Why you need a plan B for financial security
For more people, freedom means, at the very least financial independence or financial security. How free are you if you cannot afford your next meal or a roof above your head? If you are reading this, you are probably the privileged few with a bank account and can send money across the world. If someone came and offered an alternative to a bank or card, you would dismiss the other person. We understand putting all your eggs in one basket is not wise, but sometimes these baskets are hard to recognize as they are so deeply entrenched in our lives throughout our lifetime. In this blog post, I will start by looking at various financial ‘baskets’ available to people worldwide from a historical perspective. I will preface by stating that what you are about to be reading will be a lengthy post, and this is because I am starting from first principles; it will be hard to do it justice in a shorter post.
I will provide examples of places where financial issues are rampant. If you think it's happening in one corner of the world and that it won't impact you, then need I remind you of a particular virus that was only in one isolated market in some far-off country that wreaked havoc in 2020 and continues to ravage across the world. I am thankful for Saifedean Ammous, Andreas M. Antonopoulos, and Michael Saylor, as much of the material below is borrowed from their work.
Why you should care about money
Even if you are the privileged few with a bank account and a healthy balance, when political leaders make bad political choices that are outside your control, such as depleting the foreign reserves, as in the case of Sri Lanka, the common person cannot buy fuel(because there is no fuel as the country imports it and the country has run out of money to buy it), medicines or food. You cannot get medical care as doctors cannot get to work(again, no fuel) and cannot get food as farm-grown food cannot reach cities(no fuel, remember?). Sri Lanka cannot afford to pay for imports, fuel, food, and medicines as it has run out of foreign currency to buy these goods.
In China, thousands of people with bank accounts lost access to their life savings of more than $1B USD.
If you lived in Germany with a bank account in the 1920s, you would have experienced Hyperinflation. A loaf of bread in Berlin that cost around 160 Marks at the end of 1922 cost 200,000,000,000 Marks by late 1923. Can you imagine if your staple food(rice, wheat, etc.) became 100 million times more expensive in one year? If your handful-of-rice/loaf of bread was $1(or what ever local currency) last year it would be $100Million this year! Some historians say Hitler would not have been able to drum up support without such straining economic conditions. Hyperinflation is not a one-off occurrence, this has happened in Venezuela many times in the recent past, In Venezuela's faltering economy, prices rose by 223.1% in one month in 2018 alone. Below is the image of Hyperinflation in Europe, South America, and Asia. This is happening in Sri Lanka now as well.
What is money?
(Spend a few moments to think about this before proceeding)
Hopefully, I've made a case for why you should care about money as it refers to freedom for yourselves and your loved ones, but we never discussed why we needed money in the first place. Humans in tiny groups don't need money; they can organize resources among themselves manually. However, groups that reach the Dunbar number or larger usually start identifying and using some form of money, giving them a more liquid, divisible, friction-minimized, and widely-accepted accounting unit for storing and exchanging value with people they don't know. There is an excellent blog that dives deep into that very subject.
Hence, at its very basic level and in societies, money represents an abstraction of value that allows the organization of resources amongst humans; it's a way of communicating value. Money is as old as language because the ability to communicate value is as old as language and money. In many ways, it has characteristics that make it a linguistic construct. It also has the form of energy. It has the energy to build houses(using money to acquire raw materials and the people services to plan and build the house) or send satellites(or a car) into space.
Money has three major properties:
Store of value(Savings) - When we save, we store our resources in something safe, liquid, and portable, a.k.a. money. This is a low-risk battery of future resource consumption across time and space. By holding the most salable good (such as Gold, historically), your purchasing power gradually appreciates over time because the labor/resource cost of most other things goes down, whereas that salable good retains most or all of its scarcity and value. Most commodities, products, and services structurally decrease in price gradually relative to your strong store of value. What makes good money? Something that is rare. Shells, feathers. You can use shells as money unless you live on a beach; if you live on a beach, you can't use shells as money. You can transport the value easily. So, it has to be portable. With few exceptions, most forms of money are highly portable.
Medium of exchange- Money is as good as what you can buy with it. On a deserted island, a Rolex watch will not help you, but clean drinking water and bananas will. In Sri Lanka today(Aug 2022) or Germany in the 1920s, buying food is/was monumentally expensive because their currencies were entirely devalued.
