Towards the end of 2020 it seemed that there might be a quick turn-around of the pandemic: the projections all over were for the vaccine to be rolled out for the most part by the end of 2021. But that’s just the vaccine.
What will return much later will be the one to a degree of normalcy as we knew it from before the pandemic. We will be more cautious and the pandemic will stay on our minds for a long time in much of the same way that other eras of hardship have stayed with other generations long after. Think of wars, think of periods of famine, think of dictatorial regimes, think of other outbreaks of rampant disease.
These are all areas that can be both quantified in numbers, but at the same time they can’t: cases of infection can be counted, but the way things have impacted can only be measured to a very modest degree. Still, it’s in the actions that can be measured that we tend to return to. It’s also where politics can be effective, most notably where it comes to the distribution of wealth to most people. Ideally, that is.
Money then
To maintain a degree of normalcy you need two lines of normalcy: routine in life-style and routine in income both for yourself and those around us that we interact with on all levels of society. To some degree this is money, but more than that it’s a fair distribution of wealth that can function as a cushion in times of hardship. And that means that there need to be systems in place that streamline all efforts that are needed to do just that.
What if that system is in a jam? What if, let’s say the projected inflation is about 15% per year for a period of five years? What if that means that you would loose half of the value of your assets at the end of those five years? And what if there was a way to dodge all that?
I guess that you can figure out what will come rolling in, blazing in all its glory, after it has been picking up momentum for about a decade. There you have it, the coin of the bit, of which it seems that it has attained critical mass. It’s vast enough not to fall over just like that, and it’s small enough to be able to pack on heat.
And yes, this has to do with money, because creating wealth is a money-act. Just like acquiring and holding on to assets for yourself and future generations is a money-act. Just like the labor that we perform on a daily basis is ultimately a money-act. You may like it or not, but the simple fact of the matter is that money will always be part of the equation.
Bitcoin has been around for a decade; why will this year be so important?
The short version is that we live in extra-ordinary times. Usually when things go South, it comes down to human meddling and human error. Covid-19 might be man-made, it might not be, but if it was man-made, then its release was most likely an accident. The more likely scenario is that it was transmitted by animals, which is also what was confirmed by experts that it was very unlikely that it was man-made.
In other words: what we have before us right now is something that will probably not come around for a good long time (the one before this one that had a similar scale, the Spanish flu, came around more or less one hundred years ago). The current pandemic already caused a deep recession that may later be categorized as a depression and it has unveiled social inequality throughout all societies.
And this is what most people don’t realize: once most people have been vaccinated by the end of 2021, the worst of the recession is far from over. Depending on who you ask, there seems to be a consensus that this recession will last anywhere between 3-5 years.
The reason that this recession is so deep has to do with three things: money printing (the government assistance), massive job loss and little to no effort of global governments to kickstart the economy by investing in vast projects that will create massive employment.
Things might turn around a bit, but based on what we have seen this last year, it’s probably too late and too little. It also falls right in line with the trend toward right-wing and leaning-towards-dictatorial-regimes of governments that operate as the ultimate corporation that only serves itself: the good of most is not in the interest of such governments, because it would shift the balance of power against those that are in charge.
To make a long story very short: the bad times are far from over, which means that money-printing will continue, which in turn means that digital assets like bitcoin become a more interesting alternative.
The good about bitcoin
There are the amazing facts: bitcoin is an asset (like gold), not money. This means that it’s good as a store of value, but not to pay small goods (this is also the area of fiat currency). There’s a limited amount, which means that there’s no inflation (unlike fiat money and gold). It has similarities to an adiabatic system (heating up = money added, siphoning off small amounts doesn’t much decrease its energy significantly unless done to an extreme extent, more on that later). The system regulates itself (there is no human meddling, no ceo taking extreme bonuses etc etc).
At the same time, I can’t help thinking of that old movie Hackers (where a group of hackers were siphoning literal fractions of cents from all transactions in a bank), plus the very simple question of motive: would anyone make something like bitcoin ‘out of the goodness of their heart’?
