The Substantial Minority
By Steve ₿ - @ProofOfSteve on ALTCOIN MAGAZINE
“When you’re the only sane person, you look like the only insane person.”
Criss Jami
The Financial Crisis of 2008 was a wake-up call. If you are old enough, you may have been personally impacted or your friends may have even lost their jobs. Your parents may have suffered financial difficulties. Properties were seized, and dreams were broken. In all the Great Recession of 2008 wiped over $2 trillion dollars’ worth of money out of the economy. This a lot of money. But I would argue that the most important thing that was lost was TRUST. Irreplaceable, irreparable and unforgivable to a new generation that emerged; the substantial minority.
‘Trust takes years to build, seconds to break, and forever to repair’
The collapse of Lehman Brothers in mid-September 2008 had an enormous impact on the financial markets and the global economy by undermining public trust. The trust in the overall stability of the financial system, trust in the institutions, trust in the government and trust in the underlying principles of governance.
Self-Regulation along with monetized subprime mortgages sold as low-risk investments reached a critical stage during September 2008. This was typified by severely contracted liquidity in the global credit markets and insolvency threats to investment banks. In response, the U.S. government announced a series of comprehensive steps to address the problems. The major and most famous one being the Emergency Economic Stabilization Act of 2008, better known as the Big Bank Bailout.
But its origins started earlier. In early 2008, Secretary of the Treasury, Henry Paulson directed two of his aides, Phillip Swagel and Neel Kashkari, to write a plan to recapitalize the US. financial system in case of total collapse. The plan called for the U.S. government to purchase $500 billion in distressed assets from financial institutions. This shows that the government had a good idea that the economy was heating up to a level where the subprime mortgages and the economy, in general, were leveraged to the hills. They knew that defaults would occur in mass, causing banks extreme financial hardship, yet they continued to give out positive sentiments. Is this starting to feel familiar?
So Why Did The Public Lose Trust?
A considerable reason was the public having to fund bailouts for banks such as AIG with the tax payer’s money. They were shocked that a bank could get themselves in such trouble through offering highly irresponsible financial instruments to house buyers, without in a lot of cases doing the due diligence to be sure they could afford to pay it back. Also, what gave them the right to play judge and jury on who survives and who dies? Lehmann brothers, a 158 years old bank, was left to die, whilst AIG was granted a bailout. Critics of the bailout contend the rescue was a backdoor rescue of trading partners, notably some big foreign banks and Goldman Sachs.
When Trust Breaks Down
When trust breaks down, the social system is vulnerable to unrest, the democratic legitimacy of the political system is jeopardized, and the market-based economy is questioned. The loss of confidence in an economy in the traditional system is usually expressed in one of two ways; to either pressure the government to scrap the free-market system altogether or to intervene more heavily. As the first way is historically unpopular, the only other way was for governments to intervene. What the governments didn’t anticipate was another option. One not initially adopted by the substantial majority but instead by the substantial minority. It was a Plan B, a disgruntled subculture of society ready to rip up the rule book.
Enter Bitcoin. The world’s first decentralized peer to peer digital asset enforced by the truth machine technology of the blockchain. A new way to tackle not only money but ensure governance is no longer controlled by people, who have human emotions, desires of greed and the age-old human flaw of being conditioned to make the same mistakes repeatedly.
Emergence of Bitcoin
Satoshi Nakamoto, an alias originally emerged on the cypherpunk mailing list with a revolutionary new project laid out in a whitepaper. One that eliminated the need for trust in our financial system. One that separated state and money in the same way that the state and church were separated in 1771. There had been other projects and ideas throughout the years, including Digicash, Bit Gold, Hashcash and more. But why was Bitcoin a game-changer? It certainly came at the right time in 2009 straight after the great recession where distrust globally for institutions was at its highest combined with the allure of not requiring trust in a third party or intermediary that had just failed us; the banks.
Better still there was no central point of failure. No figurehead to take down to pressure the network into closing, no server any government could confiscate. A computer network that is open-sourced being distributed throughout the world and immutable on the blockchain meaning transactions cannot be tampered with. The traditional solution that we had all become accustomed to was run by a central arbiter. Bitcoin made that unnecessary. Rather than having a third-party authority preside over the network, the bitcoin network is decentralized. Everyone keeps an eye on everyone else and is incentivized to play by the rules.