Unit of account- Since we use currencies as units of accounts, let's first define that. We can define currency as an institution's liability, typically a commercial or a central bank, used as a medium of exchange and unit of account. In contrast to currency, we can define money as a liquid and fungible asset that is not also a liability. It's something intrinsic, like Gold. It's recognized as a highly salable good in and of itself. In some eras, banks held money as a reserve asset to support the currency they issued as liabilities. Under gold standard systems, currency represented a claim for money. The bank would pay the bearer on demand if they came to redeem their banknote paper currency for its pegged amount of Gold.
Central Asians, as a nomadic culture, used livestock as money at the time of Battuta. The unit of account was a sheep, and larger types of livestock would be worth a certain multiple of sheep. As they settled into towns, however, the storage costs of livestock became too high. They eat a lot, they need space, and they're messy.
Russians had a history of using furs as a monetary good. There are even referenced instances of using a bank-like entity that would hold furs and issue paper claims against them. Parts of the American frontier later turned to furs as money for brief periods of time as well.
Seashells were used by a few different regions as money and, in some sense, were like Gold and beads in the sense that they were for both money and fashion. In summary, the more complex an economy becomes, the greater the number of combinations of barter you can have between different types of goods and services providers, so the economy starts requiring some standard unit of account or money.
Why Gold was used as a store of value for thousands of years
To understand how commodity money emerges, we begin by differentiating between a good's market demand (demand for consuming or holding the good for its own sake) and its monetary demand (demand for a good as a medium of exchange and store of value).
Any time a person chooses a good as a store of value, she is effectively increasing its demand beyond the regular market demand, which will cause its price to rise. For example, market demand for copper in its various industrial uses is around 20 million tons per year, at a price of around $5,000 per ton, and a total market valued at around $100 billion. Imagine a billionaire deciding he would like to store $10 billion of his wealth in copper. As his bankers run around trying to buy 10% of annual global copper production, they would inevitably cause the price of copper to increase. Initially, this sounds like a vindication of the billionaire's monetary strategy: the asset he decided to buy had already been appreciated before he had even completed his purchase. Surely, he reasons, this appreciation will cause more people to buy more copper as a store of value, bringing the price up even more. But even if more people join him in monetizing copper, our hypothetical copper-obsessed billionaire is in trouble.
The rising price makes copper a lucrative business for workers and capital worldwide. The quantity of copper under the earth is beyond our ability even to measure, let alone extract through mining, so practically speaking, the only binding restraint on how much copper can be produced is how much labor and capital is dedicated to the job. More copper production would inevitably cause the price of copper to increase. Initially, this sounds like a vindication of the billionaire's monetary strategy: the asset he decided to buy had already been appreciated before he had even completed his purchase. Surely, he reasons, this appreciation will cause more people to buy more copper as a store of value, bringing the price up even more. But even if more people join him in monetizing copper, our hypothetical copper-obsessed billionaire is in trouble. More copper can always be made at a higher price, and the price and quantity will continue to rise until they satisfy the monetary investors' demand; let's assume that happens at 10 million extra tons and $10,000 per ton. At some point, monetary demand must subside, and some holders of copper will want to offload some of their stockpiles to purchase other goods because, after all, that was the point of buying copper. After the monetary demand subsided, all else being equal, the copper market would return to its original supply-and-demand conditions, with 20 million annual tons selling for $5,000 each. But as the holders begin to sell their accumulated stocks of copper, the price will drop significantly below that. The billionaire will have lost money in this process; as he was driving the price up, he bought most of his stock for more than $5,000 a ton, but now his entire stock is valued below $5,000 a ton. The others who joined him later bought at even higher prices and will have lost even more money than the billionaire himself.
This model applies for all consumable commodities such as copper, zinc, nickel, brass, or oil, primarily consumed and destroyed, not stockpiled. Global stockpiles of these commodities at any moment in time are around the same order of magnitude as new annual production. New supply is constantly being generated to be consumed. Should savers decide to store their wealth in one of these commodities, they will only buy a fraction of the global supply before bidding the price up enough to absorb all their investment because they are competing with the consumers of this commodity who use it productively in industry.
