Bitcoin Is Money
Money has changed form throughout the centuries, from seashells, to beads, to precious metals, to coins, to paper notes, and the bank accounts that store and distribute them, for a fee! Money, in its various forms, is a medium of exchange to pay for goods and services or to pay off debts. It is also a unit of account and a store of value. Aristotle elaborated on the characteristics of money by first proclaiming that it is a fundamental measurement of everything. The purpose of money is to provide a unit through which individuals may equitably exchange goods and services. Aristotle specifies that money should be durable, portable, divisible, fungible, and contain intrinsic value.
Bitcoin Is Intentional Money
It is durable. The full account of every bitcoin transaction, is stored and updated on over 9000 computer systems distributed throughout the world. The survivability of Bitcoin exceeds individuals, corporations and governments, and has been risk modeled to survive nuclear holocust and asteroid impact. Only an absolute extinction level event could destroy Bitcoin, at that point, it would not matter.
It is portable. This is self-evident, it rides on the shoulders of the internet and global telecommunication infrastructure. It can move anywhere in the world in seconds.
It is divisible. One bitcoin is divisible into 100 million base units, called satoshis. The current value of one satoshi is approximately $0.00036. Some analysts suggest that in the near future one satoshi will have equivalent purchasing power as one US cent. At this point the unit of account will be satoshis, rather than bitcoins, which makes sense. We do not claim our income to be “five one-hundreths of a million dollars,” we say we earn $50,000.
It is fungible. This simply means that any one bitcoin has the same value as any other bitcoin. A dollar bill in my wallet grants me the same purchasing power as the dollar bill in your wallet. The pieces of paper are different but they work in exactly the same way. This is also true for Bitcoins.
It has intrinsic value. This is a philosophical discussion that is as ageless as philosophy itself. The problem is that value is subjective and is strongly influenced by cultural belief systems. Fundamentally, real value is derived from human labor and natural resources. Other layers of value are built upon these two foundations, either by using them or controlling them. The technology of Bitcoin harnesses these two layers of intrinsic value. The intelligence, experience, and wisdom that are the fruits of human labor contribute to the design and proliferation of the technology.
The infrastructure of the technology is derived from the value of the natural resources, like rare metals, as well as all the labor and resources that preceded bitcoin to grow the semiconductor industries and computer hardware manufacturing capability. Most visibly though, the creation of Bitcoin requires electricity. In this way Bitcoin is a store of energy, or the value of energy.
Bitcoin also has the intrinsic value of its network of users which grows as more people participate within it, adding their value both in terms of converting fiat currency into Bitcoin and by developing applications and services that are based on Bitcoin’s protocols, harnessing and improving Bitcoin’s network.
Value is largely subjective but there are common qualities people appreciate like utility, benefit, beauty, originality, and scarcity. Not everything we value has all of these qualities, but they would at least have one, and the combination of more tends to compound the value. Bitcoin has all of these qualities. As they combine and compound and create the perception of value, people want more of them, increasing the exchange rate, or fiat valuation of bitcoin. What is looming in the future, still not yet priced in, is its scarcity. There will only ever exist 21 million bitcoins, they are already rare. As more people catch up with this idea, the demand will grow logarithmically.
Bitcoin Is Sound Money
Sound money demands even more stringent requirements, in addition to the ones previously described. Sound money must protect the value of an individual's wealth from the expansion of the money supply dictated by central banks and governments. There is a finite supply of Bitcoins built into the design of the network and software, set at 21 million. There will never be more than 21 million bitcoins. No organization may suddenly declare that new Bitcoins exist. This protects the value of Bitcoin against the pressures of inflation. The supply can never be diluted, therefore the value will remain preserved.
Sound money must also allow the free market to achieve full price discovery. The value of a thing must be agreed upon through the operations of exchange. If the value of money is corruptible by central bank policies of expanding and contracting the money supply, then it is impossible to know the actual value of any thing measured by money. Bitcoin fixes this problem and establishes the true free market for price discovery.
It’s A Matter Of Trust
Digital money is not new, nor even that innovative. Banks have digitized their accounts and transfer protocols since the 1970’s. Everyone’s bank account has simply been a digital record of transactions for decades. Even though we can withdraw cash from a bank, obviously the notes we receive are not stored in a physical box we claim as our own. We can use cash to pay our friends or strangers for goods and services. This is true peer to peer exchange and is the oldest form of commerce, but it is constrained by proximity because of the need for trust. When I give my money to a person and they give me a good in exchange, we can both see each other, communicate our value and make a fair exchange.
This form of exchange may occur over distances through the mail. I could mail cash to a stranger, and they could mail me a good in return, but will they? I must trust in the good nature of the seller in order to part with my cash and expect to receive the goods. Humanity addressed this problem with a legal arrangement called a trust. Banks serve this function when we write checks or use debit cards. Although I may give a merchant my card in person and they give me the goods, there is a third party facilitating this transaction. This is true for local exchange as it is for remote exchange. My card communicates with my bank, my bank communicates with the merchant’s bank, the merchant's bank communicates with the merchant. At each abstracted step of the communication, a fee is siphoned off, and we accept this because the bank provides this service of establishing trust in the communication of value. That service is a privilege, accessible to people, only if they meet certain criteria, which billions of people do not. Communicating value is not a privilege, rather it is a fundamental human right. Bitcoin removes the need for a third party to legitimize trust in the exchange. The bitcoin protocol itself creates this trust, and in so doing removes the necessity for trust.