Then it hit me: if I would have created bitcoin, then I would have kept a good deal of it for myself. And that’s exactly what Nakamoto did: he (or they) own 1 million bitcoins. With this being a public fact, it immediately becomes clear that the underlying technology needs to be functional and almost impossible to compromise.
That’s as far as it gets to being legit, and that’s also as far as it gets by being an impartial global entity. This far it has lived up to its promise: the blockchain hasn’t been hacked, just the exchanges where coins were stored online (instead of a more secure off-line hardware wallet).
The fact that it’s completely unregulated might be a problem still, but it might also be what eludes 99% of the people. Then there’s only one logical way to go about this and that’s to take a good look at a historic event that has definite similarities.
Similar times leading up to the 1929 exchange crash
For about the last half year or so I was bombarded by this ad on YouTube promoting an online broker to help me invest in Apple, Amazon and Google. The only one missing besides those three would be Tesla. It seems that almost everyone is buying these stocks these days, partly because these are the dominant online forces, but also because it’s almost a hobby or a pet project to buy stocks. In a way it’s just something that you do at some point in time, or something that people just want to do.
The only question then is: do most people understand how the stock market operates? And by the same token: does anyone know how the blockchain, and for that matter, blockchain-technology, operates?
And that’s exactly the way a lot of folks roll into this: anyone can be an acolyte of any of those four (Amazon, Apple, Google, Tesla) without understanding one bit of any of their technologies. All that is not bad in itself, but understanding a technology will go a long way in figuring out whether something makes sense and whether investing in this or that is a good move.
In the 1920s the situation wasn’t much different: it was the decade after ww-1 (and the Spanish flu), and after that time of hardship it seemed that things were looking up. People bought stocks all over without understanding much of the machine behind any of it, except that the market was bullish (expected to keep going upward for an extended time).
Then the market collapsed virtually overnight on October 25, 1929
What had played a big part was the fact that stocks were sold off so quick that prices dropped incrementally fast, which caused a spiral in which a lot of value just disappeared. In the 1930s mechanisms were installed as a response and countermeasure to suspend trading to level out any case of rapid decline.
That’s mostly what was done after, but leading up to the crash there was a lot of speculation (leading to over-valuation), and little regulation. People started investing heavily in stocks, and private individuals even started borrowing money to invest in the stock market. Towards the crash, the bubble had become so big that the debt was as big as all the money that was circulating in the economy.
As it is with bitcoin, there might be an extent of over-valuation because the first bitcoins had no value compared to the more recent value of $34,000 USD two weeks ago (currently it’s down to $30,000 USD).
The same might be said about gold (apart from the fact that gold might have been immediately popular because it’s a nice shiny object). More than anything, the recent value of $34,000 USD might be a reflection of the trust that people have in the blockchain and bitcoin just happened to have become the biggest.
What makes bitcoin distinctly different from the 1929 crash conditions is that vast amounts of bitcoin can’t be bought or sold in fractions of seconds. This, besides the public ledger, might be one of the key mechanisms that ensures that the value of Bitcoin will become more stable over time.
Then there’s Micheal Saylor
Around the New Year videos started popping up in my YouTube feed of this CEO named Michael Saylor who supposedly bought hundreds of millions of Dollars worth of bitcoin in the fall of 2020 (on an unrelated side-note: this guy looks and talks like Stephen King).
Then afterwards he let himself be interviewed by basically anyone who was willing to hear him out. My initial take was that this guy talked sense, although once he revealed how much he had supposedly invested in bitcoin ---- it kind of looked like he was trying to get the word out there to increase the bitcoin value.
A lot of my initial take on this guy changed when I started listening to what he had to say, because these interviews turned out to be one of the best iterations of what bitcoin is and also how we should approach it in the larger framework.
The ideas: money as energy, but most of all the logic of the blockchain as a closed system (related to similar engineering systems) that heats up, picks up momentum, and from which you can siphon small amounts without significantly decreasing the momentum of the machine (the value of Bitcoin).
The idea just seems to make sense on a gut level: when more money (energy) is added to the system, the more momentum it gets and the slimmer the chances that it will slow down any time soon.