For anything to function as a good store of value, it has to beat this trap: it has to appreciate when people demand it as a store of value, but its producers have to be constrained from inflating the supply significantly enough to bring the price down. Such an asset will reward those who choose it as their store of value, increasing their wealth in the long run as it becomes the prime store of value because those who chose other commodities will either reverse course by copying the choice of their more successful peers or will simply lose their wealth. The clear winner in this race throughout human history has been Gold, which maintains its monetary role due to two unique physical characteristics that differentiate it from other commodities: first, Gold is so chemically stable that it is virtually impossible to destroy, and second, Gold is impossible to synthesize from other materials and can only be extracted from its unrefined ore, which is extremely rare in our planet.
This all means that the existing stockpile of Gold held by people worldwide is the product of thousands of years of gold production and is orders of magnitude larger than new annual production. Over the past seven decades, with relatively reliable statistics, this growth rate has always been around 1.5%, never exceeding 2%. This consistently low rate of supply of Gold is the fundamental reason it has maintained its monetary role throughout human history, a role it continues to hold today as central banks continue to hold significant supplies of Gold to protect their paper currencies.
Only silver comes close to Gold in this regard, with an annual supply growth rate historically around 5–10%, rising to around 20% in the modern day. Given that they were used physically, silver and Gold complemented each other: Gold's high stock-to-flow(More stock of existing Gold than the inflow of newly dug up Gold) ratio meant it was ideal as a long-term store of value and a means of large payments, but silver's lower value per unit of weight made it easily divisible into quantities suitable for smaller transactions and for being held for shorter durations.
Two particular technological advancements moved Europe and the world away from physical coins and, in turn, helped bring about the demise of silver's monetary role: the telegraph, first deployed commercially in 1837, and the growing network of trains, allowing transportation across Europe. With these two innovations, it became increasingly feasible for banks to communicate with each other, sending payments efficiently across space when needed and debiting accounts instead of having to send physical payments. This led to the increased use of bills, checks, and paper receipts as monetary media instead of physical Gold and silver coins.
More nations began to switch to a monetary standard of paper fully backed by and instantly redeemable into precious metals held in vaults. Some nations would choose Gold, and others would choose silver, in a fateful decision that was to have enormous consequences. Britain was the first to adopt a modern gold standard in 1717, under the direction of physicist Isaac Newton, who was the warden of the Royal Mint, and the gold standard would play a great role in Britain advancing its trade across its empire worldwide. Britain would remain under a gold standard until 1914. This solved the problem of Gold's salability across space, making Gold the best monetary medium—for as long as the banks hoarding people's Gold would not increase the supply of papers they issued as receipts.
The economic supremacy of Britain was intricately linked to its being on a superior monetary standard, and other European countries began to follow it.
India was on a silver standard and only switched from silver to Gold in 1898, while China and Hong Kong were the last economies to abandon the silver standard in 1935.
Example 1: What economic policy decisions did India and China make that led them to lose out in the early 20th century?
Dr. Saifedean Ammous makes a compelling case in his book that the history of China and India, and their failure to catch up to the West during the twentieth century, was inextricably linked to this massive destruction of wealth and capital brought about by the demonetization of the monetary metal these countries utilized. The demonetization of silver, in effect, left the Chinese and Indians in a situation similar to west Africans holding aggri beads as Europeans arrived: domestic hard money was easy money for foreigners and was being driven out by foreign hard money, which allowed foreigners to control and own increasing quantities of the capital and resources of China and India during the period. This is a historical lesson of immense significance and should be kept in mind by anyone who thinks his refusal of new harder forms of money(harder means a high stock-to-flow ratio) means he doesn't have to deal with it.
If you take just one thing from this post, let it be this: History shows it is impossible to insulate yourself from the consequences of others holding harder money than yours.
