Thursday, April 21, 2022

Changing the hard cap makes absolutely no difference

This is a golden oldie, an often repeated argument against bitcoin; that the hard cap of 21M bitcoin can be increased in the future with a hard fork. Firstly, what adherents of this mainstream talking point forget is the unreasonable difficulty of achieving this at the protocol level, and, if achieving this impossible thing would last for any meaningful amount of time. But most importantly, they've forgotten their Econ 101, because they were too busy day-dreaming of the power lifetime politicians enjoy, and romanced themselves behind a pulpit discussing issues with the confidence Dunning-Kruger talks about. Pardon this brief screed please:

The prestige of politicians globally peaked in 2016. Trump's ignorance, the Democrat's politically motivated alarmism, debt, covid theatre, inflation, and now the Ukraine War have exposed this cabal of fools for what they are, and given everyone explicit examples of what happens when governments have too much power.

Sorry about that, but anyway, if bitcoin is successful, becoming the global reserve asset, where everyone uses the same money, and thereby everyone's incentives are aligned, then the hard cap becomes so irrelevant nobody will bother changing it. The reason is because in a bitcoin circular economy, where bitcoin has displaced fiat, goods and services are all priced in bitcoin. That means any change in the money will simply cause a repricing of everything outside the money, which will adjust to the new block reward and hard cap ratio. Interest rates for borrowing and lending will adjust. Its value absorption will continue matching more or less global GDP, and new goods and services can be added to the economy. Most tend to see bitcoin through an inflationary lens where fiat is still the dominant currency, where bitcoin has a peg, central banks set interest rates, and everybody uses a different Schelling Point. Bitcoin is a deflationary store of value, a unit-of-account, a payment network, and central bank collapsed into one singularity. Hashpower is its event horizon. It is the Schelling Point. Bitcoin will hard fork humanity thank you, not the other way around.


No comments:

Post a Comment