When I discovered bitcoin some years ago, I thought I was woefully late to the party. In retrospect it’s obvious how hilariously wrong I was. Like Jon Snow, I knew nothing. Most of the price action, technological development, geopolitical consequences —all this was still ahead of me. And as years go by, I believe this to be even more true today. If you’re reading this, you are not too late. This is still the beginning.
One thing becomes clear after years of researching Bitcoin and its effect on the world: Bitcoin cannot succeed just partially. It won’t play second fiddle. Like Satoshi foresaw, it’s all or nothing. Global monetary evolution or irrelevance.
Why is this the case? Bitcoin is money, emerging in a bottom-up fashion, competing with top-down fiat money. Society needs money to smoothly exchange goods & services and to preserve the value generated for future use. In economic terms, money serves the role of being a medium of exchange and a store of value. Now fiat money works quite fine as a medium of exchange (especially in the Western world), but it’s been getting increasingly worse as a store of value over the decades.
US dollar is one of the strongest fiat currencies of the past 100+ years. Yet it has lost 96% of its purchasing power since 1913. Source: Visual Capitalist.
To compensate for this failure of fiat money, people look to other instruments to use as a store of value, such as securities or real estate. Bitcoin thus competes with such instruments as well. Compared to other stores of value, bitcoin doesn’t fall under a particular jurisdiction (such as stocks, bonds, derivatives or real estate) and doesn’t require a third party for safekeeping (such as gold, diamonds or expensive art). These two qualities are sometimes overlooked even though they are as important (if not more) as the reliable monetary policy resulting in the 21 million final supply.
The case for storing value in the jurisdictional walled gardens with third-party risks will be harder to sustain as bitcoin becomes perceived as a mature asset with diminishing risks over time.
The instruments currently used as a provisionary store of value won’t disappear, they will just lose their “monetary premium” —which, as the term implies, should accrue to functioning money. When the problem of money is fixed via broad bitcoin adoption, the provisionary instruments will be repriced to a pure market value and utilized where it makes most sense: houses for living, bonds for predictable cash flow, stocks for capital allocation. These instruments are useful for society, but they have no place serving as a store of value. This is a role for sound money.
The Bitcoin Generation
Let’s consider things in the long term. I’m not talking about a Bitcoin Astronomy kind of timeframe now, more of a “grandpa, what did you do in the 20s?” kind of thing. If bitcoin succeeds and becomes the global sound money that the world so direly needs, we are going to be known as the first bitcoin generation. And it won’t matter whether you gambled on Mt. Gox, witnessed the blocksize wars or lived through the great Chinese hashrate migration. You will be considered an OG just because you were there before bitcoin fixed the world.
Now this may sound like I just smoked a huge bowl of hopium, but stay with me for a minute. Bitcoin today is nowhere near its potential. Remember: it’s an all or nothing kind of thing.
The current tally goes like this:
- Bitcoin stands at 7% of gold’s market cap. While gold has a strong Lindy effect going for it, you definitely can’t teleport it to the other side of the planet in the blink of an eye like you can do with sats over the Lightning Network. Gold needs trusted intermediaries to function properly. Bitcoin wins over gold in the long run.
- Only one country so far has adopted bitcoin as its legal tender. The game theory here is clear: the 20th century was the age of dollarization; the 21st will be the age of bitcoinization.
- All the geopolitical games involving bitcoin are still ahead of us. In the words of the legendary Jack Mallers: “There’s no fucking way you are ready” for what we’ll see in the coming years. Grab your beef jerky and stash your sats in the coldest of storage. History is upon us.
- Most people aren’t aware of the Lightning Network. How often do you hear the “Bitcoin can’t scale beyond four transactions per second” FUD? Lightning is working, here and now.
- Many still aren’t aware of bitcoin’s divisibility into 100,000,000 units, aka satoshis or sats. The unit bias lures many into shitcoins, naively believing they found affordable alternatives to bitcoin. You can still get thousands of sats for one dollar — that is hilariously cheap.
- Smaller central banks aren’t even accumulating bitcoin so far, even though bitcoin on the balance sheet offers a high chance of saving minor national currencies (in the interim at least, before they become obsolete as hyperbitcoinization occurs).
- Large investors are only slowly waking up to the fact that there is something terribly wrong with bonds, equities and even money itself. But waking up they are.
- Only one corporation is conducting a speculative attack on the US dollar, so far. When others realize how to leverage fiat’s monetary policy against itself, this will become a crowded trade.
