2020 and the Coronavirus pandemic marked a serious inflection point in how we view various facets of our society. As panic and uncertainty gripped the globe, the systems we rely on (and for too long have blindly placed our trust in) began to unravel. We did not have the luxury of looking away. Nor did we understand clearly what it was we were looking at exactly. For the first time, many of us were forced to inspect the structural failures that formed the basis of everything from racial healthcare disparities to job insecurity to financial inequality. In short, the crisis backed us into a proverbial corner — threatening our livelihoods, our families, and our futures. That kind of desperation breeds an examination of our own ignorance. Desperation lifts the veil. And desperation clarifies that which is unmistakably broken and in need of repair. But, as Americans, we too often tend to have short memories.
The last time this happened on a grand scale was during the 2008 recession. As the subprime mortgage scandal imploded, the government scurried to help bail out the banks, leaving everyday Americans holding the bag. While millions had their homes foreclosed on en masse, those same banks and hedge funds who created the precarious environment which toppled the world financial markets secured $700 billion in taxpayer bailouts while largely avoiding any substantive punishment for their recklessness and greed.
Now, with a worldwide pandemic under no one’s control, the entire financial system, our trust in the very idea of the economy itself, had to be bailed out, had to be salvaged, lest everything collapse into a chaos even worse than what we experienced in 2008.
What was normalized with the creation and increase of the money supply since the recession was the decoupling of risk from the broader financial system: meaning that no amount of recklessness, no amount of greed, no amount of irresponsibility would be “priced” — which is to say accounted for in the free market. This idea was made ubiquitous in the phrase “Too big to fail”. To print our way out of problems became the new Federal Reserve standard.
Fast-forward to 2020, and the $3.38 trillion price tag of the mammoth stimulus packages put forth to curtail the crisis (the direct checks, the PPP loans, the expanded jobless benefits, the state and local aid, the vaccine rollout, etc.) amounted to nearly 20% of the total U.S. dollar supply. That means that almost 1 in 5 dollars in existence today was created in 2020 alone. Why does that matter? With the money printer at the Fed and other central banks around the world running at full-tilt to try to outpace the economic catastrophe, with no reasonable horizon in sight or incentive to stop the addictive behavior of expanding the money supply by endlessly pumping liquidity into the market, the specter of higher inflation, dwindling purchasing power, and the increasing cost of capital loomed large.
To understand why this is problematic, let’s simplify the story of money to the average person:
Every day, all of us wake up, go to our jobs, clock in and out, and secure a paycheck. We earn money to, hopefully, exchange it for things we want in the future — a vacation, a home, a family, a car, clothes, food, our hobbies. Benjamin Franklin is purported to have coined the phrase “Time is money” to underscore this idea that when we trade our time to make money, we are giving up our most precious, finite, and depreciating asset (time) in order to make money we think will hold its value until we exchange it for the things we want in the future.
Now imagine that the heads of the Federal Reserve woke up one day, stretched their fingers, sat at their computers, and decided to print a trillion dollars. They hit Ctrl P on the keyboard and, in one stroke, just printed away the monetary value and, more importantly, the time value of all of our collective hard work. All 155 million of us in the job market, struggling to make it on low wages, working longer hours. All of the time we gave up, printed away, and stolen from us because now the purchasing power of our paychecks will go down over time — maybe not suddenly, but eventually, inevitably.
From the time the Federal Reserve was created in 1913 until today, the purchasing power of the U.S. dollar has diminished dramatically due to inflation and irresponsible money printing. Some of this also has to do with going off the gold standard in 1971, when Nixon decoupled the dollar from the gold reserves. Without a physical instrument to back the dollar, to prove its worth via a corresponding amount of gold, the value of the new fiat money system would now be based solely on the full faith and credit of the U.S. government. In 1913, $20 could overfill an entire shopping cart of food from the grocery store. When was the last time you went grocery shopping? How much did that $20 buy you today? Bread, eggs, and milk alone (which are common “basket” items used to calculate the consumer price index or CPI) might hit the $20 mark.
When measuring the increased price of standard grocery items from 2008–2020, there has been a 32% increase in price. Compare that with a 43% increase in the cost of healthcare. Compare both of those with only a 13% increase in wages in the same time period. Starting to make sense? As our wages stagnate and the cost of goods and services goes up, we are increasingly stretching our dollars in a system that prints so much of it that not only are we unable to buy as many things as in previous years, but we also cannot know what our net worth, in dollar terms, is out of when the ability to print money is theoretically infinite.
