Today’s topic of discussion is filled up with controversy. But wait, have a read through this one and try to relate with things before framing a conclusion. The chances of not understanding cryptocurrency fully & the technology behind is very common considering the total number of active traders in India is close to 7-8 million. That’s even less than 1% of the country’s population, whereas if we look at the Stocks & Mutual Funds sector, we have close to 3.7% of our Nation’s population Investing in equities as per Business Insider.
The fundamental difference between Bitcoin and Fiat Money lies within the very definition of money itself. I spoke with 10-12 friends of mine this week and I pitched to them a simple question asking, “What is Money?”. The very first reaction I got to that was they were all shocked a little and then they turned curious answering various words like a store of value, a mode of exchange, something that’s backed by gold, Government Trust, etc. Trust me the confusion to all doubts is here.
Last year, I attended a few webinars of Investing & Tips for building wealth in long term. It was a basic one explaining terms like Equity, Inflation, Bonds, Debt, etc. The core essence of the entire 1hr discussion was “keep investing a small amount each month for as long as you can, and don’t break the compounding cycle”. I came home and Googled some SIP calculators to predict my future wealth considering I’m only 19 years old now, and I can keep Investing for the next 40-45 years. The amount was a really considerable one but wait, that doesn’t count in Inflation. As you keep reading, you’ll see that the devil who’s destroying wealth silently for everyone is Inflation, whether you like it or not.
Overcoming my own thoughts & questioning why we do stuff?
From now onwards, as you keep reading I want to say that I have absolutely no intention of convincing you that the entire stock market is fraud or that the Governments aren’t capable of handling their own currency. I’ll write the rest of the blog based on real history with real people who got affected because of mismanagement by the Governments. Don’t worry, India isn’t there yet.
So, where did we left? Inflation right? The very first question that came to my mind was why on earth do we even have Inflation, can’t it be just removed from the system? I started digging into articles and books. I read some of the popular books like “The Psychology of Money”, but I don’t know something just felt weird on top of my head. It was not making sense to put that all together in this modern financial world and how money works.
I thought to myself that maybe Inflation was there to back up the increasing supply of Gold, we have heard that Gold supply doubles every 50 years. Maybe the governments do this to back the increasing supply. I hoped I was right but then I came to Twitter and got connected with an amazing guy, I won’t name that person but only through him, I came to understand and pinpoint the faults in our financial world.
I learned that in 1971, the link between US Dollars and Gold was broken down, and from then till today what we all have been using is Fiat Money. When Nixon, took the Dollar off the Gold Standard, the Central Banks could start printing real money as much as they thought was needed without even having Gold to back it up. That fact scared the hell out of me and I got even more suspicious of this shady scheme that is being operated in front of all of us.
Things get even worse
Headlines were made in 2008 when the world was stuck with a Financial Crisis. This time it was the subprime mortgages in America when banks basically gave loans to anyone who wanted to buy a home even with low Credit Ratings. I dug this up as well and I came to know of this company called AIG whose role was to ensure things up for the banks & their loans. So AIG Insured these loans and being a global giant back then, they went ahead and kept making profits by selling those baskets of the subprime mortgage until things fell apart and banks came to AIG claiming their insured money which AIG didn’t even have. The bank which was worst hit by this crisis was Lehman Brothers. Thousands of Americans were left homeless and they had no money to survive. A classic example of Crypto Rugpull. Isn’t it?
The Government used the taxpayers ‘ money to bail out these companies but what happened to those who lost everything? They were out of the picture. What I concluded from this event is that the problem lies in the way money is circulated today. You see the Central Banks print money and then they give that out to banks who lend it at a certain rate of Interest and they make profits. The Government’s job isn’t to make sure that people are rich but to be sure banks survive every economic collapse.
Bitcoin Comes to the Picture
Back in early 2010, I heard that people could even mine Bitcoins on their old laptops or computers. That fundamentally changed the way of distribution of money. Suddenly, you don’t have these bankers who think of making profits. From day 1 itself, the supply of Bitcoin was fixed at 21 Million. You can’t change that alone doesn’t matter how much political power or influence you have.
The properties that money should ideally have been,
- Medium of exchange, ie Divisible.
- Store of value.
Now we again go back to the basics, “money” hasn’t always been the thing that we use today. You see we humans have tried using Whale Tooth, Barley, Cattle, Metals as money. The chain of efficiency led to the survival of the fittest, which in our case today is paper.
But you can’t say any piece of paper as money. Ideally, if I say that all white A4 sheets will be money from tomorrow. Will you trust that? Hell no. Nobody ever will. Even if our prime minister and finance minister comes up on television and say the exact thing, that won’t even work. You might wonder why?
See, if I say that A4 sheets are worth Rs 2000 from tomorrow, everyone around you will start grabbing as many A4 sheets as they can from their nearby stores. That’s the problem when you have too many A4 sheets lying around. HyperInflation is triggered. Imagine the same happening with Fiat Money.
Every dollar you see among $5 was printed last year by the Fed. In India, we are also having low-Interest rates for some time to make easy credit available. The problem with all these is that it sounds too good to be true. The stock markets are at an all-time high all thanks to this fake stimulus & stocks are going off the sky. The average person may not even care for this as he’s watching his Stocks Investments rise by a hefty percentage in the last 1 year, but that’s not how it should be. You can’t print off a recession just like that.
The problem with too many dollars.
You see the problem starts from here. The value of a single dollar depends upon how many or how few of them are available in circulation. If you print too many of them, the value of an individual dollar goes down. That is termed Inflation. But it doesn’t kick in instantly. The economic structure is so complex that it takes at least 2-3 years for the effects to show off.
The fed could print dollars as they are the money printers, but no one can create Bitcoin just like that. Bitcoins are effectively a hedge against Inflation. The property of Bitcoin is that it inherits all the existing virtues of what can be termed as “Money” except for one, which was transaction fees. You see no one can afford to pay $5 – $20 for a single transaction. That issue is being solved by Lightning Network today.
When you start looking at these small factors which led to the creation of Bitcoin, you will realize that it isn’t something to be called a gimmick. The fact that all Fiat Currencies are worthless is very true but not yet visible to everyone. Governments try to regulate and monitor financial activity using their own currencies but that’s understandable. When they try to destroy one’s wealth by printing more money, I see that as a Criminal Activity.
Whether you buy Bitcoin or not. If you’ve read this far, I think you must have at least thought once of the offerings by Bitcoin. If you liked it, do share and let me know your thoughts.