The trends above, while not all measurable, tell us more about bitcoin than the short-term price performance (short-term being less than yearly candles). Short-term price action may be seductive to gamblers, but it’s quite irrelevant in the grand scheme of things. It really doesn’t matter whether the price is $3,000, $30,000 or $300,000. No fiat price tag actually matters because fiat money itself will not matter in the long run. As long as we denominate bitcoin in fiat terms it still is too early because that means that bitcoin hasn’t become the universal unit of account yet.
Fiat is becoming ever more worthless with each passing year. That’s just how the current debt-based system works. Ever more monetary units need to be created to prevent the whole thing from collapsing:
Of course, the money supply charts are quite similar for GBP, EUR, JPY, CHF, RMB. Money printers go brrr everywhere.
Every fiat currency in existence is undergoing hyperinflation. The only difference among them is the time scale on which it happens.
Using bitcoin for stacking more fiat is a sign of fundamentally misunderstanding what is happening in the world today. Fiat is not a sustainable form of money, as many have pointed out. Stacking fiat is a fool’s game. There is an unlimited amount of fiat. No matter how much you acquire, you are going to get diluted to zero, given sufficient time.
Number Go Up Turns Into Number Go Down
Pricing bitcoin in fiat doesn’t make sense in the long run, so then what does?
Pricing everything else in bitcoin.
Admittedly this feels a bit absurd for now, when most of us still have fiat-denominated wages, expenses and debts. Yes, we are still on the fiat standard. But as bitcoin gradually takes over, making mental calculations in bitcoin will become habitual.
Nowadays, we don’t think about the “price” of the dollar, but rather what the dollar buys. And it will be the same with bitcoin as the world gradually adopts it as money. People will mentally shift from bitcoin’s price to bitcoin’s purchasing power.
Since bitcoin is mostly used as a store of value first, it makes sense that we adopt a habit of thinking about our bitcoin stash in terms of sats instead of dollars. The dollar value of our bitcoin holdings may change over time, but most people eventually arrive at the conclusion that the only thing that matters in the end is to accumulate more sats. Many find out the hard way: selling at a fiat price they deem high enough, only to witness another steep rise in price later. Most speculators find themselves having less and less bitcoin over time. When they realize this, they shift their mental model from dollars to sats. Been there, done that.
The next step is when people start to accept a part of their wage in bitcoin. This is a natural progression for long-term bitcoiners, looking for jobs where they can fully focus on their passion. Beside the passionate bitcoiners, the option to earn a part of their wage in sats is coming to workers from other paths of life soon. While the wage itself will be denominated in fiat, workers will inevitably notice how many sats they receive each month. As bitcoin rises in terms of fiat price, workers will also notice that they earn fewer and fewer sats, although these smaller amounts will be worth more in fiat terms as time goes by. Incidentally, this is how the deflationary aspect of bitcoin may become viewed as a natural way things are.
A further step will then be to mentally reprice large purchases in sats. “Three million sats for an iPhone?! Fifty million sats for a car?!!” Any long-term hodler knows that these prices will go down over time. Bitcoin has a strong effect on lowering your time preferences, i.e. valuing future wellbeing over short-term gratification. Mentally denominating things in sats will become second nature.
This is how “Number go up” gradually turns into “Number go down.” Bitcoin’s price may go up to infinity in fiat terms in the future, but few will pay attention because fiat will become irrelevant at that point. Nobody cares today how much bitcoin is worth in Zimbabwean dollars, and nobody will care in a few decades how much it is in U.S. dollars. People on the sats standard will instead witness constantly falling prices.
But what about the volatility? Once bitcoin becomes the universally accepted unit of account, the volatility and the rate of appreciation will diminish greatly. This is due to multiple factors: there won’t be any speculators aiming for fiat gains, everyone will auto-DCA (though it will be called simply “saving”) and the market capitalization will be so huge that it will be virtually impossible for any single entity to move the purchasing power of bitcoin. There won’t be any dumps, nor will there be pumps. Instead, the rate of purchasing power appreciation after hyperbitcoinization will simply correspond to the rate of productivity growth. This bitcoin standard is in harmony with technology-induced growth deflation.