The strength of a nation’s currency is based on the strength of that nation’s economy and the American economy is by far the strongest in the world. I have directed Secretary Connelly to suspend temporarily the convertibility of the dollar into gold or other reserve assets. — President Nixon, 1971
Another key factor that caused a loss of trust in the government systems to handle our money was inflation. Faced with mounting unemployment and rising deflation in the early 1930s, the U.S. government could do little to stimulate the economy. To deter people from cashing in and depleting gold supplies, the U.S. and other governments had to keep interest rates high, but that made it expensive for people and businesses to borrow. In 1933, President Roosevelt cut the dollar’s ties with gold, allowing the government to pump money into the economy and lower interest rates. The U.S continued to allow foreign governments to exchange dollars for gold until 1971 when President Nixon abruptly ended the practice to stop dollar rich foreigners from depleting U.S gold reserves.
What Did This Mean For The General Populace?
This meant a detachment from hard money and we entered an era where governments could print an almost endless supply of money to ‘stimulate the economy’. This meant more cash flowing through the economy but at the expense of your savings through inflation. Since the early 1970s, world governments have continued to print more money into the system. You work hard to earn this money and it’s taken away from you by reduced purchasing power. Gold which was $30 an ounce in 1971 when Nixon confiscated the US citizens gold is now worth a whopping $1,533 an ounce in 2019.
But the world is waking up and the substantial minority who is a small but growing subset is no longer accepting of turning on the print machine when the government needs to inflate its coffers. The substantial minority believes in hard money again and importantly insist on the reliability of scarcity.
It was no coincidence, that Bitcoin was designed with trust at its core. The supply was fixed at a total cap of 21 million that could never be exceeded. Better still, Bitcoin would be released slowly through the method of mining rewards. But this is not like the inflation we have become accustomed to in the traditional system. Bitcoin is deflationary by nature, meaning the mining rewards get cut in half every 4 years. During the next halving in May 2020, the block reward will be down to 6.25 bitcoin per block meaning inflation will reduce below the traditional market system to 1.8% per annum. Would you trust to store your wealth in a system where the inflation rate is reducing or increasing? The substantial minority wants to live in a world where we encourage saving overspending and living within our means. The US government's debt is at $21.97 trillion and rising. At some stage, it will need to be paid back. When the music stops, the substantial minority will have claimed its chair.
Another key feature is being able to send Bitcoin anywhere in the world. It is borderless and faster than the legacy system. We no longer require a bank as an intermediary to take its cut and send money to other countries using the archaic legacy system taking 3–5 working dates for you to receive the money at the other end. Trust is placed in the technology, which has been active 99.9% of the time since inception. One that does not close for national holidays or weekends.
Hyper Inflation Plaguing Nations With A Lack Of Governance
Only a decade ago, Venezuela had a prosperous economy. Blessed with significant oil reserves and an economy that was being praised for income equality, the prospects of Venezuela's economy seemed bright. Fast forward 10 years and the landscape has dramatically changed.
‘These days the American dream is more apt to be realized in South America, in places such as Ecuador, Venezuela, Argentina, where incomes are actually more equal than they are in the land of Horatio Alger.
— Bernie Saunders 2011
Venezuela has seen its currency rendered practically valueless after suffering one of the worst periods of hyperinflation since World War Two and is projected to hit 1 million percent by the end of 2019.
Three million Venezuelans have left the country, as essential goods such as medicines, toilet paper, and food have become unaffordable. Crime has also continued to surge dramatically as the people become increasingly desperate and despondent with the government. Protests have become commonplace.
It’s not surprising that Venezuelan citizens are turning to Bitcoin. It’s a hard currency that can’t be hyperinflated and is out of the reach of the government's greedy hands. More importantly, it is transportable and almost impossible to seize. Demand for Bitcoin has surged in the country this year and many Venezuelans are willing to pay a hefty premium to own some. Whilst it has the potential to protect their wealth from the jaws of hyperinflation, Venezuela is still plagued by infrastructure issues that make Bitcoin very difficult to spend.
