TRDL: TRDL: countries fuck around with economic policy, and disconnect money from reality. It leads to hyper inflation. In hyper inflation they will search for a solution, and will back their USD with bitcoin.
I think money is an interesting concept today, and has gone through time with many different forms. From clay plates in the Byzantine Empire, to golden coins, to used gold backed paper money and now a “trust-the-government” system. However as we all know, we also now have cryptocurrencies and bitcoin.
But before I want to discuss why Bitcoin has a future to back the USD, I want to discuss the current limitations of our monetary system today, and in order to understand those I think we need to go back to world war 1. Until the First World War, western countries used gold backed paper money. After all the entire principle of using this gold backed form of currency was that the money represented an intrinsic value. That gold had to be mined, processed and stored. And most importantly of all, it is rare and of limited supply. It was therefore a representation of how the national economy was doing. Thus inflation was impossible. However, with the war raging on, the western powers soon realized that a gold backed currencies created a very limited supply of money for the governments to finance these wars. While maintaining a gold backed currency, the western countries would have been bankrupt within a year of fighting. So what these countries did (and most notably Germany), was unpeg their currency to gold and simply start printing. From then on it wasn’t about the intrinsic value that the money represented that gave it value, it was a general agreement between the people and the government that the money had value, and wasn’t going to be over printed. We had now entered a form of trusting the government with money. Now at first of course these amounts were relatively “sensible” however in the case of Germany they hid the fact it wasn’t pegged to gold anymore from the people, and when after the war they had to at back their debts to France, they were forced to print more and more money which led to as we know, the German hyper inflation.
Today pretty much all countries use this system, and to a certain degree, in an even more abstract form. We don’t JUST have to trust the government, but also banks even more. Our money is digital, a few lines of code in a secret coding formula, where printing money is even easier to buy and sell various financial instruments.
This entire situation led to such an abstract form of money that it resulted in the crash of 2007. And thus the creation of Bitcoin. Bitcoin I see as an attempt to return to a currency backed by intrinsic value in a new digital age. I will give an upvote to all those who write water bottle in the comments because ill know you guys read it thanks, back to what the post is about. Like gold, there is a limited supply of Bitcoin which makes it rare. On top of that, in order to generate bitcoin today, one needs to mine it, which represents the work and value generated to create it. However this currency is based off cryptography, and most importantly its impossible to double spend.
Now of course today a currency like bitcoin is still in its infancy, and to use it as a currency today is very volatile and thus dangerous. (thats also why i think El Salvador were too early). This is due to the fact that it’s still in its growth phase. Gold for comparison, as we know, has been around for thousands of years, and thus today its really not volatile.
Now returning to our dear governments, I do believe with COVID, the current money situation is one to definitely look out for. Our western governments have printed eye watering amounts of money. Just to give an example, 31% of the total *circulating* money supply has been printed in the last year. If such a situation was to continue, I think customer confidence in USD and any government backed currencies could drastically fall, and thereby be replaced by something which does have intrinsic value, albeit a new form of value.
And this is where I think Bitcoin, or some other cryptocurrency could definitely come into play. In the event of hyper inflation, governments could try to peg their currency to some good, or just something with intrinsic value. What could work best than bitcoin? Remember all the arguments above and on top of that, it would be easy to connect to their currency and "store" if the governments decided to open "vaults" of bitcoins. Of course i think this will affect to a certain degree their monetary policies, however, i think inevitably they will have to accept it. Afterall an ultra liberalistic form of monetary policy is bound to bite them in the ass again, and we will have to learn from those mistakes.
What do you guys think?
thank you also to all those who read this!