Technology is deflationary. That is not conjecture. It is the nature of technology. And because technology underpins more and more of the world around us, it means that we are entering into an age of deflation unlike any the world has ever seen. -Jeff Booth, The Price of Tomorrow: Why Deflation is the Key to an Abundant Future
Now you may say “all this is nice and all, but it’s decades away.” Well, that’s kind of the point of the whole article, isn’t it? You are not too late today because the major socio-economic consequences are still ahead of us. Appreciation of the possible — and in my opinion, quite probable future developments — has a strong effect on today’s behaviour. Knowing where it all leads motivates us to act in a virtuous manner today: adopting a low time-preference outlook, patiently stacking while accounting your savings in sats instead of fiat, ignoring the fiat maximalists and shitcoiners (as if there’s a difference).
Nobody Is Late, But Not Everyone Is Early
Nobody can ever be late to bitcoin. When bitcoin becomes global money and its rate of purchasing power appreciation reflects mankind’s productivity growth, it will always make sense to store value in bitcoin. It will simply be the best savings instrument there is, constantly appreciating without third-party or venture-failure risks.
The future isn’t written, though. There are risks to stacking and holding bitcoin before hyperbitcoinization occurs. Some of these risks are technical in nature; we still don’t have the safekeeping truly sorted out for good, though tools are improving at a rapid pace and are becoming more intuitive. Other risks are political in nature; the state still has a legal monopoly on money and will protect it. Current bitcoin holders face the risk of unfair tax treatment, confiscations or other forms of harassment.
That is why it is possible to be early, even though nobody will be ever late to adopting bitcoin. Early simply means being there before hyperbitcoinization occurs.
And that will be something to tell our grandchildren about.
This is a guest post by Josef Tětek. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.
After I found bitcoin some years in the past, I believed I used to be woefully late to the celebration. On reflection it’s apparent how hilariously unsuitable I used to be. Like Jon Snow, I knew nothing. Many of the worth motion, technological growth, geopolitical penalties —all this was nonetheless forward of me. And as years go by, I consider this to be much more true at present. Should you’re studying this, you aren’t too late. That is nonetheless the start.
One factor turns into clear after years of researching Bitcoin and its impact on the world: Bitcoin can’t succeed simply partially. It gained’t play second fiddle. Like Satoshi foresaw, it’s all or nothing. International financial evolution or irrelevance.
Why is that this the case? Bitcoin is cash, rising in a bottom-up vogue, competing with top-down fiat cash. Society wants cash to easily change items & companies and to protect the worth generated for future use. In financial phrases, cash serves the position of being a medium of change and a retailer of worth. Now fiat cash works fairly nice as a medium of change (particularly within the Western world), nevertheless it’s been getting more and more worse as a retailer of worth over the a long time.
US greenback is likely one of the strongest fiat currencies of the previous 100+ years. But it has misplaced 96% of its buying energy since 1913. Supply: Visible Capitalist.
To compensate for this failure of fiat cash, individuals look to different devices to make use of as a retailer of worth, resembling securities or actual property. Bitcoin thus competes with such devices as effectively. In comparison with different shops of worth, bitcoin doesn’t fall underneath a specific jurisdiction (resembling shares, bonds, derivatives or actual property) and doesn’t require a 3rd celebration for safekeeping (resembling gold, diamonds or costly artwork). These two qualities are generally neglected despite the fact that they’re as necessary (if no more) because the dependable financial coverage ensuing within the 21 million last provide.
The case for storing worth within the jurisdictional walled gardens with third-party dangers will likely be tougher to maintain as bitcoin turns into perceived as a mature asset with diminishing dangers over time.
The devices presently used as a provisionary retailer of worth gained’t disappear, they’ll simply lose their “financial premium” —which, because the time period implies, ought to accrue to functioning cash. When the issue of cash is mounted through broad bitcoin adoption, the provisionary devices will likely be repriced to a pure market worth and utilized the place it makes most sense: homes for dwelling, bonds for predictable money circulate, shares for capital allocation. These devices are helpful for society, however they don’t have any place serving as a retailer of worth. This can be a position for sound cash.
The Bitcoin Technology
Let’s take into account issues in the long run. I’m not speaking a couple of Bitcoin Astronomy sort of timeframe now, extra of a “grandpa, what did you do within the 20s?” sort of factor. If bitcoin succeeds and turns into the worldwide sound cash that the world so direly wants, we’re going to be referred to as the primary bitcoin technology. And it gained’t matter whether or not you gambled on Mt. Gox, witnessed the blocksize wars or lived by means of the nice Chinese language hashrate migration. You may be thought-about an OG simply since you had been there earlier than bitcoin mounted the world.
