Why Bitcoin?

This is an important question. I would go so far as to say that this is the most important question that we can ask not only in this space, but a question of great import to everyone. Even those who have yet to think about it. In order to properly answer this question though, first we must ask another:

Why money?

For those of us alive today this isn't a question that is normally asked. Why even ask the question in the first place? Money is ubiquitous, its how you get what you need and desire. For most, this is a question that never comes up. So lets start by reviewing what money/currency actually is. On a side note I will be leaning quite heavily into the work of Dr. Saifedean Ammous and his 2018 book "The Bitcoin Standard". We can explore further with the work of Dr. Ron Paul, especially once we go into issues like Central Banking, but this is for another time.

A medium of exchange

This is a currency's primary purpose. Barter is a fine way to exchange, up to a point. If I am an egg farmer and you are a home builder I am not going to be able to give you enough eggs to have you build my home. Theoretically I could produce the amount of eggs, but they would rot before the construction on the home could ever be finished. This is not a good trade for the contractor. So here we find one of the key attributes that currency must possess, durability.

Currency must also be something that two parties can agree has value. So not only does the currency need to be able to resist decay, but it also needs to be able to keep its value over time. By now it should be quite clear as to why gold has been the currency of choice for civilizations throughout history. Gold is rare, it doesn't decay, and the value of gold has remained relatively consistent throughout history. This is largely in part due to the supply of goal typically only increased approximately 1% each year.

To drive this point home lets examine the following: During the Roman Empire the monthly pay for a roman soldier was 1oz gold per month. The spot price of gold at the time of this writing is $1,854 USD. The average starting pay for a newly enlisted US soldier is $9.60/hr - putting them at a salary of roughly $1,536/month. That is pretty consistent isn't it. The fact that the pay denominated in dollars is less than the value of gold is telling, and a clue as to the answer to the question "why Bitcoin".

Sound money

By now we have covered why money exist, and why gold makes a good currency. In fact I think our example shows why we can consider gold to be "sound money". For something to be considered sound money a few conditions must be met:

• Sound money must protect its value over time

• Sound money has to allow for trade based on a stable unit of measurement

• Sound money is essential for individual freedom. If an actor/state can just create money then they possess the ability to exert undue power and influence over the citizenry

So, dear reader, based on what we have covered so far does it sound like the USD meets the criteria for sound money?

Fiat currency and inflation

The USD is in fact not sound money, it is fiat currency. Without going too deep into fiat here, (will circle back with some lessons from Dr. Ron Paul at a later date), the absolute answer is NO.

Fiat currency is money that is made legal by government decree. Pause now and grab the first USD note you can find, doesn't matter if it is one dollar or a one-hundred dollar bill. What is it made of? Is that material worth the stated denomination on the bill? No, it is not. Can you take that note to a bank and get an equal amount of precious metals for it? No, you cannot. At one point in its history the USD was in fact a receipt for gold, but this is no longer the case. The USD is currently just a receipt for debt....but its backed up by the good ole' US government....so.....yeah!?!

By now you should start to realize why $100 could buy many more goods in the year 1900 vs the year 2022. Not only is USD not backed by something durable, in case you haven't noticed our central bank has been printing a lot of it. So much in fact that people are slowly waking up to the fact that most things aren't nearly as valuable as the USD amounts they are denominated in.

The reason why your money buys less today than it did one year ago is not because of some strange magic that allows goods to appreciate more over time....that house on the market the one built for $30k in the 1970's and is now worth $500k.....there is no magic there that made this home more valuable. Let me ask you then dear reader one more question. You ever heard of the infamous Bitcoin pizzas? The guy who traded 10k Bitcoin for a couple of large pizzas? What can 10k bitcoin buy you today? Well if we denominate in USD, Bitcoin today is worth $302,000,000. We see the reverse happening with Bitcoin, it isn't inflating. So the next question is: Is Bitcoin sound money? That is a topic that we shall broach in a future installment.

As usual, thank you for reading. The NFT featured in today's piece is #60 of the Mars Woman Collection. I don't have anything else to say for now. Until next time, Jack.

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