If you’ve ever studied economics, you know there are two primary schools of thought when it comes to discerning past, present and future. They are keynesian and austrian. I consider myself to be more of an Austrian economics enthusiast, but that is something I can get into in more detail later.
What I’m most excited to talk about, is Bitcoin. You see, bitcoin is a lot like gold, in that it is a very hard currency. Meaning, as relative value of the currency goes up, thereby increasing demand, there is little (or in bitcoin’s case no) impact on the rate of production of the underlying asset.
Here’s an example:
Let’s say warren buffet decides he wants to buy 1 billion dollars worth of copper and drive up the price of copper so that he can sell it all at a profit. He goes out and buys 1 billion dollars worth of copper, taking that amount out of the total circulating supply, and thus driving up demand for what remains, this will in turn, increase the price. However, Mr. Buffet has a problem because copper production companies will now begin to ramp up their annual copper production, to help meet the increased demand, and they can now afford to do so because copper is selling at an increased price.
What makes Gold, such hard currency, and the primary reason it was the de facto monetary standard for centuries, is that it is relatively resistant to changes in rate of annual production, regardless of changes in supply and demand.
Therefore, it stands to reason, that bitcoins “code is law”, immutable, decentralized protocol presents a very interesting dynamic indeed. For the first time, outside of a few very niche historical examples, we have a truly global, borderless, and theoretically infinitely scalable hard money. That is because the total supply of bitcoin is fixed at 21 million, according to its immutable protocol.
As of the writing of this post, the total circulating supply of bitcoin is around 17 million, and the rate of new bitcoin being created is around 1,800 new BTC per day, which is paid out to miners discovering new blocks of transactions and writing them into the blockchain. Approximately every 4 years the reward rate for discovering a new block is halved, until eventually, no more new bitcoin will be created, and thus we will have our 21 million maximum supply.
It doesn’t take a math wizard to figure out that we are already well past the peak production rate of bitcoin and at this pace the annual rate of production will continue to go down and down and down to a negligible degree. Now, for the first time, we have a truly hard money who’s production is entirely independent of the laws of supply and demand.
Take a look at a chart of the purchasing power value of the USD over the last 50 years and you will be able to see very clearly, that the power of purchase of 1 USD has gone down over the years, due to inflation (that is an increase in the circulating supply of USD). This is the case for virtually all fiat currencies as they can be printed at will…or rather at the whims of keynesian economic theorists who think more government control is better for the economy, but again, a conversation for another day.
Wealth will always flow into the hardest, soundest money available because that money is the best store of value. You may not understand bitcoin, you may not understand blockchain, you may not understand economic law, but the fact of the matter is, those things will go on whether you choose to accept and understand them or not.
So my question to you is, are you prepared for the next financial revolution. How much of the 21 million bitcoin do you own?