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@ BTCapsule 🏴🧡
2023-08-08 11:25:59So you've joined nostr, set up your lightning wallet, and started receiving zaps ⚡️ Maybe you've even participated in some zapathons. Bitcoin on nostr is a lot of fun, but why is everyone so excited about it?
I do not wish to get technical. While you can benefit greatly from learning about UTXOs and the other confusing things about Bitcoin, I want to talk about why Bitcoin is the hardest money ever discovered.
Many believe money is something governments create, or simply a figment of our imagination. As long as everyone believes the paper printed by governments is money, then we can have an economy. This is incorrect.
Money is actually an emergent property of trade. Suppose I have an apple, and I want your banana. We can trade, and this is called the barter system. But what if you don't want my apple because you would rather have oranges? How do I get your banana?
I could trade my apple for an orange and trade my orange for your banana, but this is obviously a huge inconvenience. Add a few million more goods to this equation, and we can see how this quickly becomes chaotic.
But humans are smart, and they eventually found a way to solve this problem with money. Money can be anything; this is true. However, we will soon see why some goods are better suited as money than others.
Suppose we all agree that apples will be the money we choose to exchange for goods. If I want bananas or oranges or iPhones, I give you a certain number of apples. This could work, because you know that you can purchase anything you want with apples, so you readily accept my apples.
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Eventually you want to buy a car that cost 1000 apples, so you start to save these apples. Everything is going great, until a few weeks later your apples start to rot. Nobody wants rotten apples, so you’re never getting that car.
Let's pretend apples do not rot, and you can successfully save 1000 apples. This takes you several years, and you can finally afford that car. However, people act; and since apples are money, everyone realized years ago that money can literally grow on trees. By the time you have saved 1000 apples, everyone has 10,000 apples from the trees they grew, and new apples are being harvested everyday.
The amount of a good in circulation divided by its annual production is called stock-to-flow ratio. As the production of apples quickly increases, the purchasing power of your apples decline because of apple inflation. This means our unrottable apples are not a good store of value, and therefore apples are easy money (as opposed to hard money).
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Apples are terrible money, and humans eventually figured out they need something that doesn't rot or rust, while also having a low stock-to-flow ratio. This is how gold became the standard money of the world. Gold is practically indestructible, and despite many efforts from the alchemists, gold cannot be created. We must dig for gold, and put in real work to obtain it. Gold is also scarce, so it has one of the lowest stock-to-flow ratios of any resource in the world. For thousands of years, gold was the hardest money society had ever discovered. Gold sounds pretty awesome, doesn't it?
So what is so special about Bitcoin if we already have gold? Well, one of the most important distinctions is you cannot zap gold on nostr. This sounds like a joke, but it has very important implications.
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Gold is bulky, it's difficult to divide into smaller units, and it's very expensive to transport. If I want to send you the equivalent of $1 in gold for your meme, it wouldn't be worth the trouble. Likewise, if we meet IRL and I have $10 in gold, but you only want $1 for your apple, it would be very difficult to divide my gold into exactly 1/10th pieces.
And this is how fiat dollars were born. The US used to be on a gold standard, where every dollar was a reciept for a certain amount of gold. This gave you the convenience of carrying a lightweight and easily divisible amount of gold.
It's important to note that governments did not declare paper and gold are money and force everyone to use it. On the contrary, governments form when a group of people are able to steal large amounts of gold, allowing them to afford armies that can steal even more gold.
The indestructibility of gold used to make this very easy. If I am the leader of a group of bandits and robbers, we can burn down your house and take the gold. However, there came a time when people began to trust and admire this group of bandits. So instead of burning down your house, I simply threaten you with violence and steal your gold. But don't worry, in return you get a piece of paper that we pretend is worth $1 in gold. Makes things more convenient for you, and I will safely store your gold in a centralized bank.
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This actually sounds like a decent deal, but after several years of trading paper for goods, the temptation to print more paper than the existing gold supply was too much. If a banker or politician can print $1000 to buy a brand new Model T, who's going to notice?
Well, like our inflated apples above, eventually the market noticed. People brought their paper receipts to the banks to get their gold back. But there wasn't enough gold, and this caused the Great Depression. Instead of owning their mistakes, governments and banks began working on a new form of economics based on the ideas of John Maynard Keynes. This is called Keynesian economics, but we will not get into all that.
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The point is, gold has its flaws, and these flaws eventually led to the US Federal government being $32,000,000,000,000 in debt, endless wars, and a crumbling society.
But now we have Bitcoin. Like gold, Bitcoin is mined by powerful machines that require work. It cannot be created out of thin air. Bitcoin has a stock-to-flow ratio that is cut in half every four years. In the year 2140 there will be 21 million Bitcoin, and then no other Bitcoin will ever be mined again. This makes Bitcoin the most scarce resource in the universe.
Unlike gold, Bitcoin is not bulky, hard to divide, or difficult to transport because Bitcoin doesn't physically exist. Bitcoin is weightless, massless, easily divisible, and travels at the speed of light. You don't need to trust a bank to hold your Bitcoin, because instead of a vault, Bitcoin is held on 12 or 24 word seed phrases.
This means the equivalent of billions of dollars can be held on a single piece of paper, a metal plate, a digital hardware wallet, or even stored inside your thoughts. Nobody can burn down your house and steal it. If they threaten you with violence, they have no way to confirm the sats you give them are all you have.
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Yes, this is the same Bitcoin we are all zapping each other on nostr. Not only is it more convenient than fake paper dollars, it is the greatest and hardest money ever discovered.
This is why Bitcoiners always stress the importance of self custody. Bitcoin is your property, and as history has shown time and time again, we cannot trust anyone. We cannot trust the governments, the banks, exchanges, or even the custodial wallets you download to your phone.
But all you have to do is have fun zapping your Bitcoin on nostr, move it to self custody when you accumulate a decent amount of sats, and wait for the market to respond. Because like gold before it, Bitcoin doesn’t need governments to accept it. Bitcoin is inevitable.
If you would like to learn more about the economics of Bitcoin and Austrian Economics in general, I highly recommend reading The Bitcoin Standard by nostr:npub1gdu7w6l6w65qhrdeaf6eyywepwe7v7ezqtugsrxy7hl7ypjsvxksd76nak, which this note attempts to summarize.