Bitcoin: The Moral Imperative (1/3)
This is the first of a series of 3 articles:
The first one focuses on the current issues with our monetary system.
The second one looks at how Bitcoin can fix this.
The last one aims at addressing typical concerns about Bitcoin.
For me, it all started with one question.
“How is Money Created?”
For many other people, it starts with:
“What is Money?”
The ability to question things, and think critically brought all Bitcoiners together, with the same incentives and the same goal. But why?
No one asked us to spend hundreds of hours studying bitcoin. We could have spent all this time doing all kinds of things, but the thrust to learn, to uncover some lesser-known facts of history, understand how the fiat system works, and to get a deeper understanding of human societies turned into an unstoppable passion.
Wait, how is Bitcoin related to all of this, isn’t this just some type of database software?
Yes and no. Think of the printing press. It was physically just a modest arrangement of wood, ink and metal letters. But this unleashed an irreversible new era of society. It allowed the spread of ideas outside the monopoly of the church. Ideas could spread faster and cheaper, at an unprecedented new scale. Science developed, ideas which were banned got adopted by society, and some argue that this led to the separation of Church and State.
So if a simple set of wood, ink and metal can fundamentally change society, it is not inconceivable that another invention, this time in the digital age, can also achieve an impact of similar magnitude.
Where am I going with this? Well, Bitcoiners saw a truth about how the world could change based on the Bitcoin monetary network and the bitcoin asset. We want other people to know and learn as well. That’s why we are so eager to chat about Bitcoin all the time, and even write articles about it. But before we move onto how Bitcoin can fix things and improve the world, let’s take a step back.
Our Current System is Broken
By “system,” we’re referring to the Fiat System, where the value of our currency isn’t backed by a physical commodity like gold, but by the trust we place in the government issuing it.
Saving is Impossible with Fiat Currency
Let’s start with the loss of purchasing power. With fiat currencies, the currency supply constantly gets debased by all governments around the world. This debasement devalues decades of millions of people’s hard work into worthlessness. You can wake up one morning in Argentina or Lebanon and have half of your life’s work thrown away by a political decision of currency debasement (aka “money printing”).
Or in richer countries, ordinary people are forced to become an investor just so that they can maintain their wealth. We literally have a handful of people in each country who have the power to make everyone poorer the next day, by diluting all their wealth. Just this week as I’m writing this article, the Turkish lira lost 16% against the US dollar, which is required for all imports.
In Argentina as well, there are stories of people buying dishwashers as a store of value. They will buy a few just so that they could resell later, as they couldn’t see a better option to protect their savings.
The increase in the cost of living can easily be blamed on something unrelated to the monetary system. The reason that is never mentioned by the mainstream media is money printing. We can easily blame supply chain issues or the war in Ukraine, for example. Besides, after multiple generations of people living in the Fiat system, people EXPECT prices to increase. It is not even questioned by most people. It is just one of those rules you learn early; prices increase, and you have to either invest carefully, get a promotion or work more just to maintain your lifestyle.
The dirty secret is that all central banks around the world coordinate their policies, so that this wide scale robbery is harder to detect. Some of those policies are aligned as part of the Bank for International Settlements (BIS). Indeed, if the USD is devalued by 10%, and the euro by 15%, people may just see that the Euro lost 5% against the US dollar, while in real purchasing power terms, they will eventually lose 15%. If half of the countries never devalued their currencies, the trick wouldn’t work anymore.
At times, the stark reality of money losing all its value becomes evident when the intrinsic metal value of the coins exceeds their face value. This was the case in Argentina, where some individuals resorted to melting their coins to sell the metal, which had become more valuable. Nevertheless, this practice is often deemed illegal, thus denying people the opportunity to salvage value from their currency.
The Rich Get Richer by Design
The barrier of entry to own assets may be high. For example, houses typically require 20% down deposit, which is a barrier ever and ever more difficult to attain. If salaries rose at the same pace of inflation, it wouldn’t be an issue, but we all know this isn’t the case. People who already own assets, such as a house, are not only immune to those issues, they BENEFIT from currency debasement. So at a high level, people with many existing assets who are already on the right side benefit, and people in power (typically also with lots of assets) have incentives to debase, and we can see this as a corruption of everyone’s money. Bob Marley isn’t known as a philosopher, but he said: “If something can corrupt you, you’re corrupted already”. He was right, and this is our current system.
