“The issue is always the same: the government or the market. There is no third solution.” – Ludwig Von Mises
One of the most common questions that I always get as a Bitcoiner is, “Why do you think Bitcoin is going to be successful?” or, put another way, “Why do you Bitcoin?” Each time this question is posed my mind immediately starts racing as a thousand different answers start to fill my head. If you have been down the proverbial rabbit hole, you probably have an idea of what I am talking about. There are a million ways to answer that question, but I decided to pen down one of the reasons why I am convinced that Bitcoin will not only succeed as an alternative monetary system but that it will ultimately replace the present fiat monetary system.
Before diving into answering “Why I Bitcoin”, there are a few key factors I must briefly point out. First, it’s worth noting that there are two competing economic ideologies in the world namely; free market capitalism and communism. Under a truly free market system, private property is legally recognized, and the accompanying property rights are also legally protected. The customer is at the centre of all economic interactions, and he/she gets to choose where to spend their money based on which product/service best suits their needs. Furthermore, legal business transactions occur between consenting parties without any state-imposed prejudice or interference. Everything from interest rates (i.e. the cost of capital), cost of labour to the prices for goods and services are solely determined by the market. Unfortunately, there isn’t a country in the world today that fully practises free market capitalism. Most countries that purport to be pro-free markets only pay lip service to it and are more enamoured by the idea of “occasional state intervention” in the economy where necessary, i.e. communism.
In a communist system, private property is non-existent as it is all controlled and owned by the state on behalf of its citizens. The state is god and has absolute control over every aspect of the lives of its citizens. Instead of the customer being the centre of all economic activities, everything revolves around the state. The state is the conductor, regulator and largest consumer within that particular economy. Capital flows are controlled and directed by the state through various government agencies that are actively involved in centrally planning the activities of different sectors of the economy. If the market deviates at any point from the objectives of the state, different levers are used to try and induce a “reversion to the mean” as defined by the comrades in charge. Tools such as price controls, lowering/raising interest rates, tax incentives, subsidies and the like are usually deployed as mechanisms of economic control to whip the market back into line. The implicit assumption of every centrally planned economies is that central planners are omniscient or, as economist Frederich Hayek stated:
“The economic problem of society is thus not merely a problem of how to allocate “given” resources—if “given” is taken to mean given to a single mind which deliberately solves the problem set by these “data.” It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality.”
In other words, knowledge of different parts of the economy is decentralized and distributed among numerous economic actors, therefore it’s a fallacy of monumental proportions to think that there is a particular group of central planners that are not only all-knowing but also capable of responsibly and intelligently using that information. Unfortunately, this aforementioned economic ideology is what dominates the world today. State interventionism is seen as responsible economic management, but as the Mises quote above highlights, this is merely communism in disguise.
Understanding these two basic maxims is key to deciphering what Bitcoin represents and why it’s fundamentally distinct from the fiat system. Today we are slowly starting to see a repeat of the 2008 financial crisis, with three banks having failed so far this year. As, at time of writing, First Republic Bank, a bank with an estimated $100 billion to $200 billion in deposits, has been put in receivership, with rumours circulating of a potential buyout by JP Morgan and PNC. Of course, these “buyouts” will be backstopped by the government. You didn’t expect them to go all in like it’s a free market now, did you? Furthermore, banks like Credit Suisse get to be rescued under the “too big to fail” mantra. Let’s not even begin to mention the $6 trillion that was pumped into the economy in the last three years alone by the Fed as a way of trying to cushion the people from the effects of the Covid-19 lockdowns.
State interventionism in the economy produces a distorted and inefficient market that, over time, requires even more state intervention to prevent it from collapsing. As you might have noticed by now, this government intervention in the form of bailouts or “credit lines” isn’t for everyone but the politically connected few; everyone else has to deal with the realities of the market after all, that is capitalism, right? The classic “privatize the profits and socialize the losses” thing. It’s this preferential treatment of some firms and/or individuals that has not only resulted in the breakdown of trust for institutions like the central bank but also in the economic tailspin that the world finds itself in today.
Don’t get me wrong, I am not in any way suggesting or advocating bailouts for anyone, I am merely pointing out the hypocrisy of the central planners that pay lip service to free-market principles while they are communists at heart. This disparity has led to protests like the Occupy Wall Street movement that sprung up in the wake of the 2008 financial crisis and subsequent bailouts that were given to the architects of the crisis, as well as the general rise in the appeal of communism 2.0 popularly known as “democratic socialism”. Whilst all this was happening on 31 October 2008, Satoshi Nakamoto published the Bitcoin White Paper on metzdowd.com’s Cryptography Mailing List. In the paper, not only did he succinctly describe the problem with the current financial system while redefining money, but he also presented a solution to the Byzantine Generals’ problem that had plagued computer scientists for many years. The rest, as they say, is history.
