Is the destiny of bitcoin really to replace fiat currency? Is this possible, or even desirable? Wouldn’t its primary use be something else?
21 Bitcoins
The interview with bitcoiner Shinobi on the Podcast What Bitcoin Did has been making waves recently. We will particularly remember this pique:
“Maxis are morons. They got it into their heads that bitcoin is magic after reading the Bitcoin Standard. They think that the simple limit of 21 million will allow them to conquer the world, destroy governments and create a perfect utopia. It’s absolutely crazy. »
This is essentially what “Austrian” economists like to preach. “Bitcoin fixes this”… As if the money supply was enough to be fixed for us all to drive Ferraris.
The truth is that the monetary system is not the economy. An economy is above all means of production. That is to say machines, and therefore energy. No rich country consumes little energy. There is no such thing.
We often hear the phrase “Abundance through scarcity”. Faced with this oxymoron, we must respond:
“If only a fixed quantity of money could create oil, raw materials, etc. ex nihilo.” »
Some respond : “It’s literally possible. Only time and sats are rare. With the right economic incentives, everything can be produced in greater quantities. Including oil. »
Others will cite directly the Bitcoin Standard, recalling that “If the volume of the Earth were the same as that of an Olympic swimming pool, the volume extracted so far would be equivalent to half a glass.”
These are stories that “Austrian” economists like to tell themselves so as not to have to destroy their illusions.
Another Malthusian…
We have always had people predicting the limits of growth. The Reverend Malthus was one of them in the 19th century. He argued that the population was growing faster than wheat production and that this was not sustainable in the long term.
He wasn’t completely wrong. But that was without taking into account the human genius of a certain Fritz Haber who invented a process for synthesizing ammonia allowing the manufacture of fertilizers on an industrial scale. The result was an explosion in agricultural yields and a tenfold increase in the world’s population. It’s a textbook case.
We owe the return of “Malthusianism” to Dennis Meadows who published in 1972 “the limits of growth”. Without forgetting the geophysicist Marion King Hubbert who predicted in 1956 the peak in American oil production for 1970. It actually took place in 1971.
On a global level, the peak of conventional oil (that which is easy to extract from the ground) is already behind us. We passed it in 2007. The remaining US Shale oil is more expensive to come out of the ground.
To put it another way, we picked the fruit from the lower branches. And it even looks like we reached the peak of all types of oil in November 2018…
Knowing that oil is the cornerstone of our globalized civilization. He waters 95% of transport due to its irreplaceable natural properties which are its energy density as well as its ease of storage/transport.
Unfortunately, for more than fifty years now, we have been consuming far more than we discovered.
Oil is a stock that we mistake for a flow
Oil takes millions of years to form from micro-organisms which, when they die, fall to the seabed before being covered by layers of sediment. Once at depth, heat and pressure cause chemical and physical changes that transform the sun’s formerly photosynthetic energy into energy stored in the form of oil.
Of course, there is still a lot of oil. But the question is how quickly and at what cost we can extract it. We talk aboutEROEI (Energy Returned on Energy Invested) in the jargon. Or energy return rate in good French.
In short, to obtain a unit of energy (the Joule, the kWh, whatever), how much energy did I have to spend beforehand? In other words, barrels of oil cannot be obtained by snapping your fingers.
We must build wells, and therefore bring (among other things) concrete and steel by truck, which itself consumes oil. Concrete and beams also required oil to extract raw materials. Even the truck driver needs food calories which again require oil to reach his plate.
The reasoning around EROEI is simple to understand. We first draw the oil that is “easy” to extract, with a high energy return rate. But the more time passes, the more expensive the remaining oil becomes to extract.
Never mind variations in oil prices, interest rates, geopolitical unrest. What matters is the intrinsic, energetic profitability of oil extraction and the quantity that can be physically obtained (more, more…).
This is where we have to look to find the true origins of inflation.
The fiat Ponzi and energy
The monetary system is a ponzi. Money is created from interest-bearing debt. For the system to work smoothly, bankers must lend a little more each year than the previous year.
This system is neither good nor bad. Above all, it is the one that allows you to grow the fastest. Humans naturally tend towards what is most efficient. However, a ponzi remains a ponzi. Everything is fine when output can grow as fast as debt. But that takes energy.
Wealth = Productivity (production per person) = Machines = Energy.
We must understand that the work provided by our consumption of fossil energy (oil, gas, coal, i.e. 80% of our energy) is equivalent to that of 450 billion humans…
The problem is that the more difficult this energy is to produce, the more we must invest to try to maintain the pace. If production still does not follow due to physical limitations, inflation results.
But getting out of debt doesn’t provide more energy. As Michael Saylor said at the Bitcoin 2023 conference in Prague:
“No country can stop inflation. No one can stop inflation. I can make you the master of the world, you won’t stop inflation.”
Our bloodless planet condemns us to more inflation. Only a technological breakthrough in the field of energy could make it possible to increase wages (productivity) faster than inflation.
Fiat currency will not disappear. A complex civilization needs the tool of debt. The nations with the biggest banks and the biggest debts are also the richest.
It all depends on the quality of investments which directly depends on the level of education of a nation. Keeping in mind that there is a limiting factor: energy.
The primary usefulness of bitcoin
The world is at an energy crossroads and galloping debt is a symptom. The other big problem is that inflation benefits desirable assets.
That is to say prestigious real estate, paintings by great masters, shares of Apple, Microsoft, Google, etc. But these things are only accessible to those who are already rich.
Bitcoin is a revolutionary store of value in that it is:
1) Accessible to all budgets. You can buy bitcoin for any amount.
2) A technological breakthrough creating something in absolutely fixed quantity for the first time.
3) Liquid. It can instantly be exchanged into fiat currency in the event of a hard hit.
Bitcoin puts everyone’s savings on an equal footing and remedies the increase in inequalities caused by inevitable inflation.
This is the primary utility of Bitcoin. Protect your savings, and not so much replace fiat currency.
Let us recall in passing this statement from Michael Saylor at the end of last year:
“Believing that bitcoin will replace fiat currency is a distraction that causes mental impasses for many people. […] Bitcoin does not need to replace fiat currency to succeed. […] Global wealth is around $850 trillion in real estate, debt, stocks, art… Bitcoin is a better asset. People will stop buying real estate for 25 or 30 times the value of the annual rent. They will sell everything until the ratio falls to 10. Same for the shares of multinationals worth 25 times their annual profits. »
All this being said, of course bitcoin can also be used as an anonymous means of payment. That it makes it easy to escape from a country at war and that it could replace the petrodollar in international trade.
Maximize your Tremplin.io experience with our ‘Read to Earn’ program! For every article you read, earn points and access exclusive rewards. Sign up now and start earning benefits.