But what’s abundantly clear is the country’s population has lost all trust in its government to control its currency. They are now fighting for survival. Bitcoin may not be the answer to all their problems now, but it does have benefits that could help the local population.
‘I don’t pretend we have all the answers yet. But the questions are certainly worth thinking about’
— Arthur Clarke
Bitcoin has its drawbacks currently. The substantial minority understands that. The Bitcoin blockchain can handle around 7 transactions per second at its base layer, whereas Visa is around 2,000 transactions per second. This makes it difficult now to be able to use it for some everyday purchases such as coffee. But 10 years have only passed since the creation of Bitcoin. In technical terms it’s still in its infancy. The blockchain industry has some of the smartest people in the world working on it. The lightning network and other layers 2 solutions are making great strides. But the most important thing is to retain trust at all costs. The Silicon Valley mantra of “work fast and break things” cannot apply to money. Reliability and trust must stay as paramount importance. As we know from the legacy system, once you lose trust, it’s almost impossible to get it back. The substantial minority is patient. They understand this is a system that when successful, will not only be used in the next 10 years, but our grandchildren will be using it in 50 years. The substantial minority have come to terms that they don’t need all the answers in 2019. They just need to be working towards them.
‘Bitcoin is a 10-year solution to a 5,000-year problem’
— Ragnar Lifthrasir
The other 800-pound gorilla in the room is volatility. Volatility is not only good, but some would say essential to wealth creation, especially in an overheated economy. The media often paints volatility as something to be avoided. Rather than fear volatility, the rational investor must embrace it for some portion of his/her portfolio. That’s right, the substantial minority are not just crazy libertarians shouting to overthrow the government, they are investors. They want to upgrade their lives and have ambitions. But with one fundamental difference, they demand to know the rules of the game before it starts. They refuse to see the goalposts move when they are through on goal and Bitcoin makes that possible.
Volatility does have its drawbacks, there is no disputing that. Bitcoin is the best performing asset of the past 10 years and has performed astonishingly. No one could ever imagine Bitcoin hitting the lofty heights of $20,000 in 2017. But with the euphoric rises has come massive drawdowns. But how often is a new currency global currency invented? This is a new asset class but with this comes greater risks. The substantial minority should not only embrace volatility but seek it out.
The Institutions Are Coming — To Be Welcomed Or Feared?
Should we be fearful that the institutions coming in? There is no easy answer to that question. The reality is for the Bitcoin ecosystem to continue to expand and grow we need the institutions to be involved. A small subset of libertarians, Austrian economic disciples and retail market speculators can only stretch so far. If we want this to go mainstream, we need the wealth flows to help build the rails we require for it to be successful. Infrastructure is needed not just for credibility but also for the future ease of use. This is not only for the institutions but also for the average Joe who has no real interest in blockchain technology. He just wants to use it seamlessly, transferring value from A to B. Most people just want a better experience. They don’t care how the wires in a television function, they just care about the experience of watching their favorite television programs.
Bitcoin is a social experiment. An experiment that so far has been an undoubted success. But the next 10 years will be about execution. Can the substantial minority eventually morph into the substantial majority? We need to find real-world solutions, educate on why it’s better money and create a thriving industry around it. Regulators will want to find the right balance. Trying to nurture innovation for the good of its economy but protecting the public from charlatans that emerge in the early days of every industry. Any government that fails to at least take significant steps towards this will be left behind. We are already seeing many companies leaving mature jurisdictions such as the US and UK due to the red tape and moving to other countries that are embracing innovation in Crypto such as Singapore, Estonia, and Malta.
The institutions may look and talk a bit different. But in the future, Bitcoiner’s will come in all shapes and sizes from different socio-economic backgrounds. Bitcoin does not care if you are rich or poor, black or white, wear suits or t-shirts. There will no longer be a situation where we have the computer geeks and libertarians on one side of the river and the corporate world on the other. It won’t happen overnight, but we are seeing an emergence of people who can speak both languages and are acting as a bridge to assimilate the two distinctly different subsets.