Example 2: Ancient Rome
Julius Caesar, the last dictator of the Roman Republic, created the aureus coin, which contained around 8 grams of Gold and was widely accepted across Europe and the Mediterranean, increasing the scope of trade and specialization in the Old World. Economic stability reigned for seventy-five years, even though the political upheaval of his assassination, which saw the Republic transformed into an Empire under his chosen successor, Augustus. This continued until the reign of the infamous emperor Nero, who was the first to engage in the Roman habit of "coin clipping," wherein the Emperor would collect the coins of the population and mint them into newer coins with less Gold or silver content. For as long as Rome could conquer new lands with significant wealth, its soldiers and emperors could enjoy spending their loot, and emperors even decided to buy themselves popularity by mandating artificially low prices of grains and other staples, sometimes even granting them for free. Instead of working for a living in the countryside, many peasants would leave their farms to move to Rome, where they could live better lives for free. With time, the Old World no longer had prosperous lands to be conquered, the ever-increasing lavish lifestyle and growing military required some new source of financing, and the number of unproductive citizens living off the emperor's largesse and price controls increased. Nero, who ruled from 54–68 AD, had found the formula to solve this, which was highly similar to Keynes's solution to Britain's and the U.S.'s problems after World War I: devaluing the currency would at once reduce the real wages of workers, reduce the burden of the government in subsidizing staples, and provide increased money for financing other government expenditure.
It should be of interest to modern Keynesian economists, as well as to the present generation of investors, that although the emperors of Rome frantically tried to "manage" their economies, they only succeeded in making matters worse. Price and wage controls and legal tender laws were passed, but it was like trying to hold back the tides. Rioting, corruption, lawlessness, and a mindless mania for speculation and gambling engulfed the empire like a plague. With money so unreliable and debased, speculation in commodities became far more attractive than producing them.
With this fall in the value of its money, the long process of the terminal decline of the empire resulted in a cycle that might appear familiar to modern readers: coin clipping reduced the aureus's real value, increasing the money supply, allowing the emperor to continue imprudent overspending, but eventually resulting in inflation and economic crises, which the misguided emperors would attempt to ameliorate via further coin clipping.
Remind you of something?
Example 3: Renaissance
While it is widely recognized that the rise of the city-states dragged Europe out of the Dark Ages and into the Renaissance, the role of sound money in this rise is less recognized. In the city-states, humans could live with the freedom to work, produce, trade, and flourish, and that was, to a large extent, the result of these city-states adopting a sound monetary standard. It all began in Florence in 1252, when the city minted the florin, the first major European sound coinage since Julius Caesar's aureus.
It is no coincidence that Florentine and Venetian artists were the leaders of the Renaissance, as these were the two cities that led Europe to adopt sound money. The Baroque, Neoclassical, Romantic, Realistic, and post-Impressionistic schools were all financed by wealthy patrons holding sound money, with a very low time preference(they cared more for the long term than the short term) and the patience to wait for years, or even decades, for the completion of masterpieces meant to survive for centuries. Bach never claimed to be a genius or spoke at length about how his music was better than others; he spent his life perfecting his craft. Michelangelo spent four years hanging from the Sistine Chapel ceiling, working for most of the day with little food to paint his masterpiece.
Whether in Rome, Constantinople, Florence, or Venice, history shows that a sound monetary standard is necessary for human flourishing, without which society stands on the precipice of barbarism and destruction.
So what is plan B?
The move from having "zero to one" successful example of technology is the hardest and most significant step in an invention, whereas the move from "one to many" is a matter of scaling, marketing, and optimization. Those enamored with the concept of progress might find it hard to swallow that the world of sound money pre-1914 was the world of zero to one, whereas the post-1914 world of government-produced money is the world of moving from one to many.
Most of the technology we use in our modern life was invented in the nineteenth century, under the gold standard, financed with the ever-growing stock of capital accumulated by savers storing their wealth in sound money and store of value that did not depreciate quickly. Electricity, internal combustion engines, the telephone, cars, airplanes, subway, electric elevator, heart surgery, organ transplant, anesthetics, and modern sanitation was invented in the Gold standard. Keeping aside computers and the internet, most of what we have achieved in the twentieth century was to improve on the innovations of the nineteenth.
Is the answer to move back to the gold standard? Gold was an excellent store of value across time, but it was hard to transport large volumes of Gold across borders, so its salability across space was limited. It was also hard to verify the authenticity of the Gold. However, paper money redeemable for Gold was a good move, but politicians were too tempted to print paper money at will(or Fiat, which means ‘let it be so’ or basically based on someone’s arbitrary will) without backing it up with Gold, so the world moved out of the Gold standard in 1971 with Richard Nixon's action. Historical precedents show that countries cannot resist the urge to print money (or devalue their currency) to pay off foreign debt while devaluing the citizenry's currency making the money that you and I hold in our bank accounts less valuable. Essentially, if you are living in a country with high inflation your money is subject to the same devaluation. Refer to the charts above to examine how inflation runs rampant across continents and across time. Reducing the currency's value does nothing to increase the competitiveness of the industries in real terms. Instead, it only creates a one-time discount on their outputs, thus offering them to foreigners at a lower price than locals, impoverishing locals and subsidizing foreigners.
