The United States of Bitcoin
Why BTC+USD is an All-American Pairing
Tl;dr: The US Constitution decentralized power, bitcoin does the same for finance. The combination of USD for spending and BTC for savings could spread financial freedom around the world.
Bitcoin is a technology which has gone from being a concept on a chat group in 2008 to global “boomer money” held in highly regulated and notoriously conservative 401k accounts, and soon coming to your local credit union. By 2019, the technology had grown bigger than GE, IBM, Goldman Sachs, Deutsche Bank, The Russian Rubble, and The Canadian Dollar and by 2021 bitcoin crossed $1 trillion market cap, approaching the valuation of the largest tech companies in the world. How and why has this strange internet money skyrocketed so quickly, and why should Americans care?
Monetary freedom is among the most fundamental freedoms for hard working people—the right to hold money previously earned for use at a later date. Americans with retirement accounts or invested savings take this freedom for granted. Around the world, many human beings do not have a legal way to store savings without having a significant portion of their money taken from them over time.
Certainly, USD-denominated savings accounts have offered great freedom for generations as compared to other government fiat currencies, and equity markets have done even better. However, the so called, Petro Dollar has a dark side: it is the antithesis to individual financial freedom in many ways when compared to bitcoin, in particular.
The dollar, as a technology, is built on units of debt—fractional reserve banking allows banks to print new dollars to increase credit lines. These credit lines are the life blood of our economy. The dollar also depends on some level of inflation since government can’t help but print cash to stimulate the economy and fund their pet projects. Money stored in dollars thus erodes over the long-term: $100 stashed away in 1971 is worth only $15 today in terms of what it can buy. That is hardly a secure means of long-term financial storage, even if it is much better than some countries that have experienced runaway inflation.
As per The Cantillion Effect, it is important to also consider who gets the dollars when they are first “printed” at the Fed. For newly minted USD, weapons manufacturers (the military-industrial complex) receive the lion’s share of newly printed dollars. More missiles produced means more missiles in use. Some human rights supporters thus assert that BTC is America’s best chance to invest our money in line with the ideals of our founders.
Against the Monarchs, Centralization
Despite our ideals, America is facing a crisis as global corporations unite to capture governments. The super-mega-corp is becoming the new global superpower, more powerful than the nation-state, representing more users than any country, and thus a real threat to democracy. The CEOs of these companies are the new monarchs, with wealth and power and surveillance abilities beyond the wildest dreams of any historic dictator.
The trend of fewer humans owning more wealth cannot continue without repercussions. Our democracy becomes more fragile with such consolidated power. “Too big to fail” dynamics privatize profits and socialize losses, i.e. the ruling class plays “heads I win, tails you lose,” gaining as much wealth when their businesses fail as when they succeed because they receive bailouts of newly printed bills. That is quite simply un-American.
Taxing the rich is not going to fix the accumulation of wealth at the top, as the billionaire class will just borrow against their own investments to access cash and avoid taxable events, all while enjoying interest tax credits. Likewise, policing large corporations will only produce marginal benefits as long as the penalties they pay are a small fraction of the money they make with insider subsidies, bailouts, legal maneuvers and accounting scams. Not to mention that giving government more money when government is captured by corporations makes little sense.
Bitcoin is not like any other major tech corporation that dominates from their Silicon Valley headquarters. As more and more wealth is stored in the network, we shift power away from the bloated financial sector where stock value and accounting tricks matter more to CEOs than quality products and services. Bitcoin operates much more like public roads and bridges and other utilities, but across borders and without the need for government spending or taxation. It is specifically designed to be a ubiquitous utility in a digital age. An age that shares many ideals with the authors of America’s Constitution in terms of shifting power from the few to the many (decentralization).
Bitcoin-based savings accounts are here, and they are clearly a step in the right direction if America will continue to represent the values of our Founding Fathers. Bitcoin adoption implies economic freedom—the right for anyone to have full control of their savings, where savings increase in buying power over time when compared to high velocity cash currencies.
It is important to keep repeating the radical idea that bitcoin has no sprawling corporate headquarters, no guns or armies, no need to go after hackers. The preventative security model of open source code beats the ad hoc defense model of military might. The programmatically preset monetary policy beats the prognostications of central bankers and the journalists that read like astrologers into the color of a banker’s neck tie, worn while giving a public statement on interest rates.