As mentioned before, with the delay in buying and selling bitcoins, it’s harder to artificially manipulate the price of bitcoin. More than that, this guy stated a couple of times that cryptocurrency is no currency, but an asset. That’s why you shouldn’t want to use it to buy goods, but just as a store of value.
As it is, the projected inflation for the current period of about five years will be about 15% per year. After that period of time the amount of goods that you will be able to buy with any amount of money in five years, will be less than half of what you can buy today (0.85^5 = 0.44).
When you have a vast amount of cash that you don’t want to spend right now: bitcoin is a loophole and an easy way out of a messy (political) situation. But that’s all it is, because as it is there are still the more traditional assets that will serve a similar function, albeit with slimmer margins (houses/offices to rent, gold, silver, lithium).
Compared to Tesla, investing in Bitcoin is also something else: it’s a way out, when there seems to be no effective allocation of liquidity. Which raises the question: isn’t this just another amassing of extreme wealth with the sole purpose of amassing extreme wealth? (see this recent article that I wrote in December for more on that).
When would Bitcoin seize to work
All this is nice and all, but it all seems a stretch so far. Most of it comes down to some of the facts that were already mentioned earlier: it’s unknown who made bitcoin and its value is based on a speculation on exchanges. The bigger ‘how’ as to why it still works hooks in to what really isn’t there at this moment: a global government.
In science-fiction movies the governments of planets always operate as one. There’s always a Klingon High Council, a Vulcan High Command and Earth Government. In itself it is a simplification to get a simpler story-line, but at the same time it makes sense that a planet has some sort of governing body, beyond an organization that does this without actually being able to govern on a global level.
In the second installment of Gaze wide, aim far, I proposed that ideally the UN would develop into this world government. When it comes to that, there’s a long road ahead still, because in times of hardship the tendency of people is to become more nationalistic, rather than less. Nothing is impossible though, because the EU has also started out of strong ideals and with very little governing power, but the recent Green Deal is drawn up in legislation in the European Union and it looks like this will be leading the way on the global stage.
To go back to bitcoin, fast forward fifty years with the UN as the world government: would bitcoin still be around? I would say that most of us would say ‘no’, because the reason that it exists today has in part to do with the fact that local governments don’t know how to deal with a global currency (besides designating it as an asset). Then the other fact is that it has already become to big to outlaw, exactly because it’s almost impossible to ban an online force when it can just be run on a foreign server or something as such.
Final thoughts
Bitcoin will definitely be around for some time to come: at least for the next 3-5 years, but it’s very hard to predict whether it will still be around in ten years. If you look at other online forces, then it’s usually the quick seconds that see the opportunity of a new technology, but they identify the shortcomings of the first on the market.
Bitcoin was the first and for a good long time Ethereum was the second, but it seems very unlikely that Ethereum will overtake Bitcoin any time soon, if at all. Compared to Bitcoin, Ethereum seems overly complicated to the point that it’s almost convoluted: it lacks bitcoin’s simple elegance.
But hé, there’s no time-constraint here. For now bitcoin is the big one. Will it always be that? Very unlikely. There definitely still is room for a second to seize the market (which is also what 4000 other cryptocurrencies haven’t been able to do).
These may be some of the shortcomings of bitcoin that a quick second needs to solve: problem of anonymity, both who created the bitcoin and its users. Problem of open-source, finances are ultimately too sensitive and too important to be susceptible to a technology that’s public knowledge. And again, these problems can only ‘really’ be solved by a world government.
Until then, enjoy the ride for the next 3-5 years….! But be safe. Only use money that you don’t need (1-3% of your assets), store your bitcoins off-line in cold storage and don’t buy too many bitcoins at once (because of unstable prices due to speculation).
Continue reading
Apple Sucks: why people stick with bad relationsOn the decline of Apple-products linked to the 2016 democratic party, 2007/2008 recession and decay of democracy.
Axis pandemic-recession: how to solve social inequalities
On the real problems that the recession has unveiled, and how we as a society might turn all of that around.
Prioritizing my life: goals and priorities are needed to succeed
On what it takes to realize New Year ambitions and any other time you might want to turn things around.
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