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@ JOD
2024-12-13 10:30:17
Some hardcore bitcoiners love to say you should ignore the fiat price and instead denominate the things you want to buy in bitcoin over time as a way to measure it’s value. The image showing price of the median home in bitcoin over time is probably the most popular
The issue with that image is it’s still using fiat as the measurement. Because homes aren’t purchased using bitcoin we have no way to measure how many bitcoin the median home is worth without first denominating both assets in dollars. I still love the image and think it’s a stark reminder of just how much bitcoin has appreciated even against an asset that boomers would consider scarce, but the equation isn’t as simple as median home divided by bitcoin. It’s really (home/dollars)/(bitcoin/dollars).
That brings me to another thought. How do we get to a point where we can denominate things like houses, gallons of gas, ground beef, NFL tickets, or an oil change in bitcoin without first converting both to their dollar value?
We’ll stick with the house example. Let’s say I’m a builder who has purchased a half acre of land and had a 3 bed 2 bath home built on the property. Now I’m looking to sell the home and want to accept bitcoin as payment. How would I go about calculating the amount of Bitcoin I’m willing to accept in return? In today’s world all of my expenses are in dollars. I paid for the land in dollars. Every supply I purchased to have the home built from the foundation to the drywall to the granite counters were paid for in dollars. I also paid all the laborers in dollars. Thinking rationally it would make sense for me to tally up my total cost to produce the home, lets say $300,000, determine what I think I could sell it for, let’s say that’s $400,000, and divide that number by bitcoin’s current dollar value. So at current price I’d sell the home for somewhere around 4 bitcoin. After the sale we could say Bitcoin was used as a medium of exchange for the purchase and we wouldn’t be wrong, but is that the scenario we envision when we talk about bitcoin as a medium of exchange? We still mainly relied on the dollar throughout the process whether to purchase land/materials/labor to build the home or as the measuring stick to determine how much bitcoin we’d be willing to accept for the home.
To use bitcoin as a medium of exchange the way I think most of us are trying to conceptualize where both expenses and earnings are priced in bitcoin we’d have to fist pay for the land/supplies/labor in bitcoin. It’s probably easier to get my point across using supplies so let’s use lumber. If I’m going to pay a lumber company in bitcoin for the wood I need to build the home they’d also have to pay their expenses (machinery, labor, etc.) in bitcoin to know how much to sell their lumber for in bitcoin. For example they’d need to know it cost them 3,000 sats to produce a framing stud to know they need to charge me 4,000 sats per framing stud. You could take this exercise another step further and say for the lumber company to pay for their machinery in bitcoin the machinery company would have to know how many sats it cost them to produce a sawmil before they knew how many sats to sell their sawmill to the lumber company for. You can see how this continues all the way down the chain.
I’m frying my own brain doing this and I think this piece is getting too long so I’ll stop there, but if anyone has an opinion on how we get to a bitcoin circular economy that doesn’t ever factor in the fiat price of bitcoin or good/services I’d love to hear it.
Obviously different forms of money throughout history have come and gone so an economie’s unit of account can change, but it’s hard to visualize how that process takes place.