If you’re interested in what money actually is, check out the linked interview with Dr. Saifedean.com Ammous, the author of “The Bitcoin Standard”, “Principles of Economics”, and “The Fiat Standard” at the end of the article. In the following we summarize what we’ve learned from the interview on “Bitcoin vs. Fiat Standard“:
Gold, savings horizon and centralisation vs. decentralization
Dr. Ammous explains why Gold was a form of money that was simply there (decentralized, and not created by governments), and has helped people to save for the future due to its scarcity and annual inflation (through mining) properties of only 1-2%. After every government started printing its own paper money centrally and mandated from above in the 19th century, all currencies were inflated annually by around 14% on average, that is, devalued by printing new bills. This made it harder for people to save for the future. This boosted consumption, i.e. spending, because money would be worth less tomorrow than it is today. At the same time, this had the effect that the planning horizon in people’s lives was shortened because the uncertainty in the future increases.Productive and creative people in civilizations often went through the painful experience that all of their savings were wiped out by currency devaluation; e.g. after a war or currently in Venezuela or Lebanon, through political crises. Governments, on the other hand, have the ability to always print money, and thus have had and have infinite power to create new resources. Politicians are paid “from above” by an invisible money printing machine, have no opportunity costs themselves, and do not have to account (monetarily) themselves against somebody. Most people outside of the political arena do have opportunity costs and have to prove themselves against customers or bosses in order to make money. Each cell has to produce more than it consumes; this is a biological principle. But not the fiat world of governments, which receives money “free of charge from above, from the money printing machine”.
In contrast, Austrian Economics pursues the premise that value is a subjective feeling. Bitcoin is decentralized money that just like gold is simply there, and was not created by any central unit / government, and for which it is extremely scarce (there are only 21 million Bitcoins, that is written down in the protocol). Everyone who owns, bought or mined BTC, there was no insider trading with it, and like gold it is getting more and more worth because it is scarce. If we have a form of money that becomes more and more valuable over time, we also start to save more and thus automatically think more about the future, which also helps us, for example, to be active today against climate change and to invest in changes because our (monetary) time horizon is getting longer again. Having solid money like Bitcoin helps us better prepare for the uncertainties of the future because the bitcoins we have today can make us feel more secure in the future.
Creation of fiat money
Fiat money is generated through debt (lending). If someone takes out a loan from the bank, the bank will not get the money anywhere, but will credit the numbers to the customer account. Paper money is created and the money supply increases overall.
Bitcoin mining vs. Bitcoin purchase
On average, mining a Bitcoin costs as much as buying a Bitcoin on the market. The Proof of Work concept is used in mining so that only the best are rewarded. Nevertheless, mining is financially worthwhile if you have electricity available for less than 5 cents USD per kWh. This mostly is not the case in the world. For the first time, Bitcoin mining makes it possible to transfer electricity from remote, cheap regions without cables and infrastructure to other regions by converting it into Bitcoin as a transport medium. Energy (money is energy) can almost magically be transported from A to B, no matter where in the world. This enables autonomous energy suppliers that contribute to the decentralization of the energy grid.
Buy bitcoin
Bitcoin is only 13 years old and already accounts for around 1% of the world’s money supply. Only about 5-6 major currencies make up a larger proportion, and most of the world’s currencies have a smaller proportion.
#buybitcoin
The interview you can find here: