Nanna, Gran, or Grammy – I bet you’ve had many conversations with her (or another elder in your family) that began with a slight sigh followed by, “In my day …” Generally speaking, she’ll refer to a simpler life, when technology was sparse, when children were respectful, and moreover a time when things cost a whole lot less. “In my day a pound could feed the whole family for a day, not pay for a chocolate!” Sound familiar?
While your matriarch is correct in her remark that items cost that much more these days, another perspective is that it’s, in fact, our money that is worth less. This is inflation. A measure of the general state of the economy of a nation.
The widely accepted definition of inflation is the general rise in the price of goods and services. A more controversial stance is that of the Austrian school of economic thought, which defines inflation as an increase in money supply.
Their view is arguably more correct in that the price increases of goods and services is a direct effect of government creating more money, not the other way around. This new money isn't mined or bought, it’s created from thin air and is no more than a computer processed accounting entry. It has to acquire its value from somewhere, and so it siphons it from the existing supply, debasing the value of the currency, and subsequently the worth of what’s in your wallet.
This is the foundation of fiat currency failure. Any fiat currency, given a long enough run, ultimately becomes worthless. In fact, it’s shown that the average lifespan of a fiat currency is a mere 27 years. While the British pound Sterling has been in existence for more than 320 years, and as such is considered a highly successful currency, this should be reviewed in context. At origin, a pound was worth 12 ounces of silver. Today it’s worth 0.5% of that. Put another way, it’s already lost 99.5% of its value. It’s a given that at some point it will drop to a 100% loss. It’s simply a matter of time.
And this happens because the control of money supply rests solely with the government and central banks. They can, without any backing, increase our money supply, which in turn, sucks its value from the existing money supply. Inflation is an ongoing erosion of value, a hidden tax we’re all paying. Not once a month or once a year. But. All. The. Time.
Bitcoin is a revolutionary currency, with properties not seen before.
Unlike its fiat counterparts where supply is unlimited, and can be expanded at the will of the central authority, bitcoin supply is finite. Pre-programmed into its incorruptible algorithm is the fact that only 21 million bitcoins will ever be created. This means that once the limit is reached, no more bitcoins will ever be produced. Irrespective of how badly someone wants them.
Further to this, the supply has a pre-defined rate of deflation. Bitcoins come into circulation as a result of Bitcoin miners using processing and verifying blocks on the blockchain. Being rewarded newly ‘minted’ bitcoins are their incentive to do so. Bitcoin’s algorithm stipulates that for each 120,000 blocks added (roughly every 4 years) the reward payout halves. Meaning that there’s a tapering of supply, providing an opportunity for the economic principles to kick in and drive the value of each bitcoin upwards over the medium- to long-term.
This combination of characteristics, fuelled by its decentralised nature exempt from political and monetary policy changes and whims, means that bitcoin takes fiscal power and puts it firmly in the rightful hands.
And when it comes to your money, surely that’s the safest place of all?