Now this may increasingly sound like I simply smoked an enormous bowl of hopium, however stick with me for a minute. Bitcoin at present is nowhere close to its potential. Bear in mind: it’s an all or nothing sort of factor.
The present tally goes like this:
- Bitcoin stands at 7% of gold’s market cap. Whereas gold has a robust Lindy impact going for it, you positively can’t teleport it to the opposite aspect of the planet within the blink of an eye fixed like you are able to do with sats over the Lightning Community. Gold wants trusted intermediaries to operate correctly. Bitcoin wins over gold in the long term.
- Just one nation to date has adopted bitcoin as its authorized tender. The sport idea right here is evident: the twentieth century was the age of dollarization; the twenty first would be the age of bitcoinization.
- All of the geopolitical video games involving bitcoin are nonetheless forward of us. Within the phrases of the legendary Jack Mallers: “There’s no fucking means you might be prepared” for what we’ll see within the coming years. Seize your beef jerky and stash your sats within the coldest of storage. Historical past is upon us.
- Most individuals aren’t conscious of the Lightning Community. How usually do you hear the “Bitcoin can’t scale past 4 transactions per second” FUD? Lightning is working, right here and now.
- Many nonetheless aren’t conscious of bitcoin’s divisibility into 100,000,000 models, aka satoshis or sats. The unit bias lures many into shitcoins, naively believing they discovered reasonably priced options to bitcoin. You may nonetheless get 1000’s of sats for one greenback — that’s hilariously low cost.
- Smaller central banks aren’t even accumulating bitcoin to date, despite the fact that bitcoin on the steadiness sheet presents a excessive likelihood of saving minor nationwide currencies (within the interim no less than, earlier than they develop into out of date as hyperbitcoinization happens).
- Giant buyers are solely slowly waking as much as the truth that there’s something terribly unsuitable with bonds, equities and even cash itself. However waking up they’re.
- Just one company is conducting a speculative attack on the US greenback, to date. When others understand find out how to leverage fiat’s financial coverage towards itself, this can develop into a crowded commerce.
The traits above, whereas not all measurable, inform us extra about bitcoin than the short-term worth efficiency (short-term being lower than yearly candles). Brief-term worth motion could also be seductive to gamblers, nevertheless it’s fairly irrelevant within the grand scheme of issues. It actually doesn’t matter whether or not the worth is $3,000, $30,000 or $300,000. No fiat price ticket really issues as a result of fiat cash itself is not going to matter in the long term. So long as we denominate bitcoin in fiat phrases it nonetheless is simply too early as a result of that signifies that bitcoin hasn’t develop into the common unit of account but.
Fiat is turning into ever extra nugatory with every passing yr. That’s simply how the present debt-based system works. Ever extra financial models must be created to forestall the entire thing from collapsing:
In fact, the cash provide charts are fairly related for GBP, EUR, JPY, CHF, RMB. Cash printers go brrr in all places.
Each fiat forex in existence is present process hyperinflation. The one distinction amongst them is the time scale on which it occurs.
Utilizing bitcoin for stacking extra fiat is an indication of essentially misunderstanding what is going on on the earth at present. Fiat will not be a sustainable type of cash, as many have pointed out. Stacking fiat is a idiot’s recreation. There may be a limiteless quantity of fiat. Regardless of how a lot you purchase, you will get diluted to zero, given adequate time.
Quantity Go Up Turns Into Quantity Go Down
Pricing bitcoin in fiat doesn’t make sense in the long term, so then what does?
Pricing every thing else in bitcoin.
Admittedly this feels a bit absurd for now, when most of us nonetheless have fiat-denominated wages, bills and money owed. Sure, we’re nonetheless on the fiat customary. However as bitcoin regularly takes over, making psychological calculations in bitcoin will develop into ordinary.
These days, we don’t take into consideration the “worth” of the greenback, however somewhat what the greenback buys. And it will likely be the identical with bitcoin because the world regularly adopts it as cash. Folks will mentally shift from bitcoin’s worth to bitcoin’s buying energy.
Since bitcoin is generally used as a retailer of worth first, it is smart that we undertake a behavior of fascinated by our bitcoin stash by way of sats as a substitute of {dollars}. The greenback worth of our bitcoin holdings might change over time, however most individuals finally arrive on the conclusion that the one factor that issues ultimately is to build up extra sats. Many discover out the onerous means: promoting at a fiat worth they deem excessive sufficient, solely to witness one other steep rise in worth later. Most speculators discover themselves having much less and fewer bitcoin over time. After they understand this, they shift their psychological mannequin from {dollars} to sats. Been there, executed that.