The method by which new money enters the system inherently favors the wealthy. Individuals in positions of power often have proximity to the “money printer,” which means they are the first recipients of the freshly minted liquidity. This might be due to their ownership of banks or particular hedge funds. The allocation of new money is largely dictated by political decisions at the government level, and by banking institutions once the money reaches them. This privileged access allows these elites to invest in other assets ahead of the general public. This phenomenon, known as the “Cantillon Effect,” constitutes a notable inequity in the system.
A Wide Scale Robbery
At a relatively small level, banks are able to charge you on things they don’t even have. When you take a loan, the bank doesn’t even have the money. It just has, as an industry, an exclusive right to to give you money out of nowhere and earn interest from it. Even worse, they can decide on conditions for the loan even more to their benefit, such as forcing a portion of this money to be invested in some of their other products. Morally this is incredible. If we were to create a new system, no one would be in favor of special types of people who somehow got the right to create money with a few clicks on a computer, while everyone else has to actually provide work for it.
This also applies to governments. Almost no government in the world has a balanced budget. While they do have some tax revenue, they fund government agencies and programs also using new debt. People deciding on new debt don’t really spend their own money, but it dilutes the monetary units of everyone and robs citizens via inflation over time. The percentage of the budget allocated to debt repayment keeps on growing and isn’t sustainable. People being born today are at a huge disadvantage compared with older generations, as the debt the government will have to pay back during their lifetime, for programs decided by their parents, is much bigger than the older generation had to pay for. This is a highly immoral robbery of the younger generation.
Fiat Money Leads to Loss of Freedom
The second order effect is that democratic governments have to get more and more tyrannical, as society gets poorer, to maintain the social order. They could actually fix issues to stay popular and be re-elected, but it is easier to control information via cheap propaganda and social order by force. And guess what, If there was no ability to create new money out of thin air, governments could raise taxes to get more funds, but only to a certain point. Otherwise people would either rebel or leave the country. We do know that 100% tax is slavery, but there is a big range between 0 and 100%.
You may say that many countries are way better off today than they were 50 years ago, and it is true. How could this be if there was a fundamental problem in the system? Actually, they did well despite the system! Gains in productivity is one way for countries to improve wealth, but that is still effectively running up an escalator going down. If you run fast enough, you can still make it to the top despite the escalator moving in the opposite direction.
In the current Fiat system, the government can easily have more money just by printing it. It might take a few months for prices of goods to increase, because the newly printed money needs time to flow through the economy. The speed at which it flows is known as the “velocity of money,” which simply means how fast money is being used in an economy.
As people work ever harder for ever smaller purchasing power returns, this leads them to working to a much older age. Countries around the world increase the retirement age, and we don’t really see a solution to the end game where people basically have to work until they physically can’t.
Additionally, when countries go bankrupt, typically they get a “bailout”. It is in the form of a new loan from the International Monetary Fund (IMF), who typically gets to dictate their conditions, which means a few people part of this organization decide on key aspects of other countries’ politics and monetary system. Over time, this gives full control of strategic aspects of society to unelected people.
Freedom is also impossible without freedom of transaction. A transaction between two people is a form of communication, and a critical way for society to work with a free market. If some entities control who can pay who, when, how, and by which amount, this places a gateway for human action. It can restrict where resources go, what business can live, which activity people can do.
The free market is a necessity for freedom. Without the free market, we also have gateways on human actions, which sometimes goes against the benefit of the majority of the population, as the controls are decided by the few for their advantage. We keep hearing how great the free market is, and the value it provides for the economy and society, so why is the free market not allowed for currencies? In most countries, merchants are forced to accept the official currency, it is not a matter of unbiased economical choice, and in various cases merchants would also not even be allowed to accept another currency.