Also, Billions of people do not have bank accounts. Close to one-third of adults worldwide were still unbanked in 2017, according to Findex data. About half of unbanked people included women from poor households in rural areas or out of the workforce.
The case for Bitcoin
Bitcoin's seminal whitepaper came into existence after the 2008 financial crisis, where trust in financial institutions was abysmal. For centuries, social institutions were organized around hierarchical organizations: institutions, democracy, banking, and education. All our social interactions were organized by appeal to authority in these hierarchies, these bureaucracies of people. But something happened with the invention of the internet. We started seeing more and more of these social institutions changing from systems that were closed, opaque, unaccountable hierarchical complexes with their own rules into platforms. We started seeing the introduction of systems with interfaces and APIs that we can access, where information can flow in and out of the organization. So, we move from institutions to platforms.
Then, we start seeing an even more important transformation when we move from platforms to protocols. The interesting thing about the change between a platform and a protocol is that there is no central appeal when you have a protocol. TCP/IP doesn't work with a service provider. TCP/IP works without context everywhere in the world. You don't have to sign up for an account to use TCP/IP; you just have to use the language. Once you move from a platform to a language, it opens up all of these possibilities.
Bitcoin is the first network-centric, protocol-based form of money. That means it exists without reference to an institutional or platform context.
The Architecture of Bitcoin is Peer-to-peer, which means that when you send out a transaction to the network, every peer treats it the same. It has no context inside the peer's system other than what it gets from the network. An interesting issue in distributed systems is the issue of context and state. If you log in to Facebook and have an account with Facebook, you're not using a protocol(You are still using TCP/IP, but it’s super-seeded by the platform). All of the state is controlled by Facebook. You have a login session, and they hold all the data. We call that architecture client-server. Bitcoin is different because it's peer-to-peer, just like email or TCP/IP.
In today's financial fiat reality, you are the client. You are not the server. The server doesn't serve you; they serve themselves because they're the master. Thousands of people lost access to their savings account in China(worth over $1.5B). If it can happen in one of the most advanced nations in the world, which is vastly touted to dethrone the US as the next next superpower, then it can happen at home. That is the architecture of money we live in. That is the architecture of money we use in our civilization: an architecture of money where you have no control; an architecture of money where every interaction is mediated by a third party that has absolute control over that money. Today, if you go to an ATM machine and put in your card, the bank may decide to give you your money. One day—as the people of Cyprus, Greece, Venezuela, Argentina, Bolivia, Brazil, and a list of hundreds of countries over the last several decades and even centuries have discovered—one day, you go to the bank, and the bank does not want to give you the money, because they don't have to. That's the essence of a master-slave relationship.
Bitcoin is fundamentally different because in bitcoin, you don't owe anyone anything, and no one owes you anything. It's not a system based on debt(unlike any currencies). It's a system based on ownership of this abstract token. Absolute ownership. There is an expression in the United States which is "possession is nine-tenths of the law." In bitcoin, possession is ten-tenths of the law. If you control the bitcoin’s private keys, it's your bitcoin. If you don't control the bitcoin keys, it's not your bitcoin. You're back to a master-slave relationship. Private keys is a separate section in a ‘How to use’ Bitcoin blog post that I am yet to write(but there are excellent youtube videos on that topic).
Though the internet was fantastic at democratizing information, the internet never decentralized financial inclusion. Banking has not changed significantly with the advent of the internet. Bitcoin changes that. Bitcoin is the internet of money.
A transaction in Bitcoin has no state or context other than obeying the network's consensus rules that no one controls. Where your money is yours. You control it absolutely through the application of digital signatures, and no one can censor it, no one can seize it, no one can freeze it. No one can tell you what to do or not do with your money.
