For the first time in human history, a technology has been created that once and for all divorces money from the state. This separation of money and state is poised to transform the way we think about value and our expectations of government involvement in our financial lives, and may be the largest cultural-political shift since the separation of church and state.
Bitcoin cannot be created at the whim of some centralized power, taking away the ability of governments to spend wantonly. It may sound utopian, but once humanity evolves to a Bitcoin standard the government-created boom-bust cycle, constant inflation and ability to fund wars will be things of the past.
Will Szamosszegi is founder and CEO of Sazmining.
Bitcoin is a digitally native currency that runs on a decentralized ledger called a blockchain. Unlike the Federal Reserve, which has never been audited, Bitcoin’s ledger is audited every 10 minutes by hordes of nodes across the globe.
Without the ability to create money out of thin air, governments will instead have to tax its citizens directly.
Raising taxes is typically a tough sell, even when the proceeds are expected to be used for domestic goods like public health or education. But citizens will be highly unlikely to accept tax increases for any war that is not purely defensive. For all we know, America’s Middle Eastern adventures of the last two decades may not have occurred had we already been on a Bitcoin standard.
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A Bitcoin standard will drastically damp the boom-bust cycle. Central banks – if they still exist – will be constrained by Bitcoin such that they will be unable to lend out easy money. First of all, the only money they could create out of thin air would only be a second-layer money, not bitcoin itself.
People will be skeptical at accepting any non-bitcoin currency, and so central banks’ clientele will be far more limited than it is now. Furthermore, even if some people do accept the central banks’ second-layer currency, those people will struggle to find others who would accept it as payment.
In short, on a Bitcoin standard, creating money out of thin air and handing it out is not a workable business model.
Finally, a Bitcoin standard is the (gradual) death of inflation. Bitcoin’s supply schedule is preprogrammed such that the supply will increase at a predictable and decreasing rate until there are 21 million bitcoin in circulation. At that point, no more bitcoin will ever be mined. Assuming that humanity continues to innovate, then prices of goods and services will fall over time.
In other words, Bitcoin’s purchasing power will continuously rise in proportion to the amount of wealth that humanity creates.
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Thanks to Bitcoin, humanity now possesses a technology that governments cannot ban even if they try. This may have sounded bold in 2008 when Bitcoin was first invented but it is far too late to stop the decentralized network now. Remember how China tried to ban bitcoin mining in the country, then the largest supplier of network hash power? Instead it proved how resilient bitcoin is. Mining thrives around the world, including as a Chinese black market.
Bitcoin also has powerful allies now. El Salvador and the Central African Republic have made bitcoin legal tender. North American politicians including Cynthia Lummis, Jared Polis and Pierre Poilievre are ardent bitcoin supporters. Bitcoin even played a significant role in the Canadian trucker protests of early 2022, as well as in the ongoing crisis in Ukraine. More and more will likely become “orange-pilled,” as the saying goes, referring to bitcoin's orange symbol.
While the State may not like losing its monopolistic control over money, it is quite difficult to convince people that inflation is good for them and that a deflationary asset is bad for them. Therefore, out of citizens' mere self-interest, bitcoin will gradually force the State to give up on its control over money.
While the separation of Church and State has always been imperfectly implemented, the separation of money and State will be real, total, and permanent.