At its worst, there are stories of people in an African country who were arrested for holding a 20 dollar bill. The strange part is that this may appear normal for most readers that the state controls currency acceptance so closely, but this is actually an anomaly in history. For most of history, people decided to use gold and gold coins, from a set of different empires. But they could run their business and decide to earn with any money of their choice, including silver. It is only when paying taxes that the rulers decided how they wanted to be paid.
Fair enough, everyone should decide how they want to be paid, not just rulers. However, forcing acceptance of a currency creates fake adoption signals and artificially makes it more valuable. It distorts the true value people would normally assign it, and delays or prevents adoption of better money which would normally emerge.
Recently, in the USA, an organization created the Liberty Dollar: a set of gold and silver certificates were issued with fully backed reserves. The creator got charged with federal crimes and the organization was forced to stop after a raid from the FBI and Secret Services. Once again, freedom of choice related to money isn’t really allowed, or only allowed to the point where it can become an actual serious competitor.
The end game of fiat currency control is a Central Bank Digital Currency (CBDC) where a government could veto any action you take. Imagine that if you participate in an important protest, and the next day all your funds are at risk of being frozen, you would think twice about participating. This applies also to your freedom of speech. In China, posting something which doesn’t follow the government narrative can deny your freedom of movement, and place financial burden on your family (no loans being approved for example).
Fiat Money as a Typical Funding for War
War is incredibly expensive, and that’s certainly a good thing. It creates a natural barrier for states to even consider starting a war, as opposed to resolving conflicts via diplomacy, or other means, such as economical pressures.
Unfortunately, the ability to create money “for free”, in particular via War Bonds, is a typical way for states to get funding for war, in addition to foreign loans. Both of those would be either impossible or very rare on a sound money standard. The ability for a state to print its own money would be impossible, and loans would be either non-existent, or considered a much more risky endeavor than today.
You Don’t Actually Own Fiat Money
We saw in the earlier paragraph that people’s funds could be easily frozen. That is because what you thought as being “your money” was actually always a form of credit. If you actually owned your money, then you would be in control of it, meaning no one could take it from you.
Additionally, when you check your account balance, the bank also doesn’t really have your money. With fractional reserve, they may only have a few percent of the amount in their reserve. Sometimes none. In Lebanon, one person needed to withdraw his money for his father’s medical surgery. The bank wouldn’t give it to him, and he actually resorted to a bank robbery on his own bank for his own money. (Bassam al-Sheikh in 2019)
In Nigeria, and an ever growing number of other countries, limits placed on cash withdrawal make it effectively impractical. It could take months for people to get the amount of their own money they wanted to withdraw, as the limits were so little. Wire transfers sometimes are not approved because of some obscure reasons, or are reversed.
You may think once people have cash, then they wouldn’t have all those problems. However, the bills you think you own are still the property of the government. In India for example, the law changed and all of a sudden some specific bills of higher denomination were not legal tender anymore. People had to place them back into the banking system. You could keep it as cash, but then it would be worth zero and not accepted anywhere anymore. Once again, you do not own your money, someone else gives you credit and the right to use it.
A Tightly Controlled Walled-Garden
In Algeria, capital control rules are so strict that it makes it often impractical for business owners to pay their service providers abroad. Regulations in the use of money are killing productivity. Citizens are trapped in their local monetary system. We could list dozens and dozens of countries with similar issues.
Even when people are allowed to transfer money internationally, transaction fees sometimes make it impractical. The receiver may only gets half of the original money due to all the intermediaries being used in the system. This also disproportionately affects poor people. Imagine if you have a 20 dollar fee for a 100 dollar wire for example.
So much value would be lost by conversion costs and service costs, as well as conversion rates below market prices. The process could take weeks, even months in the worst cases. As a side note, the final settlement time is actually infinite, as a government can decide to reserve or seize assets even decades later. Did you think Russia actually owned their USD reserves?
In the western world, this isn’t something people have in mind, as citizens have the privilege of having their country better integrated into the worldwide monetary system.
This seems all a bit negative. But thankfully we have a solution!! Bitcoin!!!
Get ready for part 2 soon. Let’s Fix the Money!
Special thanks to @luckyjujubee and Cyril G for helping out on this article review!