There is no network on the planet as secure as bitcoin. That is only possible when a platform is ownerless and decentralized and secured using processing power and a global crowd running nodes that all verify each and every transaction. Bitcoin is powered by the “people power” advocated for by The Black Panther Party as well as The Constitution—the idea that our power in numbers is greater than any other power, if we can harness it. Bitcoin has done exactly that.
The sheer number of independent operators in undisclosed locations around the planet outperform even the US Armed Forces when it comes to digital security. Bitcoin ignores political boundaries, spreading freedom around the world wherever there is a somewhat geeky freedom fighter who can set up a node, or an informed professional who is building a nest egg in Sats.
Hackers can never access all of the countless and independently operated nodes. Even if a major power like China were to invest hundreds of billions of dollars to gain majority control over mining operations to push through a single fraudulent block, everyone would see it happen in real time.
Recent news suggests we are going in the opposite direction as China exits bitcoin by shutting down their miners. By welcoming use of bitcoin in the USA, regulators can launch the bitcoin-dollar duo just as the petroleum-dollar duo dominated industrial finance. Petroleum being priced in dollars has helped support USD being a global reserve currency; by ensuring that BTC are held by Americans and traded on American exchanges would help maintain USD dominance globally as an important cash instrument.
The Chinese mining pull out was a huge gift to the U S of A. Happy birthday! Now bitcoin is officially and undeniably decentralized. China’s dominance, if only in this one regard, just evaporated. China is standing up to announce their conviction that centralization will win over decentralization. Certainly top-down power has it’s advantages, but I’m placing my bet on the latter in a digital context. My heart goes out to all those citizens in China who will be deprived of the top performing long term savings instrument of all time.
Deflationary by Design
The fact that bitcoin is designed to be deflationary is a type of security unto itself, protecting from loss over time via inflation. The Fed doesn’t dispute the fact that dollars will experience inflation over time (they have a non-zero USD #InflationRate target). Bitcoin, on the other hand, is hardwired to be a deflationary monetary instrument. Demand a #DeflationRated for your nest egg.
In other words, BTC is designed to go up in value over time because no human(s) can print more than the 21 million coin limit. On top of that, it is not designed to make any individual or incorporated group of individuals lots of extra free money. Anyone can buy bitcoin on markets that are themselves becoming too big to fail. In this case bigger is better, because a deeply liquid marketplace ensures fairness by reducing manipulation.
Bitcoin welcomes anyone who has a nest egg of any size, and once hard working people experience a savings account where they fully control their funds and where those funds grow in value over time, demand for such a product is sure to continue to grow as it has been over the past decade.
This is not Wall Street money, nor Main Street money. Bitcoin cares not about Streets. Nor is this anti-Wall Street money! All sorts of people own BTC whether they like it or not. It’s simply foolish not to since the value goes up over time so reliably. Hence the 5% BTC opportunity for 401k plans and the credit unions coming on board and all the major banks offering bitcoin investment to their high net worth clients. Not allowing some BTC in a retirement portfolio is increasingly seen as a violation of fiduciary responsibility by those who manage money professionally.
Consider that a retirement account that invested just 1% of its portfolio in BTC would have become 80% bitcoin in just a decade (absent rebalancing). That’s how much faster bitcoin grows over the long term than other assets. And bitcoin’s short-range volatility suggests that we are nowhere near the top of this accelerated growth phase, after which a more modest #DeflationRate will take effect with drastically less volatility.
Consider this fact: 1% of human beings are millionaires. That’s about 47 million people. And there are only 21 million bitcoin that will EVER exist. The top 1% of society, globally, are well connected these days and share ideas. How long will it be before each one of those 47million people want their own bitcoin?
For the rest of us, the sub-unit of a Bitcoin will matter more than anyone ever owning a whole bitcoin. Currently $1 can buy you about 3,000 Sats. That’s a lot of Sats for a buck! Buy Sats, and build an anti-fragile nest egg.
But Bitcoin is Slow
Bitcoin evolves very very slowly like other protocol-level technology and transferring money can take up to an hour or more, unlike the near-immediate transactions possible at point-of-sale with VISA or MasterCard.
Consider that we want money storage systems to remain largely unchanged over generations if we hope to use these for their intended purpose. That’s what it means to be “grown up” money. BTC offers financial storage that is beyond the complications caused by politics, beyond nation states and corporations, and even beyond fleeting new innovations. That is a remarkable achievement which no other “alt” cryptocurrency can claim since they are controlled by centralized (even if non-profit) corporate owners.