Enter Bitcoin — a decentralized, peer-to-peer monetary network run on cryptography, a public ledger of transactions, and a mathematically fixed supply of 21 million Bitcoins developed by Satoshi Nakamoto in 2008. The underlying system upon which Bitcoin and other cryptocurrencies are distributed is called the blockchain. In simple terms, the blockchain is a distributed ledger of transactions that is verified every ten minutes in “blocks” where miners and nodes who run Bitcoin’s open-source software use immense computing power to solve complex mathematical problems that verify transactions in Bitcoin from one person to another. The reward for solving a full block of transactions is a set amount of Bitcoins that is cut in half every four years by the code. The first solved blocks produced a reward of 50 bitcoins, then in 2012 it was cut to 25, then in 2016 to 12.5, and most recently, last year, was cut to 6.25. As each block is solved, it is added to the blocks that were solved before it, thereby creating an unbroken, continuous “chain” of all transactions since 2008. A chain that is virtually unhackable because all the miners agree and are incentivized to a proof-of-work standard that is represented by the longest chain.
What Bitcoin represents, in a revolutionary way, is a vector out of the current banking and fiat money system that simply does not work for the majority of us and steals our time. One of Bitcoin’s fundamental and most important features is its inherent trustlessness. Typically, we look to our institutions (the bank, the government, the Federal Reserve) to verify and act as a trust medium when exchanging money to other people or paying for things. Over time, we’ve seen how these institutions fail us and render themselves untrustworthy. If you lived in Greece during the 2008 recession, you’ll know what I’m talking about. If you don’t, imagine that you had $10,000 in your bank account, but because of fractional reserve banking, your bank doesn’t actually have all of your money on hand (they lend it out) and you are only allowed to withdraw $100 a day of your own money due to the insolvency of the system in a crisis. How upset would that make you?
One of the attractive things about Bitcoin is that you become your own bank, exercising total freedom over your own finances in a situation where no government or bank can tell you what you can do with it, how much you can have of it, and is nearly impossible to confiscate or control.
Because Bitcoin operates on a public blockchain, everyone can see everyone else’s transactions and amounts. Think of it like your bank account made public, but less scary because everyone else’s bank account is public too, and kept verifiably honest by the nodes and miners that operate the blockchain. Once you get used to having removed the issue of trusting a third party out of the equation, things get much simpler and, to my mind, more peaceful. No more paltry interest rates. No more insufficient funds fees. No more chargebacks. Bitcoin is pure monetary energy in cyberspace where the only person you really have to trust is yourself.
Bitcoin is also deflationary in nature, solving the issue of endless money printing that I outlined earlier. As we approach the fixed final amount of 21 million Bitcoins, it retains its store of value because one cannot simply “print” more Bitcoin. If your $50,000 net worth is in U.S. dollars, the value of that money over time in terms of purchasing power is decreasing at a rate of 15%-20% a year, never mind the fact that you have no idea how many trillions of inflated dollars your net worth is out of. If your $50,000 net worth happens to be in Bitcoin (which at the time of this writing is about 0.89 Bitcoin), you know it is and will always be 0.89 out of that fixed supply of 21 million.
It is easy to get lost in the noise of the price discovery and talks of volatility happening in the Bitcoin market, but I would suggest here that it is fiat money — for us Americans, the U.S. dollar — that is volatile, decreasing in purchasing power at a rate of 15%-20%, while Bitcoin — which certainly experiences and will continue to experience huge price swings as it eventually reaches a point of stability in ten or so years — has appreciated at a rate of about 200% a year for 12 years running.
Forget the price for now, it’s irrelevant, a non-factor. My argument is not one of speculation, getting rich quick, or buying Lambos (part of an oft-used meme of Bitcoin since its inception). My argument is more philosophical and ethical. Mainly: do you want to live in a world in which a handful of powerful people get to print more money (just not you), or a world in which no one gets to print more money, including you? Shifting from the fiat standard to the Bitcoin standard takes time, dedication, and resources in order to understand why everything about the current system we so erroneously embrace and return to time and time again is so very broken, and why Bitcoin and the financial freedom and security it provides might be the vector out toward a future that emphasizes autonomy, decentralization, and making sure our time is well spent and well guarded.