Our Money isn’t actually Money

 


Let's have a look at the Problem that Bitcoin solves, and why it's relevant to us today.

What is Money really?

We saw the last use of real Sound Money end after World War 1 when the World’s governments began to abandon the Gold Standard. In the U.S. Sound Money faded away in 1971 when President Nixon announced that U.S. Dollars would no longer be redeemable for Gold.

 

From that day on, the only thing backing the national currencies we use each day is the enforcement of whichever government is printed on the paper we hold. The same government which produces the currency. This is centralized currency and we call these “FIAT Currencies”.

 

FIAT currencies have no constraint on supply. So governments and reserve banks can simply keep printing more. This effectively transfers the wealth of all the currency holders (read: you and me) directly to the controlling government.

 

It’s a simple deception which has allowed our governments to effectively steal value from their citizens to fund their initiatives (think: investment, infrastructure, war, corruption, inefficiency). It’s been going on for the last century without much outcry. We don’t really understand how it works. We, the people, don’t realize we’re being robbed.

So what IS Sound Money?


The following are attributes of Money:

  • Scarcity – Limited Supply
  • Frangibility – Interchangeability
  • Divisibility
  • Durability
  • Transferability

These 5 “itys” are shared between FIAT Currency and Sound Money.

What separates Sound Money is that it must also be a Store of Value

“In 1983 a Wimpy Burger cost R2.00
In 2018 a Wimpy Burger costs R49.90

For your Rands to have the same buying power today as they did in 1983 you would have to have earned 9.19% interest per year (after fees & taxes), every year for those 43 years just to MAINTAIN value.

If you’re earning less than that you’re losing value over time.”

— Andrew Caw

    Judging a Store of Value – The Hardness of Money


    Determining how good a, “Store of value” , your Money is can be a little tricky. What we do know from experience is that any good used as Money will have it’s supply increased…

     

    The effort we’ll put into increasing that supply is determined by the value of the good at the time. eg. If Shells are used as Money it’ll be worthwhile spending time searching for shells – thus increasing the supply. If too much supply is produced the value of the individual shells will fall. This results in a transfer of wealth from the holders of shells to the producers of shells. So to judge the quality of a type of money as a “Store of value” we need to determine two things:

     

    Stock = Everything Produced less Everything consumed up to now.


    Flow = Extra production in the time period

     

    The Stock / Flow Ratio determines the hardness of the Money. 

    A higher ratio makes for a Harder (and stronger) money.

    In history, whenever 2 types of money have been used in a society the harder money has eventually won out, causing a transfer of wealth from the holders of the softer money to the holders of the harder money.

      Finding Hard Money


      We want to be saving wealth in Hard Money, so what is the hardest money?

       

      Let's look at US Dollars (FIAT Currency)

      Stock Jan 2017 was 13250 Billion
      Stock Jan 2018 was up to 13850 Billion (Flow of 600 Billion)

      That gives it a Stock/Flow ratio of 13250:600 or 22:1

       

      Now let's take a look at Gold (Historically the best Money)

      Stock of +-190040 Tonnes
      Supply (Flow) of +-2750 Tonnes annually
      That gives Gold a Stock/Flow ratio of 190040:2750 or 69:1

       

      So 69:1 is the best sound money that’s ever been available… up to now.

       

      Lets take a look at Bitcoin:

       

      Currently Bitcoin Supply is 17,000,000, Flow annually of 657,000,
      that gives Bitcoin a Stock/Flow ratio of 26:1 right now.

      BUT Bitcoins supply is fixed and can be predicted into the future with the flow halving every 4 years.

       

      After the 2020 Halving the Stock/Flow ratio will be 55:1

      After the 2024 Halving the Stock/Flow ratio will be 120:1

      After the 2028 Halving the Stock/Flow ratio will be 248:1

       

      Bitcoin will soon be the Hardest Money in Human History

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