ETH, for example, is perpetually changing. Today is it about to be reborn as a proof-of-stake platform, and it previously changed the rules after the DAO hack proved a vulnerability in the code. Money cannot change in such drastic ways based on the influence of a single leader, no matter how brilliant he may be. Bitcoin has no such leader and has structures that enforce a strong resistance to changes over time.
Among the DOGE and UNI and LUNA coins out there, one in a thousand will even exist ten years from now. Those that remain centralized will fade away like the MiniTel story in France or what happened with Gopher as HTTP came to dominance. When network effects are at play, centralization cannot get it done.
Crypto technology is moving so quickly it makes my head spin. Bitcoin, on the other hand, hardly ever changes so that we know for certain that it will be around for the long-term, largely unchanged.
The Other Kind of Slow
As for the second point about transaction speeds being slow, consider that bitcoin is actually designed to be slow to incentivize long-term wealth storage rather than short-term spending. If you are handling your life savings, it doesn’t matter if it takes an hour to deposit funds when you don’t plan on making withdrawals for ten years.
To wit, a comparison to VISA and MasterCard is not apropos. Instead, we should compare to other instruments meant for holding savings over time. Debt-based fiat currencies will always be fast and cheap and great for day-to-day use. Bitcoin will not crash the dollar. It is the idea of a Savings Account that is about to be redefined by the BTC network, not cash currency.
How about real estate? Gold? Index funds?
While these do provide historically safe ways to store money, the invention of bitcoin offers digital gold, an upgrade in terms of usability and value. Try transferring gold in a matter of hours across the planet or selling real estate as fast as bitcoin, not to mention that bitcoin outperforms these other instruments in terms of year-over-year returns. Never before has a successful human been able to carry their nest egg (of any size) in their memory as they escape a war zone. With adoption of Bitcoin, middle-class refugees will be able to retain their wealth during a political upheaval. Not so with any other type of savings instrument.
On a side-note, and unlike other bitcoiners, I am bullish USD as well as equity markets for the 2020's. I believe modern finance will open markets up for many more people and thus Wall Street offerings will continue to be in demand as billions of new investors gains access through some upstart like the Mirror protocol (LUNA coin) out of Korea. I’m not sure which of these upstart projects will become dominant, but I do expect decentralization is coming to finance beyond just savings instruments. If the USA throws our weight behind decentralization, this could secure USD dominance, globally.
How About Government Digital Currencies?
Here is why I believe a purely digital USD could gain global adoption: firsts the paper version enjoys that status already, and second who do you trust more not to mess with your account balance whenever they feel like it — the USA or China? I suspect we have a lead in this regard. Our central currency could still show a second wave of adoption, especially if Americans are encouraged to keep bitcoin savings accounts, thus increasing the wealth of our nation over time. That being said, it does matter how they design this cash—if it is a tool for surveillance, we will be no better than China and some other form of digital cash currency will bump USD out of global markets.
It is up to us to spread the word to our politicians. If we want Americans to continue as the wealthiest nation, we must offer a proper savings instrument to hard working Americans to accumulate wealth, especially in this period of aggressive government spending.
Will upcoming central bank digital currencies share their code with the world? Will they be deflationary in design? Will they be given to the public to share ownership and control in the spirit of a democracy? Will they even refrain from freezing accounts and changing balances, if push comes to shove? Of course not! But they could have built-in privacy for day-to-day spending and be fully fungible to encourage global adoption.
Can you imagine if a country hacked the US Treasury and stole trillions of US-CBDC? With each major hack, the government will need to retaliate, initiating wars in the name of economic “defense” or rewriting account balances to undo the flaws in their centralized code. Top-down, command-and-control logic will cost us our freedom and future prosperity.
By the way, even before CBDC’s, government fiat has been digital for a long time, so don’t expect too much new innovation. You can already tap a card and transfer money held in the current global banking system. 65% of the top thirty government currencies exist as data on government databases rather than bills in circulation, which comprise the other 35%. I would even argue that we have had a digital dollar since 1971 or so, when we left the gold standard to invent modern-day cash. Debt-based cash is a powerful new innovation unto itself! It is young yet and also has room to grow in adoption, if not in terms of purchasing power. Just because a coin is inflationary in design, i.e. designed to be spent quickly, doesn’t make it less useful to modern society. But without a strong savings instrument to complement the powerful use case for digital cash, none of our gains can be secured over time.