The mechanism for the trustless communication of value was revealed to the world when Satoshi Nakamoto released the original bitcoin white paper on October 31st, 2008. Without getting too technical, the solution involves an encryption problem, a mathematical solution that requires computational power, time and electricity, and a network of nodes that verify transactions and agree upon them with a majority consensus. These computers are known as mines, and the operators are miners. They are rewarded for their participation with bitcoins. This is how bitcoins are created. They are the native form of payment earned by the mines that are used to verify and store each transaction and add incentive for new mines and miners to participate.
Bitcoin Is A Service
The capability to send peer to peer payments over the internet without using banks was quickly recognized as a valuable service. As with any valuable service, people are willing to pay for it. The only way to send value through bitcoin’s network is by using bitcoins! Miners began selling their bitcoins for fiat currencies. I first heard of Bitcoin when it was being sold for $0.11. I was not savvy enough to buy at that time, but some people were and their purchases increased the price, and then more people found out and the price went up again. These price increases followed simple marketplace rules of supply and demand. This created the need for an easier way to buy and sell bitcoins and the altcoins that soon followed. Thus a new financial ecosystem is born and continues to grow in participation and value.
Bitcoin Is An Asset
We deserve to keep the money we earn. We may even benefit from investing that money in other companies through purchasing stocks or corporate bonds. Of course, we may also lose that money. We employ other companies to help us invest our money in other companies, often with greater expectations of success. You may have a 401K or some other retirement account that allocates a certain percentage of your stored value into a portfolio of assets including government bonds, corporate bonds, index funds, specific corporate equities, cash, gold, or commodities. Each category has an estimated amount of risk and reward. Most people are not experts in any of these asset classes, we pay a premium for that expertise. Based on the ideas expressed in a few sentences from your trusted advisor you may agree to shift a portion of your wealth into a new or different asset class.
Imagine purchasing 10,000 Bitcoin in 2011, spending just $1100 dollars of your savings and simply waiting. Let me do that math for you. At today's price of $36,000, your $1100 investment would now be worth $360,000,000. That is a 327,272 % gain in value. Did your mutual fund perform that well over eleven years? My personal opinion is that bitcoin will still outperform all other asset classes within 10 years, this is not advice, it is just what I believe, based on years of research. You may approach bitcoin in this way, as simply a hedge against inflation caused by the rampant expansion of the money supply, especially since 2008, and even more dramatically since 2020.
Bitcoin Is A Foundation
In order to overcome the obstacle of distrust in non-local peer to peer transactions several features were required, one of them became known as a block chain. The block chain is a permanent, publicly accessible, massively duplicated and shared, verifiable, immutable ledger that records and stores every bitcoin transaction. This creates a transparency to bitcoin as money that has never been available before. This technology when combined with the finite, deflationary quantity of bitcoin, eliminates the capacity to fraudulently manipulate bitcoin as money, and as contract. Just imagine, this has revolutionary implications for the transformation of society. People, governments, corporations will need to own their words, their actions, and their agreements. This is probably why the most resistance and obstructionism toward bitcoin emanates from those that rely on lies and manipulation to maintain their power, i.e. authoritarian governments and centralized banking families.
Bitcoin Is Legal Tender in El Salvador
On June 9th, 2021 President Nayib Bukelke and El Salvador’s Legislative Assembly celebrated as the Bitcoin Law was ratified with a supermajority vote. Bitcoin is now the legal tender for all transactions within El Salvador, and several other countries are preparing to make the same shift. This technically classifies bitcoin on the global markets as a foregin currency. This eliminates capital gains taxes, as they are not applicable to foreign currencies. It is still too early to determine how other countries will adapt to this courageous and prescient move by President Bukele, but his actions have set a new precedent and sent a powerful message to investors around the world.
The Time Is Now
Bitcoin is still brand new, the cryptocurrency industry that bitcoin initiated is rapidly developing all around the world. This transformation is just getting started. Michael Saylor, CEO of Microstrategies and large institutional investor in bitcoin, likens bitcoin to plankton in that it is the base layer of the food chain in a growing ecosystem. Although innovation and specialization are the hallmarks of a thriving market and a healthy ecosystem, these processes are dependent on energy. Bitcoin has established itself as that source of energy, a kind of reservoir of potential.
The dollar valuation of bitcoin has several influences. As more dollars are converted to bitcoin the dollar valuation increases. This is referred to as the market capitalization of bitcoin and currently measures close to 700 Billion USD. To an individual, this is a large amount of money, but compared to global finance, it is only a fraction of one percent.
The broad money supply, which includes cash and assets easily converted to cash, is about 90 trillion dollars. The market capitalization of bitcoin hovers around 700 billion dollars. If just 3 percent of this liquid investment grade money shifts into bitcoin its market capitalization would nearly quadruple, and its dollar valuation will exceed $100,000. Even more exciting is the cascade of enthusiasm that will follow and further increase the demand for bitcoin. Given that bitcoin was designed to be a deflationary asset, with its supply limited to only 21 million coins, as demand increases, the price will dramatically rise.
The nascent technology of bitcoin and the evolving blockchain applications are just beginning to gain the attention of institutional investors. These include large corporations, like Tesla and Microstrategy which are leading the way, but also Sovereign Wealth Funds, Pension Plans, and legacy financial institutions. When these market movers shift a small percentage of their portfolio into bitcoin, its dollar valuation will increase exponentially. Invest in this platform before the major players, and benefit from their money.
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