Prologue
First, I would like to make clear that I am not against capitalism, neither am I against socialism, or communism, or even monarchism. Neither do I believe that money is evil.
I think that as humans we are somehow wired for self-destruction. Or maybe that is something hard-wired into all living organisms. At first, animals were deemed incapable of self-harm (that is, suicide) until proven otherwise by animals in captivity (and even then some scientists argue it is not suicide). If an animal in captivity can inflict self-harm because it cannot adapt to its environment then shouldn’t it be reasonable that the same is possible to us humans? We just don’t seem to be able to recognise it ourselves, much as an animal in captivity doesn’t understand its own situation.
The invention of currency was a good thing for humanity, it allowed human society to move beyond a barter system into a more advanced economic system, and it has done a good job for hundreds of years. It is only recently that money has taken a more sinister role. Although it’s not money that is the problem but rather 2 distinct problems surrounding money:
- Advanced economic tools exploiting the current form of money,
- The death spiral of inflation. AKA The real cause of inflation.
We may not realise it, or maybe we are closing our eyes wide shut, but our lives are controlled by a current financial system that is a Ponzi scheme first and a pyramid scheme second. Fractional reserve banking is the proof. Then we have evermore clever financial tools like loans being sold and then grouped to create income producing assets of varying risks which are then sold off again or used as collateral to procure loans.
On top of fractional reserve banking, we have an unsustainable financial model that sends our economy into a death spiral. The symptom is well known as inflation, we have monetary inflation and price inflation. Monetary inflation caused by an increase in the supply of money, and price inflation by an increase in prices (duh!). One common cause of price inflation is when a base commodity has increased costs, like oil, labour, electricity, etc. But in my view, the most common cause of inflation is due to the cost of financing. When you have fractional reserve banking then you have a whole economy running on paying back debts. Paying back debts means increasing prices to cover the cost of debts. So everyone is demanding higher wages, and higher prices, to pay back debt, that pays back debt, that pays back debt, that pays back debt…. debt is the true evil, not money….
Turning our economy into a “Hunger Game” meets “Jenga” meets “Chicken” vicious battle royale, where each player is careful that their demands do not destroy the economy; workers strike, cartels reduce production, house prices rise, goods and services become more expensive.
Bitcoin a reflection of what is wrong with the financial system
Bitcoin is a simple reflection of what is wrong with the current financial system. Some have called bitcoin a Ponzi or pyramid scheme, while others consider bitcoin no different than a stock or asset, controlled by supply and demand. Whatever it is, the following quote by Warren Buffet is accurate and applicable to Bitcoin and anything in general.
“The stock market is a device for transferring money from the impatient to the patient.” — Warren Buffett.
It is applicable to anything in general because all resources are finite, and with Ponzi like fractional reserve banking, we can be sure that anything with value will see its value increase in the long run.
Bitcoin is an asset but only when we deal with the smallest possible indivisible unit which is something like 0.000………0001 bitcoin. Unfortunately, it is human nature to like big fat round numbers like “1”. So when we deal with 1 bitcoin it turns Bitcoin into a pseudo Ponzi/pyramid scheme. Below is an image depicting a Ponzi scheme. The left is the original. The right has the addition of Bitcoins.
Fits perfectly like a glove. (It’s no wonder why bitcoin is sometimes considered a Ponzi scheme.) And then some FUD here and there and the market comes crashing and the schemer buys back the fractions of the bitcoin again for a cheap price, just to repeat the process.
Even if the above is not what actually happens (there is no one schemer at the top) the problem is that bitcoin and current cryptocurrencies are a “hot potato game”, where the bitcoin is passed to another person and then to another and to another, with each person selling at a higher price to earn some profit, until the market crashes with whoever is holding the bitcoin. Every stage the amount of bitcoin that can be bought becomes a smaller and smaller fraction.
The above description is in no way similar to fractional reserve banking except that both are “hot potato games”, and both involve fractions.
Blockchain a chance for something different
But the underlying technology of cryptocurrencies and smart contracts is a glimmer of hope. It opens the possibility of creating/designing a new financial system without the flaws of our current system.
With the correct ideas and backing by the people and governments, blockchain technology will allow us to construct a currency that cannot be manipulated like in fractional reserve banking and does not suffer from the “hot potato game” or “stockhodl syndrome” that bitcoin and other cryptocurrencies suffer from.
It is time we moved from away from unsustainable financial models and systems that only draws us deeper into the quagmire of everlasting debt and into a new system where wealth and currency can be created without endangering our economic independence.
We should embrace all that blockchain and cryptocurrencies have to offer and rather than apply old logic or old systems we have to encourage new ways of thinking and utilising the technology.
