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Why Is Bitcoin The Most Effective Weapon In The Fight Against Inflation And Wealth Inequality

by Claudiu Cozma 9 days ago in bitcoin

One of the most appealing aspects of bitcoin for supporters is its capacity to circumvent fiat monetary systems that degrade the value of cash assets through inflation.

It’s not nearly as difficult as it appears. Simply put, central banks keep their economies lubricated by printing new money on a regular basis. With more money on hand, businesses may spend and service their debt more readily. There is, however, a catch: every new dollar added to the spending pool diminishes the purchase power of each individual dollar by the same amount.

This is also simpler than it appears: increasing the money supply does not increase wealth or value all of a sudden. If your economy is a nursery, and crayons are your money, increasing the amount of crayons in the room will not make the children any wealthier. They all have twice as many crayons as before, so when trading for toys, books, and other stuff, they all offer twice as many. In actuality, nothing has changed because the extra funds have been spread equitably throughout the nursery.

When supply and demand aren’t evenly spread, what happens? Things become more complicated at this point, and bitcoiners have properly recognised the need for a new, more equitable framework.

Central bankers claim that this isn’t a problem because all of the money eventually reaches the average person, whether through stimulus payments, higher wages, larger pension funds, or whatever other means they can think of. Of course, we all know that this isn’t the case in practise.

In the real world, millionaires have reaped the greatest benefits from Covid-era money creation. Using their expanded money supply, they’ve poured it into inflation-beating asset classes like the stock market, real estate, collectibles, and so on (which includes enormous sums of borrowed money, which is cheaper and simpler to obtain when interest rates are low). The middle classes have done something similar, but on a smaller scale: they have saved during Covid lockdowns and then invested a large percentage of their savings in assets that have increased in value.

Consider the lower and labouring classes. During the pandemic, whatever additional money they had was either spent on survival or lay idle. Because they can’t go on the property ladder, they can’t benefit from rising house prices or start building equity by exchanging rent (money that goes into someone else’s pot) for mortgage payments (money that goes into their own). Stock markets are technically within their grasp, but they are greatly hampered by high transaction fees and a lack of knowledge of investment strategies (the kind of knowhow that rich people simply pay someone else to worry about).

Inequity is the result of this inequality.

If you’re wealthy, you can benefit from the growing money supply. You just cannot if you are impoverished. In the new economy, you’re trapped with whatever money you have. As we all know, inflation is actively eroding the value of such assets. You become poorer as more money is printed.

Interest rates could, of course, save the day if central banks wanted them to. Any of us can raise the value of our money by depositing it in a savings account when the interest rate surpasses the rate of inflation. Policymakers, on the other hand, oppose this because cheap debt access is the only thing holding the global economy together at the moment. As soon as the interest rate charged by borrowers rises, the fragile foundations of our covid-era economic recovery would crumble. Businesses and homeowners who gorged themselves on low-cost loans will be unable to pay their bills. Waves of bankruptcies and foreclosures will destroy the global economy.

It’s no wonder that central bankers, who are all from the upper middle class, choose the easier option of hitting the poor. “Things don’t look to be perfect,” they explain, “but everything appears to be stable, and everyone I know appears to be fine!” This illustrates, in a nutshell, why central banks are the primary generator of wealth disparities.

So, what options do you have? There isn’t much that can be done to reverse the trajectory of this economic journey as long as central bankers and politicians are in command. Those in positions of power will always support policies that benefit their own personal interests, and they will go to any length to avoid a global economic disaster — even if such a disaster would likely be beneficial to society in the long run because it would force structural changes to the current, dysfunctional system.

If a remedy exists, it must be a new monetary system that is immune to inflation and central bank manipulation.

There are no prizes for stating the obvious: civilization has yearned for such a system for millennia. The challenge is that creating a monetary network that isn’t backed by anyone but protects everyone’s interests so convincingly that ordinary people will invest their life savings in it has never been easy. That is, until the creation of the bitcoin monetary network in 2009, when the world received its first taste of decentralised blockchain technology.

The tedious part

It’s akin to educating obese people of the health benefits of dieting to persuade readers of the technology advantages of blockchain. The proof, as it were, is in the pudding. And, like computer programming, the average person has no interest in mastering food science — the “how” or “why” a certain diet works.

That said, you can’t understand bitcoin’s creativity without first understanding blockchain technology’s innovative nature, so let’s get started.

It’s all about trust. I’ve already mentioned that starting from scratch with a monetary system is nearly impossible because money has no worth until enough people believe it does. Getting a government to guarantee to uphold or support its worth (think of the “promise to pay the bearer on demand” on banknotes) is the simplest approach to nurture that conviction. Another, riskier option is to create a universally appealing asset with a limited quantity. Gold checks all of these boxes: it’s aesthetically pleasing, it can’t be forged due to its particular density, and it can’t be made by anyone, therefore there’ll only ever be as much gold on the earth as it now has.

On the other hand, gold is a thorn in the neck. It’s heavy, so transporting and lugging it is a challenge. Because it is not easily divisible, it is difficult to pay precise amounts with it. Only a few people go gold shopping on a weekly basis. What if you could create a digital version of gold that weighs nothing, travels at light speed, and can be divided into the tiniest fractions of value? That’s incredible. It’s also not an option. Until 2009, that is.

If you only remember one thing about blockchain technology, remember this: for the first time in history, blockchains present us with completely immutable data.

That is, the information contained within them cannot be changed. Ever. It takes some time to figure out how they do it: it has to do with the ledger’s decentralised nature, which lists all of the transactions ever made on the blockchain and is secured by the number of copies in existence (full nodes, all of which are cross-checked against each other), the process by which new data is written (cryptographic encryption), and the network’s energy consumption (hashrate, which is impossible to overpower — or change). It’s possible I misplaced you. On the other hand, the end consequence is not difficult to fathom.

Bitcoin’s detractors — and there are a lot of them; they’re usually middle-aged people who’ve earned a lot of money off the status quo — claim that money must be acknowledged by society as a medium of exchange, a unit of account, and a store of value.

They argue that Bitcoin fails on all fronts because it is utilised by far too few people on a regular basis, and the price is far too volatile to be used to measure or store value. Perhaps today. It has, nevertheless, grown to a market valuation of $1 trillion in just 12 years. Isn’t that a significant amount of progress?

What about fiat currencies like the US dollar and others? Is it feasible to exchange money with them over international borders? Do they give us with constant and predictable costs from year to year? Are they, above all, a store of value in a rising inflationary environment? If you’ve ever grumbled about rising living costs, you already know the answer.

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Claudiu Cozma

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Claudiu Cozma
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