Why is Bitcoin the best weapon against inflation and inequality between rich and poor?

November 22, 2021 By admin 0

For Bitcoin enthusiasts, one of the most appealing things about this cryptocurrency is its escape from fiat money systems that devalue cash due to inflation.

The process leading to that result is not as complicated as people think. To put it very simply, central banks lubricate the wheels of the economy by constantly printing new money. A higher money supply makes it easier for companies to spend and pay off debt. But it is worth mentioning that with every new dollar added to the spending pool, the purchasing power of each dollar decreases proportionally.

In other words, changing the money supply doesn’t magically create wealth or value. Let’s try a simple comparison to better understand this point. If the economy is kindergarten and the money supply is crayons, then doubling the number of crayons in the room won’t make the kids any richer. They all have twice as many crayons as before, so they all double the amount they give out in exchange for toys, books, etc. In practical terms, it doesn’t matter because the money supply is new. shared equally for everyone in the society.

As things get more complicated and Bitcoiner realizes the need for a more equitable system, what if the supply and distribution are uneven?

Central bankers insist this is not a concern, because they assume all cash will eventually flow into the pockets of ordinary people – be it through stimulus checks, salaries higher, higher retirement or in other ways.

In the real world, billionaires are by far the biggest winners from massive money printing decisions in the Covid era. They used their higher money supply (including large amounts of money borrowed at lower interest rates and easier to borrow) on inflation-resistant assets such as the stock market, real estate, and collections. … The middle classes do the same, but on a smaller scale: build savings during social distancing due to the epidemic and then allocate a fair portion of that money to other assets. The property is appreciated for its value.

Next, consider the poor and the working classes. The meager benefits they receive during the pandemic are mainly used for survival. So they can’t accumulate more assets, benefit from rising house prices, or invest in stocks by replacing rent (money that goes into someone else’s pocket) with replacement payments. mortgage (money coming in). Technically, the stock market may be within their reach, but it is nearly impossible due to high transaction fees and a limited understanding of investment strategies.

It is this imbalance that leads to inequality.

If you are rich, you can use the higher money supply to your advantage. On the contrary, if you are poor, you really can’t. You keep fiddling with all the cash you have in the new economy without figuring out how to get rich. And as we know, the value of those holdings is being actively diluted by inflation. The more money is printed, the poorer you are.

Of course, interest rates can also be profitable if central banks want to. When interest rates rise above the rate of inflation, any of us can increase the value of our cash simply by transferring it to a savings account. But policymakers don’t want this, because the only thing keeping the global economy alive right now is ease of borrowing. As soon as the interest rates that borrowers have to pay rise, the foundations and foundations of our economic recovery in the Covid era, which are already unstable, will quickly collapse. Businesses and homeowners who had dabbled in low-interest loans were suddenly unable to repay their loans. A wave of bankruptcies and foreclosures will cripple the global economy.

No wonder central bankers (none of them, coincidentally, are working-class) prefer the easy option but deal a huge blow to the poor. They might argue that “this may not be perfect, but everything seems to be stable and everyone I know is doing pretty well!”. In short, central banks are the biggest driver of inequality between rich and poor.

As long as central bankers and politicians are at the helm, there’s really no way to change the direction of this economic journey. Those in power will always push for policies in their personal favor and they will do whatever it takes to delay the global economic fallout – although a long-term collapse could also be good for the economy. society as it will promote structural reform of the current inadequate system.

If there is a solution, it would have to be an alternative monetary system that is resistant to both inflation and central bank manipulation.

Human civilization has been yearning for such a system for millennia. The problem is that it has never been easy to build a currency network that is unsupported by anyone but so convincingly defending everyone’s interests that ordinary people will trust the network with their savings. save their whole life. That never happened until 2009, when the launch of the Bitcoin currency network gave the world its first taste of decentralized blockchain technology.

Need an objective view
Convincing readers about the digital benefits of blockchain is like convincing overweight people about the health benefits of dieting.

Or so to speak, you cannot understand the genius who created Bitcoin without at least a basic knowledge of the revolutionary nature of blockchain technology.

Trust is everything. As mentioned above, creating a monetary system is almost impossible because money has no value unless enough people believe it has value. The easiest way to foster that trust is to ask the government to commit to maintaining or supporting its value. But this is almost impossible. Another, simpler way is to offer a popular attractive asset that has a fixed supply. Gold perfectly meets this condition: it is aesthetically appealing, cannot be tampered with because it has a unique density, and cannot be produced by anyone because it is a gift that nature gives to man.

However, gold causes inconvenience and inconvenience. It’s heavy, so it’s hard to move. It is not easily divisible, so it is difficult to pay out the exact equivalent amount. Not many people buy gold weekly. But what if you could create a digital gold version that wasn’t heavy, traveled at the speed of light, and was divisible by the smallest fraction of its value. That became a reality in 2009.

If you only understand one thing about blockchain technology, let’s talk about this: for the first time in history, blockchain provides us with truly immutable data.

That means that the information contained within cannot be changed. To do so, it is necessary to understand the decentralized nature of the ledger. The ledger lists all the transactions ever performed on the blockchain and is secured by 1) the number of copies in existence (full nodes, all cross-checking), 2) the recording process new data (cryptographic encryption) and 3) power consumption of the network (hashrate, making it impossible to tame or change the encryption process). Once you have immutable data, you have the ability to create autonomous digital currency.

By ensuring that Bitcoin’s transaction history can never be changed, mankind has created a digital asset that meets 5 of the criteria of money: sustainability, mobility, scarcity, divisible and substitutable (interchangeable). The final criterion – the acceptability or willingness of people to consider Bitcoin as real money – will not be defined by the specification but rather people’s attitudes towards it. In the increasingly digital age, that is very promising.

Of course, there are many Bitcoin detractors, typically older, middle-class people who have become very rich from the status quo. They cite another definition of money, that it must be accepted by society as a medium of exchange, a unit of account, and a store of value.

They say that Bitcoin fails in every way because too few people use it on a daily basis and the price is too volatile to measure or store value. This is not wrong, but it has also achieved a market capitalization of $3 trillion in just 12 years. I don’t want to, but I have to admit that it has grown at a rate that no other asset class can match.

While criticizing Bitcoin, we also need to look at the state of the US dollar and other fiat currencies to get an objective view. Are they convenient means of international cross-border exchange? Do they provide us with stable, predictable prices year after year? Most importantly, are they an effective store of value in an age of high inflation? If you’ve ever complained about the rising cost of living, you’ve got your answer.