Bitcoin as a Solution: Inflation and Hope
By Jared Sink
It’s the middle of 2023, and it’s hard to believe how far Bitcoin has come since its inception in 2009 and since I first learned about it in 2014. With its rise, new industries and subcultures have emerged. However, if you've only started learning about Bitcoin in the past five years, you may still be wondering why it is necessary and what problem it solves.
At its core, the Bitcoin network and bitcoin the asset revolve around the concepts of time and energy. You might ask yourself how this is any different from our current economic and monetary systems, which are also based on time and energy.
There are two important differentiating factors at play:
Trust is an inherent requirement in our current financial and economic systems. Bitcoin, on the other hand, doesn’t rely on trust from anyone using the network. The elimination of the need for trust has a profound impact, offering life-changing benefits to those who adopt the network and the asset.
Bitcoin’s base monetary asset, BTC, aligns with the absolute scarcity of time and the law of conservation of energy. We all know that time and energy are both inherently scarce and cannot be created or destroyed, only transformed or transferred. Time moves from future to the present and then to the past, while energy moves from one atom to another. We cannot gain or lose these things; it is only our perspective on them that changes. Now consider how this relates to the value of our work and our time.
In our current fiat system, the value of your past time and energy is devalued through monetary supply inflation, which leads to price and asset inflation. We constantly search for the best investments to protect the value of our time spent working (exerting energy in a productive manner), sometimes even in products explicitly called “inflation hedges”. However, if all humans operated under the knowledge of Bitcoin’s fixed supply as an undeniable fact, we would have no need to outrun inflation.
It’s even possible that the traditional financial advice of “continually growing your wealth” would fade away as people gain confidence that the value of their past work will be retained in the future. This could potentially lead to a world where prices for everyday items like groceries, energy, cars, and homes decrease over time.
Although we are far from this reality, the most beautiful aspect of Bitcoin, in my opinion, is that it offers a genuine hope of a long-term solution, rather than just a temporary fix. It opens the possibility of a brighter future for our children, grandchildren, and all the children of the world, with equal access to a financial network that doesn’t allow the fruits of their labor to be slyly stolen or influenced by others.
Expanding on the points made so far, it’s essential to understand that Bitcoin is not an inflation hedge - it is an inflation solution. With over $10 of USD debt for every $1 of USD currency, the world is still significantly short on dollars to service the debt. Despite the Federal Reserve increasing rates to combat inflation and reduce the supply of dollars, the overwhelming weight of the dollar debt compared to the dollar supply is the reason why the US dollar remains so strong against other assets, even in the face of historic inflation numbers. The volatility of the USD price of Bitcoin is closely tied to the fragility of the current economic and monetary systems built on USD debt. Meanwhile, the functional utility and security of the Bitcoin network and BTC as an asset remain remarkably consistent and growing. Below is a quick look at the history M2 money supply of US dollars… it’s not pretty.
Until knowledge of Bitcoin as an inflation solution becomes more widespread (which could take many years), people will continue to use Bitcoin as a source of liquidity to pay off debts they are unable to settle due to a shortage of dollars.
A simple question to ask oneself, “Did [X] change anything about the Bitcoin network’s ability to credibly enforce its fixed supply?” If the answer to that question is “No”, then nothing should change on your long-term view of Bitcoin the network and BTC the asset.