wise to keep them when they can be produced permanently?
Is investing in an apartment complex a sound long-term store of wealth, given the potential for saturation of the property market, where an influx of new developments could lead to a commoditized housing market, rife with fierce competition and shrinking rental yield margins?
All of these investments may make sense for some time, however, over a long enough timeline, they all face the consequences of an innovation trap – their streams of future cash flow or return could compete and will be competed away – or their supply may simply have increased – by… Free market forces. This fierce competition is part of the reason we live in a time of such intense financialisation: None of these savings vehicles can adequately preserve your wealth over the long term, so you must hire or become a money manager.
The promise of Bitcoin is that it reintroduces the concept of real saving.
“There has always been a fundamental difference between saving and investing; Savings are held in the form of cash assets and investments are savings at risk. The lines may have been blurred with the financialization of the economic system, but Bitcoin will blur the lines and make the distinction clear again. Money with the right incentive structure will overwhelm demand for complex financial assets and debt instruments.
-Parker Lewis Bitcoin is the great process of financial demonetization
Once you start to accept that using traditional assets for long-term savings is unwise because Bitcoin exists and has a reliably limited supply, Bitcoin itself highlights the problem it solves only by acting as a constant to measure other asset classes against. When measured against scarce assets like Bitcoin, the ways in which the long-term value of all these asset classes is being challenged becomes more apparent than ever, especially in an era in which production capacities are rapidly expanding and markets are increasingly global, interconnected and highly competitive. .
(End excerpt. Click here Download the full report: “Your Wealth is Dissolving” by Joe Burnett, from Unchained)
Originally published on Unrestricted.com.
Unbound It is the official US collaborative incubation partner of Bitcoin Magazine and the primary sponsor of related content published through Bitcoin Magazine. For more information about the services offered, custody products, and the relationship between Unchained and Bitcoin Magazine, please visit our website.