Written By 1Bitcoin.ca, November 8th 2021
Before we talk about Bitcoin, it is important to try and understand what money is. This is a difficult topic to discuss since money is a taboo subject for some people and most of us aren't taught what we need to know.
Money is integral for society as it is half of every transaction and is how we can express value amongst one another.
Characteristics of Good Money
Divisibility: Bitcoin is divisible to the 8th decimal place. 0.00000001 BTC = 1 Satoshi. On second layer solutions, Bitcoin is able to be divisible even further beyond a satoshi.
Scarcity: Bitcoin has a limit of 21,000,000. Unlike fiat that can be printed at will, or Gold that inflates at 1.6%-2% annually.
Portability: Must be easy to move around. Gold’s biggest weakness is its physicality, it is very expensive to transfer and store. Bitcoin allows you to transfer value through a communication channel to anyone, anywhere in the world.
Durability: Bitcoin does not wear or tear since it is a protocol. It is the most durable form of value. Gold is also very durable as it maintains it characteristics over thousands of years and is partially why it became a chosen store of value.
Liquidity: Liquidity allows for Bitcoin to have a open bid on it 24/7, 365. The markets for Bitcoin never close as it is a global marketplace across hundreds of platforms.
Uniformity: All Bitcoins are equal, but you are able to differentiate between them on the blockchain by seeing where that Bitcoin has been.
Over thousands of years, societies across the globe have used shells, rocks, beads, and gold as money. It eventually settled on gold being a natural form of money as it checked off most of the necessary characteristics. Gold is an example of sound money because it has the certain characteristics from above but this is not exclusive to gold. A sound monetary foundation is integral for a prosperous society while the nature of sound money lies primarily on the fact that no human can control it.
Alternatively, a debased currency leads to a debased economy. Unfortunately, a story as old as time, is governments slowly diluting and inflating their money supply. Over 30% of the money circulating in Canada was printed since 2020.
Henry Ford once said
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
While government currencies used to be backed by gold, it is not the case today. In 1971, the United States cut its ties to Gold and became a free floating currency not backed by any commodity. We've been taught inflation is necessary and that somehow government policy can ensure it stays at 2%, however, 2021s numbers have come in at almost 5%, and that is just the reported figure. Increases in our day to day costs, real estate values, and business operating costs would suggest otherwise.
Inflation means your buying power is consistently diminishing. It has been normalized in our society, but it is legalized theft. In 1971, the US came off the gold standard "temporarily" and monetary printing has spiralled out of control for all central banks around the world. Check out our blog on inflation or this great website resource.
Money needs to be the risk free asset that everyone retreats to. Cash is the most liquid and widely accepted asset that everyone uses during times of instability.
Would you say the free market decides on what is money? Or does government assert how we calculate value. This is a rhetorical question, yet sadly there are people that genuinely believe this is under the government's purview.
For the first time in history, there is an asset that is beyond the control of any third party. A way for the public to store their value knowing that no one will be able to dilute or inflate their holdings. 1 Bitcoin will be 1 Bitcoin in 10 years time. This is something that no other asset can claim.