It is a system of money that is simultaneously transnational and borderless. We've never had a system of money like that. It's a system of money that transmits at the speed of light, one that anyone in the world can participate in with a device as simple as a text-messaging phone.
One of the other crucial aspects of Bitcoin is its fixed monetary policy. There can only ever be a 21 million Bitcoin, and the last Bitcoin will be mined in the year 2140. A subset of Austrian economists began recognizing bitcoins as being interesting monetary goods; specifically, the finitude of the coin supply at 21 million stood out to some of them(Excellent stock-flow ratio). When it became more broadly understood how immutable the Bitcoin network's ruleset was and how its security, liquidity, and decentralization dwarfed any other proof-of-work cryptocurrencies, many people began considering it hard money. Several human rights activists began to recognize it as an ideal anti-authoritarian technology for its censorship-resistant aspects and use it as such. If Bitcoin establishes itself as a sound store of value, it will certainly be harder than Gold.
Common objections to bitcoin
Bitcoin is used for illegal activities- If you read anything about bitcoin, you'll see the same things they said about the internet in the early '90s: "It is a haven for pedophiles, terrorists, drug dealers, and criminals." Bitcoin was also used very early by people using online black markets, in a similar way that criminals were early adopters of pagers as a technology (which doesn't make the technology itself bad). Criminals use the most cutting-edge technology because they operate in an environment with very high-profit margins and very high risk. In that environment, competition is fierce. Using the latest technology isn't a big deal if you're already taking enormous risks.
On the flip side, others were dealing with real-world constraints of other means of payment, such as Roya Mahboob, who used it to pay women and girls in Afghanistan, where female bank account access is more restricted. Ire Aderinokun, the co-founder of Nigeria's Feminist Coalition, spoke in Norway's parliament about how when they protested police violence in Nigeria, they had their bank accounts frozen and resorted to using bitcoins instead for their self-custodial and censorship-resistant properties.Bitcoin is outside government oversight- When the world was on Gold standard, the government couldn’t print gold based on their whims. Only in Fiat can the government decide to print as much money as it wants and give it to friends and family. During the gold standard government didn’t control how much. Before 1914, the world was pretty much on the gold standard. As mentioned above, the world saw significant zero-to-one innovation. Having and using cash dollars is illegal in several countries with a failing currency. And yet cash dollars are often accepted by merchants anyway. It’s very hard to enforce a cash dollar ban when people have trouble using the local currency due to high inflation or transaction censorship. Similarly, it’s rather hard to enforce a perpetual ban on open source software and peer-to-peer digital transactions; the number of enforcement points is huge, and developers keep adapting it to make it easier and more private to use
Bitcoin is hard to start using: This is, unfortunately, the case right now, but if you ever tried to send email in the early 90s, it was extremely hard, but now ( after a decade), everyone can send instant communication through email. If you wait for the user experience to improve to use Bitcoin, the price might just be beyond your reach. The telephone and the Internet led to radical changes in the way we work and interact. You might think that the benefits of a telephone were obvious, even in 1876 — and that adoption was driven only by cost and speed-to-market. But this is not the case. When the phone was demonstrated in two cities in Massachusetts, everyone was already aware of Alexander Graham Bell’s clever new gadget. But few people wanted one. A New York Times reporter scoffed that investors were wasting money because the invention would be of little use to consumers and businesses. It didn’t occur to him that instant, ubiquitous communication (using a device that requires only a voice) would change the face of emergency services or allow close relatives to live far apart without wondering what happened to each other. He wrote that it was a rich man’s toy, useful only for hearing a voice from down the street.
Bitcoin is too volatile: With a supply schedule utterly irresponsive to demand, and no central bank to manage the supply, there will likely be volatility, particularly at the early stages when demand varies very erratically from day to day, and the financial markets that deal with bitcoin are still an infant. But as the size of the market grows, along with the sophistication and the depth of the financial institutions dealing with bitcoin, this volatility will likely decline. With a larger and more liquid market, the daily variations in demand are likely to become relatively smaller, allowing market makers to profit from hedging price variations and smoothing the price. As bitcoin grows, its token price will behave like a start-up's stock, achieving very fast growth. Should bitcoin’s growth stop and stabilize, it would stop attracting high-risk investment flows and become just a normal monetary asset expected to appreciate slightly every year.
