Understanding Bitcoin's Potential Impact on the World's Monetary Systems
The premise of the Bitcoin Standard is bitcoin will replace central banks as the foundation of the World's monetary system because of its limited supply, portability, and security. Even if you don't agree with this premise. Many lessons are there to be learned about potentially incorporating bitcoin into your personal financial planning.
1. Bitcoin is Trustless
Bitcoin can be best understood as distributed software that allows for transfer of value using a currency protected from unexpected inflation without relying on trusted third parties. In other words, Bitcoin automates the functions of a modern central bank and makes them predictable and virtually immutable by programming them into code decentralized among thousands of network members, none of whom can alter the code without the consent of the rest.
Lesson Learned – Anyone, anywhere can access Bitcoin* to store and transfer value across the world.
*Presuming a working internet connection. An admittedly big hurdle in some parts of the world.
2. Costliness is a Key Ingredient for Monetary Assets
For something to assume a monetary role, it has to be costly to produce, otherwise the temptation to make money on the cheap will destroy the wealth of the savers, and destroy the incentive anyone has to save in this medium.
Lesson Learned – Bitcoin mining drives value by adding an element of scarcity. A first in the digital world and key foundation for imbuing it with the properties of money.
3. Value of A Known Inflation Rate
A slow drain of its monetary value over time will slowly transfer the wealth of its holders to those who can produce the medium at a low cost.
Lesson Learned – Holders of bitcoins should accrue value as opposed to losing it. Because over time as the inflation rate subsides it will become more costly to produce bitcoins not less.
4. Revolution of Inverted Attack Costs
Bitcoin, and cryptography in general, are defensive technologies that make the cost of defending property and information far lower than the cost of attacking them. It makes theft extremely expensive and uncertain, and thus favors whoever wants to live in peace without aggression toward others. Bitcoin goes a long way in correcting the imbalance of power that emerged over the last century when the government was able to appropriate money into its central banks and thus make individuals utterly reliant on it for their survival and well‐being.
Lesson Learned – Making it more costly to attack wealth than defend it upends the foundation of human interaction throughout history.
5. Advantage Versus Gold
The historical version of sound money, gold, did not have these advantages. Gold's physicality made it vulnerable to government control. That gold could not be moved around easily meant that payments using it had to be centralized in banks and central banks, making confiscation easy.
Lesson Learned – Bitcoin's digital foundation makes it much easier to store and transport value outside of government driven system's than Gold.
6. Ability to Transfer Value Efficiently Across Borders
Bitcoin's advantage, rather, is that by bringing the finality of cash settlement to the digital world, it has created the fastest method for final settlement of large payments across long distances and national borders.
Lesson Learned – Bitcoin has many advantages versus the traditional financial systems for those looking to conduct large transactions across international borders.
By requiring none of the following:
- Financial Intermediation
- Legal Services
- Brokers and other third parties often required to complete large international transaction
7. Potential to evolve into a new Monetary Standard
Monetary status is a spontaneously emergent product of human action, not a rational product of human design. Individuals act out of self‐interest, and technological possibilities and the economic realities of supply and demand shape the outcomes of their actions, providing them incentives to persist, adapt, change, or innovate. A spontaneous monetary order emerges from these complex interactions; it is not something that is conferred through academic debate, rational planning, or government mandate. What might appear like a better technology for money in theory may not necessarily succeed in practice. Bitcoin's volatility may make monetary theorists dismiss it as a monetary medium, but monetary theories cannot override the spontaneous order that emerges on the market as a result of human actions. As a store of value, Bitcoin may continue to attract more savings demand, causing it to continue appreciating significantly compared to all other forms of money until it becomes the prime choice for anyone looking to get paid.
Lesson Learned – Even if the probability is low the rewards if this happen will be substantial.
About the Author
Steve is a CFA® Charterholder and founder of CryptoJungle.io a site devoted to helping people hack through the weeds to find the crypto gems. Prior to founding Crypto Jungle, Steve started as an analyst at Messari which is trying to create an open-source data resource for the crypto ecosystem.
The CFA designation is globally recognized and attests to a charterholder's success in a rigorous and comprehensive study program in the field of investment management and research analysis.
Contact him at:
Or follow him at:
The above article was based on these Original notes