The Reason for Bitcoin
By Allan Ewart
For the first time in history, all of the countries of the world have legal tender that is paper currency under what is known as the Fiat standard. Prior to the adoption of fiat, most currencies were backed by gold or silver. This meant that each unit of currency could be redeemed for it’s equivalent value of whatever commodity it was backed by, such as gold or silver.
Theoretically, the total amount of currency in circulation should always be equal to the amount of gold or silver in the government’s vaults. The currency had convertibility whereby any person with some currency could walk into a bank and demand to exchange it for the equivalent amount in physical gold or silver.
However, this ended in 1971 when President Nixon declared that the US dollar was no longer convertible into gold. The immediate affect of this was that the USD fiat currency would start to lose purchasing power due to inflation because it allowed the Government to print as many paper dollars as it liked. And it’s been doing this ever since.
The result of this is that the purchasing power of the USD paper fiat currency has dropped from it’s 100% base value in 1971 to less than 4% today, a whopping 96% drop in value. In fact the real intrinsic value of a paper dollar bill is almost zero, as this equates to the cost of printing physical notes. It’s even less when you consider that most currency is digital and can be brought into existence at the push of a computer button. So, when you hear someone say that the central banks can “print money out of thin air”, this statement is actually quite accurate, because that is essentially what they are doing.
So, who is printing all this worthless currency? To answer that, let’s have a look at one of the (mostly privately owned) central banks — The Federal Reserve.
The Secret Meeting on Jekyll Island
The Federal Reserve was created in 1913 with the introduction of the Federal Reserve Act. This came about as a result of the now infamous secret meeting between a group of financiers and bankers on Jekyll Island (off the coast of Georgia) at the Jekyll Island Club Resort on November 20th– 30th 1910. There were at least eight conspirators who attended the Jekyll Island meeting, and they were:
- Nelson Aldrich– Senator & Chairman of Senate Finance Committee
- A. Piatt Andrew– Harvard Economics Prof. & Assistant Treasury Secretary
- Frank Vanderlip– Fin. Editor Chicago Tribune, President National City Bank
- Benjamin Strong Jr– Became 1st Governor of The Federal Reserve in 1913
- Arthur B Shelton– Private Secretary to Senator Aldrich
- Henry Davison– Partner J.P. Morgan & Co, founder of Bankers Trust Co.
- Charles D. Norton- President of First National Bank
- Paul Warburg– Partner at Investment Bank Kuhn Loeb & Co
This meeting was kept so secret that the eight men had to use first names only when travelling, and on the pretence they were on a duck-hunting trip. This was because Aldrich knew that their connections to Wall Street would otherwise arouse suspicion.
The particpants denied the meeting ever took place for two decades afterwards. However the details finally came to light when Paul Warburg revealed the information to Senator Aldrich’s biographer in 1930. Aldrich and Davison had alaready died in 1915 and 1922 respectively.
In short, the reason for the secrecy, and the result of the secret meeting was the creation of America’s first central bank and The Federal Reserve System. This allowed this private consortium of bankers to control the money supply. It’s interesting to note that the assumed “boss” of this conspiracy, aka “Kingpin” Senator Nelson Aldrich, had ties (through the marriage of his daughter) to John D. Rockefeller Jr.
Removal of The Gold Standard in 1971
The reasons why President Nixon took the US off the gold standard in 1971 have long since been debated. Some say it was a big mistake. Personally it is my belief that it was all planned as a very deliberate ‘mistake’ to allow the central banks to print as much paper currency as they wished whenever they felt the need to control inflation and the money supply for their own ends. The dire consequences and ramifications of that decision have become all too apparent today with a collapsing global economy.
But how does all this relate to cryptocurrency?
Bitcoin
If we consider the underlying reasons why cryptocurrency came about initially, and the timing of it. To quote the original Bitcoin Whitepaper by Satoshi Nakamoto:
“No mechanism exists to make payments over a communications channel without a trusted party. What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.”
Bitcoin was launched in 2009 (I became aware of it 2011) just after the banking crisis of 2008. It became clear that our system of banking and the prevailing economic model had failed spectacularly. The central banks resorted to printing unlimited amounts of paper fiat currency in a futile attempt to try and “prop up the global economy”.
The ‘trusted third party’ that Satoshi was referring to was the centralised authority known as The Central Banks. The thing that became all too apparent in 2008 was that this third party could certainly not be trusted. So, what was needed was a Decentralised TRUSTLESS mechanism for payments and communications. Enter Bitcoin.
The original idea behind Bitcoin, was that it was designed to be decentralised, meaning that transactions are not controlled by a centralised authority. In the traditional banking system all transactions are controlled by the central banks and the central bank of central banks — known as the BIS (Bank of International Settlements).
A decentralised cryptocurrency such as bitcoin, which is built upon a distributed ledger known as a blockchain was designed to allow transactions to be made with no central authority interference. It is to afford us the personal freedom and liberty to transact with whomever we wish, whenever we want and wherever we are as cheaply as possible. Even although there are issues arising such as transparency, privacy and security, that at least was the theory behind it.
Now, whereas centralised Governments and regulatory authorities will want to try as much as they can to take control of it, they cannot because it’s simply not possible to just switch off a distributed network like bitcoin. Of course it is inevitable that the central banks would finally lose control of fiat because that is what happens, and has happened to every fiat currency ever in history. They always return to their intrinsic value of zero, without exception.
So, there now needs to be a replacement for fiat globally before they all arrive at zero. Therefore, it is looking increasingly likely to me that cryptocurrency could be that replacement, as well as (possibly) some type of precious metal backed digital assets.
Like gold, Bitcoin has a limited supply and has to be mined into existence. But it can also be sent as a transaction across the world almost as fast as an email. It is digital, decentralised and has inherent underlying distributed ledger technology. Blockchain technology that can be used in ways that haven’t yet been thought of, built upon, secured, speeded up and improved.
Reference Material:
Aldrich Plan 1910
http://www.let.rug.nl/usa/essays/general/a-brief-history-of-central-banking/aldrich-plan-(1910).php
The Creature from Jekyll Island : A Second Look at the Federal Reserve Paperback — May, 1998 by G. Edward Griffin (Author)
The Meeting at Jekyll Island — Federal Reserve History
https://www.federalreservehistory.org/essays/jekyll_island_conference
