Offended? Let’s be honest, you are invested in Bitcoin. It made you happy… or not yet, but it will soon. Am I right?
While you read my words, you feel attacked. How dare this guy ruin my dreams. Let’s get it out of the way, that’s not what I’m doing here. I still think you’re smart and still hope your investments make a lot of money. Only after this happens, only once your money is safe and diversified, I hope only then the cracks in bitcoin start having any impact.
Since we’ve put it in a distant perspective, is BTC really so good? From society point of view, is it improvement like the smartphones were better cell-phones? We know that: 1. it’s electronic, 2. it’s hard to falsify and 3. it can’t be easily printed.
Why disastrous
Contrary to what many think, it’s disastrous for that third reason. It can’t be easily printed. Economist would say it’s supply is limited. This very fact would be devastating for the society if BTC was widely adopted.
Unfortunately, that’s also why people love it so much. Let’s face it, if you’re a big bitcoin fan, it’s not because of it’s innate technical or cryptographic beauty. It made some people rich. Not bankers or big businessmen, regular people. Isn’t it beautiful? For that I too salute Bitcoin. Now if you are invested in BTC, you either are or want to be one of them. For that bitcoin’s hard-limited supply is perfect.
Is Bitcoin pyramid scheme?
Pyramid scheme works in a very specific way. If you are in before the others, you get richer. Every next person joining makes the value of your investment higher. If you are in, it’s in your interest to invite others.
Bitcoin works like a pyramid scheme. Not only because of its limited supply, but also because there is no other way it can make added value. It’s not producing crops nor new products. The only way it grows is by people joining.
But be careful, although some people made wealth of bitcoin, like in any pyramid, often the only way to keep that wealth is to exit before everyone else… This “run for your life” makes Bitcoin very volatile. Not a great trait for widely adopted money. When you think money, you want to think stability.
But let’s be optimistic. We could imagine Bitcoin stabilizes over time. It stops making people rich and poor, and becomes just useful for transactions. Let’s take it step further, let’s say the whole world runs on Bitcoin and there is no other medium of exchange. How does that world look like? We don’t know right? Well, actually we do.
We used to have money with hard-limited supply. It was called “gold”. So what’s the problem? Why don’t we move to Bitcoin now? Using gold as money was such a horrible idea. Actually, it was especially bad during the crisis, so it is a good time to reflect on it.
Bad ideas for money
Why gold and bitcoin are so bad ideas for money? We are in the middle of the crisis now, can you imagine what it would be like if the banks couldn’t provide the new money? No? Think of your worst nightmare.
The Great Depression was caused by the very fact we couldn’t print money in a critical moment. With years of misery and destitute, it led to World War II with its atrocities.
We didn’t have a pandemic. We had only 2bn people to feed, vast majority living in the countryside. What would it be like this time around? What makes you think there would be a happy ending? Is life a Hollywood movie?
In 2007 again, we were in a great peril. We barely avoided the disaster. We only did it because in critical areas the countries supplied new money.
So if in 2050 we have a crisis, but the states cannot add money, we end up with billions hungry and angry people concentrated in the cities. I don’t know where you want to be at that point, but to me Mars trip started looking appealing.
Coming down to Earth, it is good to realize: Bitcoin it is not a systemic solution. Bitcoin is a systemic problem.
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Photo by Sonder Quest
