cracks in the foundation

Bitcoin offers protection from financial uncertainty

The future has always been unpredictable, but these current times of accelerating change and uncertainty bring a heightened sense of unease about what tomorrow brings. One of the most impactful factors driving change and unease is money. Bitcoin, and the protection it offers is becoming more important for the average person.

The Bank of Canada paused the key overnight rate at at 4.5% this March after 8 consecutive rate hikes over the previous year. This is part of the game of Modern Monetary Theory (MMT) – manipulating monetary policy in an attempt to balance prices and employment with disregard for budgets or paying down the national debt.

MMT proponents don’t necessarily agree with Justin Trudeau on the budget balancing itself. Instead they argue that the budget doesn’t need to balance and deficits aren’t necessarily bad. This is because a government that issues its own currency can spend as much as it wants without the need to borrow or tax in order to finance its spending. They can, after all, just create more money.

It’s important to remember that this approach to monetary policy and government spending is relatively new in the long history of money. We don’t fully understand the consequences.

What is money?

Money, in one form or another, has been among the most significant and misunderstood catalysts of societal change for thousands of years. The essential role it has played in building prosperity, fueling wars, and chronicling the rise and fall of empires is often under appreciated.

Most simply, money is the language of value; a technology to transfer value between people, across space, and forward through time. It is relied on by individuals, corporations, and nations as a unit of account, means of payment, and a store of value.

The Canadian dollar and other fiat currencies around the world have failed to be reliable stores of value over time, a reality spawned by the phase out of the gold-standard, amplified in recent decades by factors like excessive government spending and Modern Monetary Theory.

Looking abroad, we can see cases of hyperinflation becoming more common. Argentina, Venezuela, Lebanon, and Nigeria are just a few recent examples. The Canadian dollar is comparably strong, but will that always be the case?

When a government has maximized the value they can extract through taxation (everything from cannabis to carbon), they rely on the covert tax of inflation to finance spending through the creation or “printing” of more money.

Whether the new dollars are spent on inconvenient economic realities or ideological initiatives, the value is extracted from the purchasing power of those holding dollars. 

This has brought the word “inflation” into the mainstream as Canadians receive a daily reminder via grocery bills and gas prices, many of them struggling to make ends meet and maintain their standard of living.

Canadians are waking up to just how much of their wellbeing rests on the decisions of a small group of politicians and bureaucrats. This is the disconcerting risk of centralization. This risk would be significantly compounded by the successful implementation of a Central Bank Digital Currency.

Without an alternative to this system citizens are stuck on a path to ever increasing financial oppression.

Thankfully, Bitcoin fixes this.

Bitcoin is both a savings and payments technology but as Canadians we are most immediately interested in the savings technology. As a decentralized and digital currency, bitcoin operates independently of traditional financial systems and is not subject to the risks caused by trust in central planners.

There is no central authority or group of insiders that can change the foundational rules of Bitcoin. No politicians, no CEO, and no unelected international organizations. Bitcoin consists of rules without rulers. One of the most important rules of Bitcoin is that there will not be more than 21 million bitcoin in circulation. Bitcoin isn’t just scarce, it is the first absolutely scarce asset we’ve ever known.

Gold has been reliable, sound money, for thousands of years and remains relatively scarce but it falls behind bitcoin in the characteristics of sound money, most notably: portability. Gold is heavy, difficult to transport safely, and impractical for daily use. 

Managing custody and using gold in transactions is inconvenient at best and often implausible. To address this issue in the past, paper money was relied on as vouchers for gold held with centralized custodians. This started a long and slow transition to the problem we are trying to solve.

Bitcoin is designed to succeed where gold has failed. It combines sound money principles with modern technology. It is weightless, borderless, and can be sent around the world at the speed of light. The keys to access bitcoin can be stored in software, hardware, on paper, or even in a person’s memory. The tools to make bitcoin more accessible and easier to use are improving everyday. Which of them will become as widely used as our favourite apps is yet to be decided.

While gold will likely find a new all time high in dollar value in the near future, it is not a viable solution to the problem of centrally planned money and it will not absorb most of the value leaving the legacy financial system.

What about other cryptocurrencies, NFTs, or Web3 projects? Like all world changing inventions, the rapid success of Bitcoin spawned an entire industry of copycats, imitators, and innovators. There have been tens of thousands of altcoins, tokens, and projects, many of which no longer exist.

The worst of them are elaborate scams designed to enrich their creators. The best of them are highly speculative and risky places to hold wealth over time.

Even the largest altcoins with the most market traction suffer from centralization risks that rival the legacy financial system. Even with a detailed roadmap, endless  funding, and well intentioned team, these projects cannot repeat the organic decentralization that Bitcoin started in 2009 to become trustless money. Some projects may perform well over certain time frames but none of them are a reliable savings technology or a safe option for future-proofing your money.

Choosing sovereignty

After 14 years, bitcoin is still early in its adoption curve and the price is volatile over shorter periods of time. Over longer periods of time bitcoin has proven to be the most reliable savings technology. It is likely that this trend continues as adoption and knowledge continue to scale.

Education is afterall, the most significant obstacle preventing the average person from participating in and benefiting from Bitcoin. Making the choice to take steps toward learning about Bitcoin could end up being the choice between financial sovereignty or financial slavery.

The choice is open to everyone and it is not too late to start learning.

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