The subsequent step is when individuals begin to settle for part of their wage in bitcoin. This can be a pure development for long-term bitcoiners, on the lookout for jobs the place they’ll totally concentrate on their ardour. Beside the passionate bitcoiners, the choice to earn part of their wage in sats is coming to employees from different paths of life quickly. Whereas the wage itself will likely be denominated in fiat, employees will inevitably discover what number of sats they obtain every month. As bitcoin rises by way of fiat worth, employees can even discover that they earn fewer and fewer sats, though these smaller quantities will likely be price extra in fiat phrases as time goes by. By the way, that is how the deflationary side of bitcoin might develop into seen as a pure means issues are.
An additional step will then be to mentally reprice massive purchases in sats. “Three million sats for an iPhone?! Fifty million sats for a automotive?!!” Any long-term hodler is aware of that these costs will go down over time. Bitcoin has a robust impact on reducing your time preferences, i.e. valuing future wellbeing over short-term gratification. Mentally denominating issues in sats will develop into second nature.
That is how “Quantity go up” regularly turns into “Quantity go down.” Bitcoin’s worth might go as much as infinity in fiat phrases sooner or later, however few pays consideration as a result of fiat will develop into irrelevant at that time. No person cares at present how a lot bitcoin is price in Zimbabwean {dollars}, and no person will care in just a few a long time how a lot it’s in U.S. {dollars}. Folks on the sats customary will as a substitute witness continually falling costs.
However what concerning the volatility? As soon as bitcoin turns into the universally accepted unit of account, the volatility and the speed of appreciation will diminish tremendously. This is because of a number of components: there gained’t be any speculators aiming for fiat features, everybody will auto-DCA (although it will likely be known as merely “saving”) and the market capitalization will likely be so enormous that it will likely be nearly inconceivable for any single entity to maneuver the buying energy of bitcoin. There gained’t be any dumps, nor will there be pumps. As an alternative, the speed of buying energy appreciation after hyperbitcoinization will merely correspond to the speed of productiveness progress. This bitcoin customary is in concord with technology-induced progress deflation.
Know-how is deflationary. That isn’t conjecture. It’s the nature of know-how. And since know-how underpins increasingly more of the world round us, it signifies that we’re getting into into an age of deflation in contrast to any the world has ever seen. -Jeff Sales space, The Value of Tomorrow: Why Deflation is the Key to an Ample Future
Now you might say “all that is good and all, nevertheless it’s a long time away.” Effectively, that’s sort of the purpose of the entire article, isn’t it? You aren’t too late at present as a result of the main socio-economic penalties are nonetheless forward of us. Appreciation of the potential — and for my part, fairly possible future developments — has a robust impact on at present’s behaviour. Figuring out the place all of it leads motivates us to behave in a virtuous method at present: adopting a low time-preference outlook, patiently stacking whereas accounting your financial savings in sats as a substitute of fiat, ignoring the fiat maximalists and shitcoiners (as if there’s a distinction).
No person Is Late, However Not Everybody Is Early
No person can ever be late to bitcoin. When bitcoin turns into world cash and its price of buying energy appreciation displays mankind’s productiveness progress, it should all the time make sense to retailer worth in bitcoin. It is going to merely be the very best financial savings instrument there may be, continually appreciating with out third-party or venture-failure dangers.
The longer term isn’t written, although. There are dangers to stacking and holding bitcoin earlier than hyperbitcoinization happens. A few of these dangers are technical in nature; we nonetheless don’t have the safekeeping really sorted out for good, although instruments are enhancing at a fast tempo and have gotten extra intuitive. Different dangers are political in nature; the state nonetheless has a authorized monopoly on cash and can shield it. Present bitcoin holders face the danger of unfair tax therapy, confiscations or different types of harassment.
That’s the reason it’s potential to be early, despite the fact that no person will likely be ever late to adopting bitcoin. Early merely means being there earlier than hyperbitcoinization happens.
And that will likely be one thing to inform our grandchildren about.
This can be a visitor put up by Josef Tětek. Opinions expressed are completely their very own and don’t essentially mirror these of BTC, Inc. or Bitcoin Journal.