Regulation Will Kill Bitcoin
Think of a bitcoin ETF, like the one already offered in Canada. Bitcoiners tend to welcome regulation and many are already standing by to launch products like an ETF in the USA. The barrier is not regulation, but the lack thereof. It is easy to see that more regulation is coming. With new regulation will come increased comfort and clarity and new BTC-based products on the market.
Given that there are already 100 Million holders of Sats in the U.S. today, an outright ban will never happen here. That would hurt all those US voters while creating an opportunity for other countries to gain leverage over us in global marketplaces. The rich and powerful already own bitcoin, major banks and corporations do too, as do politicians. While a ban was a legitimate fear in the first decade of bitcoin’s existence, we have now passed the point of no return. Bitcoin’s $1T of (mostly US) investment is too big to ban.
Certainly some jurisdictions will be more favorable to bitcoin than others. Those that establish draconian barriers for their citizens will fail to accumulate wealth at a rate equivalent to communities with a bitcoin savings class. If you care about your nest egg, elect politicians that allow you free access to your bitcoin savings account.
Bitcoin Enables Ransomeware
Will shutting down bitcoin stop internet scams? Certainly not. Internet scams depend only on the internet to exist. Any company can protect themselves from these scams by cutting their computers off from the internet. Will they do that? Certainly not. Blaming bitcoin is no more than finding an easy scapegoat for their lack of investment in proper internet security.
Without bitcoin, internet scams would move back to USD. This alternative is much less secure or transparent than bitcoin and involves use of guns to store and transport / exchange physical cash. Internet scams asking for bitcoin ransom are less violent and easier to manage than their USD alternatives. Simply put, anonymous hackers are not as violent as armed thugs.
Bitcoin Uses Too Much Energy
This is a critical issue which we must address with some rigor. The entire digital economy requires energy to run computer processors. We must evaluate bitcoin energy usage alongside that of other digital giants. In doing so, consider that it is reasonable to spend some significant amount of our digital resources for fair and free money storage as a form of individual freedom.
Our analysis begins with an examination of the footprint of Google and Facebook and Microsoft, the gaming industry and media streaming services, including their data centers and headquarters and necessary travel of their employees. Unless we are advocating for the end of all digital technology because of environmental concerns, we must have a well informed context to evaluate bitcoin energy usage.
A proper analysis also considers the energy saved by shifting wealth storage away from the USD and other fiat currencies. Digital security is certainly less energy intensive than the physical armies required to secure fiat transfer and storage. Printed cash and credit cards have “built-in” levels of fraud with corresponding spending on fraud insurance services. Bitcoin cuts out all these ad hoc intermediaries (as well as bank branches and headquarters and giant buildings in the downtown of every metropolitan area) since it allows peer-to-peer transfer of wealth.
Bitcoin invests its resources for the single focused outcome of increased security to prevent theft, rather than investing in sales and marketing and then planning for routine theft the way a credit card company or bank must do with FDIC and other insurance.
Once again, let us be reminded that weapons manufacturers have the most to lose in this transition away from government money. Our environmental analysis must account for that important fact, as well. The US military-industrial complex, upon whom USD depends, may be the #1 consumer of fuel on the planet.
An environmental analysis will next consider some strong incentives built into bitcoin mining rigs to incentivize renewable energy and energy conservation through use of waste energy.
Like other digital technology, as the value of bitcoin goes up, the use of energy does not rise proportionally as is the case with legacy finance. For example, consider the resources required to share the first video as compared to what is required to share a much higher resolution video today. At scale, more use of a digital good become increasingly efficient. The same is true for bitcoin—the more people store savings on the network, the smaller the footprint of each savings account.
Finally, there is a strong argument to be made that bitcoin mining could actually provide a financial incentive for innovation in the use of renewable energy. Only time will tell how this plays out. Already, according to this 2018 report, 80% of bitcoin mining is running on renewable energy. That’s something the US Armed forces cannot claim as they protect the security of our currency.
In such a full analysis, bitcoin would surely represent a significant share of our digital power usage, but is still a massive environmental improvement over using USD to build a nest egg. Bitcoin could turn out to be a stronger financial incentive than programs like Cap and Trade to encourage capitalists to care about environmental energy production.
