Sound Money

Cattle, shells, salt, leather, metals, paper, electronic. Money in various forms has existed throughout human civilization and will continue to exist as long as we are here. Moreover, multiple forms of money have coexisted at the same time and they still do today. Think gold, paper fiat and Bitcoin. Lastly, being money a type of good, most if not all forms of money have an expiration date and will cease to exist when a superior form of money is introduced or when the value and effectiveness of that money has been reduced to zero.

What is money:

Money is medium of exchange and we like and want money not for what it is but for what it allows us to purchase at some point in the future. We need to think of money as a vessel that stores value. Its value is the prospective utility exchange. In a nutshell we want to store our earnings in a form of money that we believe will retain its value for a long time and allow us to purchase what we really want or need at some point in the future.

For this reason money needs to have two attributes: value through space and value through time.

Portability and Value through space:

Money needs to be able to move around efficiently. Fiat money's success has been in part due to the fact that it's easy to move around. Gold on the other hand is cumbersome to move and store. Bitcoin has by far the best mobility. It can be moved anywhere in the world in a fraction of a second with settlements occurring within the hour of a transaction. International fiat transfers can take days to complete and even credit card transactions that appear to be instantaneous in reality take a few days to settle.

Value through time:

Money needs to be able to keep its value through the test of time and not depreciate or at least not depreciate so much that it loses its utility as a store of value.

The above concept allows me to introduce data regarding the loss of value of nominal US $ over time and compare it with other current forms of money like gold or Bitcoin.

$1 in 1800 is the equivalent of roughly $20 today. A dollar today buys only 5% of what it could back in 1800. It effectively means the US $ has lost 95% of its value from the year 1800. If you ask me, not a great way to store utility.

An oz of Gold has been valued at $20.67 from the late 1700s to 1932. It means that the US $ had not lost value vs gold for almost 150 years. From 1933 the US abandoned the gold standard and completely cut ties in 1971. From that moment, the US dollar value was no longer linked to any asset and therefore it became paper fiat. From 1971 to today the US $ has lost 98% of its value vs gold. Gold has proven to be a far superior store of value compared to the US $ (and any other currency really). The truth is that any paper fiat has become effectively worthless over time when measured in gold terms.

If we then compare the US $ with Bitcoin, we see that it lost 99.99% of its value only in the last 8 years.

The real reason why paper fiat currencies lose value it's because of Monetary Policy. They are not scarce and can be printed to infinity. Inflating their supply inevitably destroys their value. The loss of value for fiat currencies is not solely a US problem. It's a worldwide problem and all currencies at some point in time are destined to fail.

Bitcoin solves that problem. Its supply is finite, therefore it cannot be affected by devaluation from external actors like central banks.

Bitcoin is the soundest money we have ever had

I want to close with an incredibly important point regarding money and the impact that Central Banks have on it made by Ross Stevens from NYDIG:

We sacrifice time for money in the sense that we are willing to trade our time while working for it. When Central Banks unilaterally decide to print more paper fiat, and that money is utilized to support Financial Markets, they are effectively redistributing money and hence time from the non-asset owners to asset-owners. This dynamic increases wealth inequality effectively making the rich richer and the poor poorer by devaluing their fiat and increasing the value of Financial assets like stocks.

As an individual actor in the worldwide financial system, one has only two options in order to preserve the value of his/her hard earned money:

1) Own the correct, inflation proof financial assets

2) Join the Bitcoin standard