Updated: Apr 6
This writing is an opinion piece and does not reflect the views of Texas Innovators. This writing is strictly for educational purposes and is not financial, investment, tax, or any other form of advice.
In this edition of the Crypto Corner, we will dive into the philosophical foundations of Bitcoin, a philosophy that is rooted in financial freedom, equity, and self-sovereignty. In my opinion, this is the starting point for why Bitcoin and blockchain development and adoption are essential.
Decentralization, privacy, and equity are foundational to Bitcoin and the philosophy of Bitcoiners around the world. The beauty of Bitcoin is that it is the decentralized alternative to central banking that allows anyone in the world to access and leverage it.
But what exactly is decentralization? What does it mean that Bitcoin is a decentralized asset? Why does it even matter? What even is money?
Centralization and the Power of Decentralization
Centralization is the phenomenon of a single point of control, which, in turn, is a central point of failure. We currently interact with the financial system through a centralized means, hence the central banking system. The involvement of centralized institutions means that consumers have to play by the rules of that centralized entity, which is all fine and dandy -until it’s not.
This relationship with a centralized authority is one built on trust. Do you trust the central bank and all other centralized entities to keep your best interest in mind, or are you better suited to look out for your interests and remove the reliance on that third party?
This is the power that Bitcoin gives you, a decentralized, permissionless, globally accessible asset. Bitcoin allows individuals to maintain their hard-earned value without relying on a third party to control the foundational principles of their accumulated value.
Furthermore, Bitcoin is a payment system based on cryptographic proof rather than the “trust” in a third party through Bitcoin’s proof-of-work network. Bitcoin has the core attributes of money, acting as a medium of exchange, store of value, and unit of account. There is a FUD (fear, uncertainty, and doubt) narrative against Bitcoin that argues that Bitcoin has no intrinsic value and that the actual value of Bitcoin is zero.
What is Value?
Value is a construct of markets. People come together to assign value. Without consumers or markets, there is no perception of value. As a society and as market actors, we assign value to an asset.
When it comes to money such as USD, a fiat currency, what gives it value? Investopedia says fiat money is “a government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it… Fiat money gives central banks greater control over the economy because they can control how much money is printed.”
How much USD has been printed? Take a look at M1, the money supply composed of currency, demand deposits, and other liquid deposits. Though the M1 is a discontinued metric, reported by the Federal Reserve Economic Data (FRED) created and maintained by the Federal Reserve Bank of St. Louis, it paints a picture of how the supply of money in the U.S. has grown since 1975. Be mindful that this metric started being reported after the end of the Gold Standard, a process that began in 1933 and was finalized by President Richard Nixon in August of 1971 with the closing of the gold window, bringing an end to the Gold Standard.
Another metric to be mindful of is the U.S. government debt, which can be viewed in real-time here.
Fiat vs. Bitcoin
Back to the value of currencies. Why does USD have value? Because the U.S. government says it has value, though it is not backed by anything aside from the U.S. government.
With Bitcoin, the value comes from the market and the consumers that use it. Bitcoin’s value is founded in the system upon which it is built and its uses by market actors. Bitcoin is for the people and puts the power of financial decisions and value back into the hands of the people, taking that power that has traditionally been in the hands of central banks.
Understanding what money is and where its value comes from is central to understanding the importance of Bitcoin and its use as an alternative to the centralized financial system.
It was not too long ago, relative to human history, that shells or rocks were used as a form of money. Money is a human construct; it is not a natural phenomenon in the original state of nature.
When you take a step back and understand that Bitcoin provides an alternative to the status quo of traditional finance, your eyes open up to a world of opportunity founded on decentralized freedom. You are the holder and creator of your destiny once you realize the importance of decentralization and remove the reliance and “trust” of third parties to dictate the foundational principles of your hard-earned value.
Michael Saylor’s Hot Take
Here are some quotes from Michael Saylor’s foreword to The Bitcoin Standard, a book by Saifedean Ammous. Michael Saylor’s company MicroStrategy ($MSTR) is the largest corporate holder of bitcoin. Microstrategy has adopted the Bitcoin standard by converting 99% of their $500 million war chest into bitcoin, keeping the remaining 1% stored in local currencies required to do business as of March 2021:
“The monetary response of policymakers to this economic shock [Covid-19] was unprecedented. The supply of currency expanded at the fastest rate in modern history, with every nation engaged in aggressive asset purchases, fiscal stimulus, deficit spending, and interest rate suppression. The result was a K-shaped recovery – asset-rich firms rapidly bounced back and had their best performing year of the century, while operating companies saw their revenues collapse and their earnings dissipate.”
The foundational question to his problem and his arrival to adopting the bitcoin standard was this:
“How does a modern corporation protect its balance sheet in an environment of monetary inflation where the currency is losing 15% of its purchasing power each year, while the after-tax yields available from traditional treasury instruments are effectively zero?”
“Bitcoin is the world’s first digital monetary network. Bitcoin is also the world’s first engineered monetary asset. Together, these traits represent the most disruptive technology in the world, the greatest opportunity currently available to those who wish to create something new and wonderful, and the solution to the store-of-value problem faced by 7.8 billion people, 100+ million companies, and hundreds of trillions of dollars of investor capital.”
As of February 1st, MicroStrategy holds roughly 125,051 bitcoins, purchased for nearly $3.8 billion.
We dive further into Bitcoin and crypto in the latest episode of The Great State of Innovation podcast.
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Disclosure: Cole currently HODLs Bitcoin (BTC), Tezos (XTZ), and Ethereum (ETH). Cole has been involved with Bitcoin and crypto for eight years and constantly strives to learn more about digital assets. Cole is also currently mining bitcoin.
If you are interested in getting bitcoin back for the money you are already going to spend, check out the Fold App, a platform that offers a debit card that allows you to earn bitcoin back on your everyday purchases. There is also Lolli, a browser plugin that gives you bitcoin back for shopping with Lolli partners for office supplies, books, outdoor recreation, lodging, and so much more.