The Greta Thunberg Effect
Greta Thunberg, a 16-year-old environmental activist has hit the headlines over the last few months by becoming a high-profile person representing the General Z demographic. She has presented at many world stages, including the United Nations address advocating taking measures to save our planet from environmental disaster. The Generation Z demographic is showing the world that they are not frightened to be bold and fight for things that will affect their future. This is likely to spill over into all elements of society. The millennials are currently fighting the battle with the financial legacy system.
But never underestimate Generation Z who are waiting in the rearview mirror. This generation is the most tech-savvy generation that has ever existed. They will not settle for anything less than what is right.
Troubles In The Economy Lie Ahead
Trump inherited a thriving economy. Good earning results and growth in 2018 prompted the Federal Reserve, to increase interest rates. A combination of a deteriorating global growth outlook, higher borrowing costs and the trade war with China has increased import costs and hit US industrial production. Trump is trying to get things back on track by encouraging the Fed to cut rates again to stimulate the economy. It may have the desired effect in the short term, but medium-term problems are expected to emerge. Traditional investors are apprehensive that 2020 could be the end to the longest expansion in American history.
On the other side of the pond, Brexit is another area that has plunged the UK economy into deep uncertainty. In 2016, the United Kingdom held a divisive referendum voting to leave the European Union. Fast forward 3 years of intense negotiations, several changes in the prime minister, multiple delays and Britain are still in the European Union. The next deadline is on October 2020 and a no-deal Brexit is looking increasingly more likely. Germany is also on the brink of a recession. Germany has slashed its growth expectation for 2020 amid a year where Brexit and the trade war could have negative impacts on their exports. Finance Minister Olaf Scholz has stated Germany is ready to pump into the economy “many, many billions of euros”.
‘Bitcoin is Schmuck Insurance’
— Mark Yusko — 2019
Bitcoin is seen as a hedge against potential economic collapse. During a recession, fear causes people to migrate to hard money. When trust is lost in the system, people protect their wealth in the best way they know-how. Gold is more of a cousin to Bitcoin than a competitor. But Gold is expensive to store, transport and dividing it into the amount you want is difficult. The world is digital now, so it will be the evolution of money. When boom periods of economic expansion come to an end, there are usually many years of bad decisions, breaches of trust and companies overstretching themselves. Bitcoin in that way is the ultimate ‘schmuck insurance’. The elected and unelected ‘schmucks’ who have a direct and indirect impact on your lives can behave like schmucks, but by buying Bitcoin you are protecting your wealth away from them. The significant minority knows that a global meltdown does not need to happen for Bitcoin to grow, but at the same time they are realistic that it would probably intensify the growth.
The significant minority knows that there is no better-performing investment asset than Bitcoin over the course of its 10-year history. Its growth has been phenomenal. But with a market cap of only $147 billion, we still have a long runway to go. To put that in perspective, the Gold market cap today is worth around $7 trillion, and Amazon has a market capitalization of $853 billion. The significant minority know that Bitcoin is a high-risk asset. You do have the ability to lose all your money. But the returns you can make vastly outstrip the risk, making the investment a truly asymmetrical once in a lifetime bet. We do not get many opportunities in our lifetime to truly accumulate the amount of wealth that is possible with Bitcoin. The significant minority of today could one day be one of the wealthiest subsets of people in the world.
‘I may not agree with what you have to say but I will fight for you to the death for your right to say it.’
— Evelyn Beatrice Hall
I do not expect you to agree with everything I have said in this article. As humans, our DNA is 99.9% the same. But we are also from different environments and our upbringing has molded who we have become as adults and means there is a gulf of difference in opinions, behaviors’, values and beliefs. But if you are interested in this article in the first place, you are at least eager to understand that the world is changing, and something needs to change with the way the world manages its economy and currencies. The substantial minority have differences, they fight, they show passion but ultimately, they have the same end goal. To eliminate the need for trust. In time if everyone works on what they believe is right, the universe will prevail on how its implemented.
There are two ways to have the tallest building in town:
1. Focus on building the best building you can
2. Or tear down the tallest building in town
The substantial minority should focus on continuing to build.
Author: Steven Budgen (Steve ₿ - @ProofOfSteve)