“I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party.” – Satoshi Nakamoto
Which brings me back to the question, “Why do I Bitcoin?” and my answer to this is simply this; Bitcoin is rational. There is nothing rational about the way our current financial system operates. As a centralized system, the fiat monetary system requires that we place our faith in men and institutions that have historically proven to be unsustainable and corrupt. Everything from the boom and bust cycles within the economy, ever rising cost of living, the closure of the gold window in 1971 down to the fact that we are comfortable turning over the reins of the global economy to a handful of people known as central bankers, with the hope that these central planners not only know what’s best for the global economy down to the minutest detail (something Hayek has already shown to be impossible) but that they will also do what’s best every time; free from political interference and bias. This is no different from believing in the tooth fairy, yet here we are. Not only is this collective belief and trust irrational, it’s also potentially dangerous if these individuals and the institutions they run are to be captured by people with Malthusian objectives.
It’s irrational to have a financial system that can only grow via credit expansion as opposed to via innovative production. It’s irrational to have a financial system that pushes everyone, (in addition to their day job) to also become an investor to safeguard their wealth from inflation, it’s irrational to have a financial system that is deemed to be capitalistic in theory, but that’s communist in practice, it’s irrational for a few men to have control over the cost of capital as opposed to letting the market decide what this will be. It’s irrational to participate in a financial system that is based on time-theft. In the words of NYDIG CEO, Ross Stevens,
“..the same way that a stock certificate is title to a company’s capital, money is title to human time…If you give anyone the power to print money, they will print money. A tool that can command human time is an object of great temptation. Too great. I don’t question that central bankers are well-intentioned – I strongly believe they are – but I also know what Lord Acton said about absolute power. It’s human nature, not finance or politics.”
It’s irrational to give these same people absolute power to issue money at will thus distorting the value of our time and labour in the process. Satoshi articulated this problem accurately when he said, “The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.” Despite the apparent trouble brewing in the banking sector, with most banks being technically insolvent, we are being gaslit to believe that the “banking system is sound” even after Moody’s downgraded it. In short, fiat is irrational because it requires us to trust the untrustworthy while hoping that this time it’s different.
“Once you ask yourself “What is money?” Bitcoin will make sense.” – Misir Mahmudov
In his classic book, Principles of Economics, Carl Menger beautifully and accurately laid out the origins of money this way:
“Money is not an invention of the state. It is not the product of a legislative act. Even the sanction of political authority is not necessary for its existence. Certain commodities came to be money quite naturally, as the result of economic relationships that were independent of the power of the state.”
This idea is in sharp contrast with the present-day status quo, where not only does the state have a monopoly on the issuance of money thanks to legal tender laws, but even the idea of anything being money that doesn’t have the state’s blessing is deemed to be heretical. The implicit assumption being that money cannot exist without the state. Nothing could be further from the truth. Bitcoin didn’t emerge from a nation-state or a central bank, it emerged as a solution to the problem of trust (or should i say mistrust) plaguing our present monetary system. It’s a market solution created to address the problem with all state-sanctioned monies.
There are no laws that force anyone to use or hold Bitcoin. People that see its value and utility voluntarily hold it as well as trade with it, and people that deem it to be useless or valueless, don’t. No coercion is involved in either direction, with no central authority controlling or manipulating its issuance, and no middlemen required for its transmission from one person to another. A pure free market invention that “came to be money quite naturally, independent of the power of the state”, that doesn’t require any trust to be placed in the untrustworthy, therefore making Bitcoin rational.
In his Communist Manifesto, Karl Marx outlines ten measures through which private property would be abolished. Measure number five states:
“Centralisation of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly.”
In short, according to Marx the establishment of central banks was a necessary step for ushering in communism. Not only would this further empower the state against the individual, but this would ensure that the state’s centrally planned objectives would be prioritised unhindered. As an institution that is in alignment with communism, is it any wonder that central banks would be opposed to the idea of a free market solution like Bitcoin? As proponents of central bank Marxism, they see it as their birthright to determine what we use as money, even if it’s against our will. That, to me, is also irrational.
Since 1971 the world has been living through a monetary experiment where all fiat currencies globally are by-products of money creation by circulation credit expansion, not backed by real savings or deposits, monopolized by central banks. Not only has this resulted in the acceleration of debt slavery but it has made individuals, companies and governments to be dependants of the cheap credit flowing from the money printer, thus less productive overall.
Unlike fiat, Bitcoin, which is simply “printed” into existence at zero cost Bitcoin is anchored to the real world by the energy used to mine it. This energy anchor becomes a bridge that connects the digital world to the physical world and by reconnecting energy production to the monetary system via Bitcoin mining, Bitcoin incentivizes the utilization of stranded energy as well as efficient energy production. As efficient energy production increases, so do the living standards of humanity. That, to me, is rational. Bitcoin is the best tool we have so far to get rid of central bank Marxism once and for all, which has been a cancer on human flourishing ever since it reared its ugly head.
Bitcoin was built on the idea of ending the reign of central banks and fiat money, which is an important step in protecting against unrestricted state tyranny. As a by-product of central bank Marxism, fiat money is both irrational and anti-human flourishing in all its facets because it’s a system that guarantees an ever increasing cost of living despite the technological advances that have been made to make us more efficient. As a rational human being comparing the two monetary systems, it’s immediately clear which one is more rational than the other. In conclusion, apart from Bitcoin, there is no monetary system today that has a predictable issuance schedule, fixed money supply, decentralized, censorship-resistant and that is free from the state’s control. That’s why i Bitcoin; it’s the most rational option available.