Fiat money – whose value derives not from physical commodities but from our trust in, and the authority of, the government issuing it – has played a pivotal role in the evolution of modern economies. Historically, the transition from commodity-based currencies such as gold and silver, which were hindered by physical limitations, to fiat money, marked a significant turning point. It simplified transactions, reducing the complexities and inefficiencies associated with the use and exchange of physical commodities, thereby boosting trade and prosperity.
The perverse incentives surrounding the monopoly over money issuance by central governments, however, have led to many distortions that, over the long term, undermine the very fabric of society. Inflation, which perniciously erodes the savings of all citizens, interest rate distortions caused by a lack of free-market equilibrium and the resultant boom-bust debt cycles are just some examples of the symptoms of this centralisation. The Cantillon effect further exacerbates societal inequality, privileging those closest to the money spigot at the expense of others. Real-world manifestations of these dynamics are stark, with Western nations grappling with increasing inequality and inflationary pressures, while emerging economies such as Argentina, Venezuela, Zimbabwe, and Egypt, to name but a few, teeter under the weight of hyperinflation, affecting billions of people.
Recent global events have magnified these inherent flaws. The trust required for our monetary system is now more fragile than ever. The US fiscal deficit, ballooning to unprecedented levels, alongside the funding of protracted wars, has laid bare the intricate dance between monetary policy and political agendas. The COVID-19 pandemic and its subsequent lockdown policies have further fuelled inflationary fires, showing that public health decisions are linked to economic stability. Who can honestly say that they have not noticed the uncomfortable disconnect between the rate at which they see the value of their fiat weaken (whether when buying food, when using a service such as healthcare, or for those more fortunate when buying an asset such as a house) and the official inflation numbers and narrative emanating from their government?
This all underscores one critical issue: the opacity surrounding the long-term side effects of government actions. Indeed, these side effects are concealed by the subtle manipulation of the money supply, which itself is enabled by the abuse of the public’s trust in the fiat system. The concealment, in turn, limits the avenues for an open, informed, and democratic debate on the true costs and implications of public policies.
Imagine then, for a moment, in the vast expanse of our universe, that humans stumble upon an extraordinary type of gold. Unlike the earthly element we have held dear for millennia, this new discovery is more akin to a mystical gold dust, with properties that defy the limitations of our physical world. Envision being able to dispatch this gold dust anywhere across the globe at the speed of light and store it in an impenetrable vault whose key exists solely within the recesses of your mind. This is not just any treasure; it is divisible into tiny specks, capped in supply by the very laws of its creation, with an inflation rate destined to dwindle to zero. Embedded at its core is the power of decentralisation, allowing individuals to hold it in the palm of their hands and exchange it directly with one another, anywhere in the world, without needing the approval of central authorities or trusted intermediaries. The authenticity of each speck of gold and each transaction can be verified by anyone, anytime, granting an unprecedented level of transparency to its users. Its peer-to-peer nature weaves a fabric of financial autonomy and freedom, removes the ability of intermediaries to abuse the trust bestowed upon them, and marks a paradigm shift in how value is stored and transferred.
As with any groundbreaking discovery, the initial encounter with this mystical gold will inevitably sow seeds of confusion and scepticism. Initially, only a few will grasp the full spectrum of its potential, championing its value amidst a cacophony of fear and doubt. This divergence in opinions will give rise to significant reflexive fluctuations in its perceived value, with a noticeable long-term upward trend in its value relative to fiat currency, as society gradually understands and integrates this novel asset into the fabric of economic life. Complicating the landscape will be the advent of opportunists and charlatans, peddling counterfeit dusts adorned with enticing narratives, seeking to exploit the unsuspecting, and criminals looking to use its valuable properties for nefarious means. Detractors will seize upon these incidents of deception as ammunition to dismiss and ridicule its potential while citing examples of wicked uses to brand it as dangerous.
As time goes by, people start to know more about this curious material’s intrinsic properties and begin to discern its true worth, separating the genuine from the spurious. This evolutionary process will usher in a phase of stability, where the dust’s value, in relation to goods and services, achieves a harmonious equilibrium. Such teething problems are not just expected but are indicative of a transformative shift, heralding the dawn of a new economic paradigm.
Now, imagine a society transformed by this paradigm, free from the systemic flaws that have long plagued our financial systems. This dust, impervious to the whims of inflation, ensures that the spectre of systematic devaluation of currencies versus real assets becomes outdated, ushering in an age of transparency where taxation and fiscal policies are debated free of deceit, informed by the clear, unalterable truths of this new bedrock of the economy. The very structure of financial power shifts under the weight of the discovery, as the centralised grip of banks on money loosens, giving way to a more resilient and equitable financial ecosystem.
Imagine the liberation from financial repression, where the shadow of financial surveillance and control by oppressive regimes is dispelled, granting individuals the freedom to manage their wealth as they see fit, free of centrally imposed distortions. This newfound financial stability reduces the need for economic migration, allowing families to stay together and invest in their local communities. All governments would change their behaviour. Because they could not create money out of thin air, economic shutdowns or wars would require immediate funding through higher taxes, higher borrowing, use of previously accumulated funds, or cuts to other areas of expenditures. Decisions would once again be linked to their economic consequences, thereby enhancing governmental accountability and public awareness.
In this world, the incentive to save is rekindled. No longer lured into the ceaseless cycle of consumption by the fear of inflationary loss, individuals find value in sustainable financial planning, safeguarding their future with a store of value that stands the test of time. This empowerment through saving has profound implications, by offering everyone, everywhere, the means to trade and secure, over time and free of interference, the fruits of their labour. This newfound liberty extends beyond borders, challenging the dominance of traditional currencies and fostering a global marketplace where all can participate.
Let your mind wander through the possibilities of such a society, built on the foundation of this mystical gold, unalterable through space and time.
Remarkably, this dust has already been created, and it goes by the name of Bitcoin. It operates in the digital realm (as does most of our current financial system), on a decentralised network, meaning no single entity or authority has control over it, akin to the gold dust’s imperviousness to central control. This ensures that transactions can occur directly between individuals without the need for trusted intermediaries.
Bitcoin transactions, supply and code can be audited by anyone thanks to its public ledger, the blockchain, and its open-source code. Such a level of openness is unprecedented and fosters understanding and security within the network. While it is divisible into smaller units, Bitcoin is finite in supply; there will only ever be twenty-one million bitcoins, each of which is created as a reward for those working to contribute to the network’s security. This ensures scarcity and prevents perpetual inflation.
In essence, Bitcoin offers an alternative to traditional monetary systems through its decentralised nature, finite supply, transparency, and divisibility. It is the first asset ever invented which empowers individuals to transfer value free of central control and interference across space and time. This has profound societal implications, as it hands back the control of money to all and offers a blueprint for a more equitable, democratic, transparent, and stable financial future.
As we stand on the brink of this new era, with the ultimate success of Bitcoin still in the balance, it is incumbent upon us to bring this conversation into the political arena, to rethink our existing economic structures, to educate, and to advocate for a gradual, informed adoption of Bitcoin. By doing so, we can harness its potential to safeguard individual property and forge a more inclusive society. While it would be naïve to believe that those benefiting from the status quo will easily give up their privileges, the ideals of financial stability and financial freedom are closer to becoming tangible realities than ever before.