Bitcoin is NOT Like Cryptocurrencies
There is a new industry called “DeFi” where the “De” stands for “decentralized.” That name is aspirational in all cases, except bitcoin. And yet, the volatility in BTCUSD prices indicates that we may have as much as 100x left in coming decades before the market stabilizes at a steady #DeflationRate.
Just as Uber is a giant cab company that owns no cabs or Airbnb with hotel rooms, bitcoin takes this a step farther and is a too big to fail financial institution that has no branches, no employees, no headquarters, not even any intellectual property ownership.
All the other “altcoins,” billed as alternatives to bitcoin, are mostly proof-of-stake coins which require no work to print new coins and are controlled from the top down like all Silicon Valley technology, leading to a few at the top earning profits (and political power) without having to do real work (in the classical physics sense). The crypto industry players are like children playing with this new blockchain toy, hoping to get rich quick. As a form of financial storage, bitcoin is the adult in the room, especially in terms of decentralization (and therefore security). Bitcoin is a form of financial storage that demands we do actual work (i.e. proof-of-work, not proof-of-stake security) to mint real money. The result is a savings account, by the people, for the people. Every other blockchain depends on a benevolent dictator CEO who hoards most of the profits for themselves.
The odds are extremely strong that you will lose a substantial amount of wealth due to short-term volatility if you put some of your savings in bitcoin. Unless you are that person who buys at the exact low. The rest of us must be ready to endure periods of losses in the first year(s). However, after a single four-year cycle, your investment will see substantial upside with little chance of value ever falling below the original investment, in terms of USD.
Set it and forget it for five years and you will 10x your investment of any size, based on past performance. DON’T rebalance and then simply wait through the next dip. $10 turns into $100. $1000 into $10,000. Just by waiting for about five years. That is simply how bitcoin is designed to act as it gains adoption over time. Supply and demand at their most elemental.
A final warning: many scam coins have the name “bitcoin.” That is why I often write BTC, which is a more accurate nomenclature. Do research before investing! Ask for a 10-year track record before believing a sales pitch about a form of long-term money storage. Check out how complicated a tool like Terra’s Anchor protocol is to offer 20% annualized gains. While these ideas are intriguing to study, bitcoin’s simplicity and even more-so it’s track record, speak for itself.
In the past month in El Salvador, a petty politician with strong authoritarian tendencies (centralization) has adopted bitcoin. Bitcoin doesn’t care. No politician can change it’s production or decentralized architecture. Bitcoin will cause decentralization of power, even if those that help it along the way do not share that ethos. That is why major banks who decried bitcoin just a few years ago are quietly adding it to their balance sheets today. That is why bitcoin is such a massive force for democratic ideals—even those who believe in centralization of power can’t help but use it and thus spread power to the people despite their self-serving intentions. Even China had a lion’s share of bitcoin mining until very recently.
Eventually people will learn that owning bitcoin makes money over the long term. Everyone will invest some of their savings in it because of strong upside for doing so. That’s how money should work. It shouldn’t take police threat to have workers choose which form of money to use. Let the best form of savings win. In America, should we not be free to choose our own banks? Bitcoin is a new kind of peer-to-peer bank that offers a savings account unlike any other. Whether you agree with or admire those who own it is irrelevant. All that matters is that it produces strong upside year-over-year.
Inhale, Exhale, Repeat
Bitcoin is very likely to go up aggressively before it reaches a more stable #DeflationRate (i.e. fewer coins are needed to buy more goods or services over time). That is simply how it was designed, with a different set of priorities and incentives built in than those driving debt-based cash currencies.
In the meantime, bitcoin is wildly volatile just like any early-stage investment. That’s a sign that you are getting in early, still. While the price fluctuates in the short term, remember that BTC is a long-term financial instrument: BTC has increased in value against the USD at an average #deflationrate of 200% per year over the past decade.
If we can learn to ignore the short-term volatility, we will discover a new kind of money designed for individual wealth storage. In doing, so we also take control of our money from corporations and governments whose executives have been making money off of the hard-earned savings of working Americans.
Look into this. Study a bit. See for yourself. Don’t miss this opportunity (for yourself and for our nation). The opportunity to decentralize money (thus, power) doesn’t happen but once every few hundred years. I suspect the last time was 1776. Bitcoin is today’s Declaration of [financial] Independence.