Bitcoin has an extremely negative environmental impact: The characteristic that gives bitcoin its tamper-proof capability is not "the blockchain”; it’s proof-of-work. Proof-of-work is what makes bitcoin fundamentally immutable. That is a really important concept to understand because many people are throwing around the word "blockchain" and claiming that their alternative blockchains are immutable even though they don’t have a proof-of-work consensus algorithm or any kind of consensus algorithm gives them immutability. At best, they are tamper-evident, meaning someone will notice, but they are not unchangeable. You can see evidence of proof-of-work systems throughout human civilization. There are a few big pointy proof-of-works in Cairo: the pyramids. There is one big stone proof-of-work in Paris: the Cathedral of Notre Dame, and a big marble proof of work in Agra: Taj Mahal. The interesting purpose of these monuments is a declaration to every civilization and human who sees them: “Behold, this is the measure of the Egyptian/Indian civilization. This is what we can build. This is proof-of-work. You cannot build this in a civilization that doesn’t have abundant resources. You cannot build this unless you can support 20,000 people not to do anything but this. You cannot build this unless you can guard it with soldiers unless you commit resources for decades or centuries. This cannot be built cheaply.
Bitcoin is not simply a system of accounting; it is the first digital artifact that provides forever-history and true digital immutability. There is no other system that provides digital immutability at that level. It is a planetary-scale, thermodynamically guaranteed and a self-evident system of immutability. Immutability as a service is an astonishing application. It has enormous implications for software, the Internet of Things, information security, other currency systems, and systems of record (title, registration, birth records, etc.). History can be written on the blockchain; as long as it’s there, it cannot be changed, and everyone can validate it. That is not a waste of electricity; that is the first practical application of digital immutability. If it brings about financial inclusion for everyone on the planet with a cell phone, then it is, in my opinion, energy well spent.
Have you ever wondered how much energy fiat consumes? Politicians printing money for their cronies, friends, family, and the wasteful foreign exchange markets that are present. The Bank of International Settlements estimates the size of the foreign exchange market to be $5.1 trillion per day for April 2016, which would come out to around $1,860 trillion per year. This means that the foreign exchange market is around 25 times as large as all the economic production that takes place in the entire planet. It's important to remember here that foreign exchange is not a productive process, which is why its volume isn't counted in GDP statistics; there is no economic value being created in transferring one currency to another; it is but a cost paid to overcome the large inconvenience of having different national currencies for different nations. It is an astonishing fact of modern life that an entrepreneur in the year 1900 could make global economic plans and calculations all denominated in any international currency, with no thought whatsoever given to exchange rate fluctuations due to the gold standard. There is also the cost of smart people working on non-productive financial engineering instead of Nuclear Fusion, Interstellar Travel or clean water to all humans on the planet.
Purely from the energy economics, out of all the energy that gets generated and used in the U.S., about 65% was wasted in 2021, according to a chart by Lawrence Livermore National Laboratory, a research facility funded by the U.S. Department of Energy and UC Berkeley. Bitcoin Miners can be a solution to the problem of unconsumed energy and stabilize the grid. Currently, 57% of the energy used for crypto mining comes from renewable sources. Bitcoin and crypto mining also offers energy companies intriguing opportunities to create new revenue streams, improve demand response and even accelerate the expansion of the long-term renewable resource base.
Conclusion
Almost 3 billion people have access to cell phones but do not have access to safe drinking water. Cell phones are more widespread than water on our planet. Very few people in Nigeria have access to the banking system, and this is where Bitcoin has found fertile ground since it does not require a bank; it only requires a smartphone with an internet connection. Estimates show that of the top 10 countries for trading volumes, Nigeria ranked third after the US and Russia in 2020, generating more than $400m worth of transactions. As mentioned above, History shows it is not possible to insulate yourself from the consequences of others holding money that is harder than yours. If Gold was able to demonetize silver, then Bitcoin could potentially demonize Gold(Central banks still hoard more gold than ever despite being on the Fiat Standard; Money Heist Season 5 wouldn’t have made much sense otherwise).
This is why you need a plan B, where you at least hold 1% of your net worth in Bitcoin, and the ‘B’ in ‘Plan B’ stands for Bitcoin.
