• TennHedge

Bitcoin Is Winning Through Incentives

Why is the price of bitcoin really going up? Is it because of speculation? Perhaps it is due to people using their stimulus checks to gamble on a big payday? Are money launderers and criminals behind the price rise, as governments claim? My answer is, of course: none of the above. The reason for bitcoin's price rise is actually very simple: the incentive structure of bitcoin is superior such that the price must go up.


Bitcoin at its core is simply a digital store of value, a currency which cannot be debased and is not in the control of a centralized entity. This idea alone is such a juxtaposition from that of government fiat money, a regime which most are exclusively familiar, that even the most 'enlightened' individuals at the helm of the financial elite today are still struggling to come to terms with what bitcoin really is. Why is that?


The fiat standard is rooted in Keynesianism, an economic 'school of thought' which posits that the level of aggregate spending in an economy is representative of that economy's health. To a modern economist, who has assuredly been indoctrinated by Keynesian ideas throughout his/her education, spending is all that matters in an economy. The job of a central bank is to encourage spending, usually through easy money measures (money printing, quantitative easing, and ultra-low interest rates) that encourages, and makes convenient, the use of credit (debt). It is not a matter of concern, to a Keynesian, the level of debt which private and public entities take on, nor is it alarming if debt-fueled money is allocated to investments which are not economically viable. Moreover, the money supply is also not much of a concern to modern bankers and economists alike, they prefer a money supply that is constantly expanding. It is the official objective of the U.S. Federal Reserve to have some level of inflation each year, in other words, it is the goal of bankers to devalue the currency through monetary expansion as policy. All that ultimately matters to modern bankers and economists is that a high level spending is taking place, and nothing else. This is why we are living through the current paradigm of endless boom and bust cycles. More and more people are living paycheck to paycheck, and are taking on massive amounts of debt just to live a middle class lifestyle, as a direct result of the current fiat era, as modern central banking policies make housing/the cost of living less and less affordable through asset inflation; moreover, these policies also erode the purchasing power of the common person through inflation.


Now enters bitcoin into the equation, with a monetary policy that is about as alien as it gets to the ideas and dreams of the modern economist and banker.


The incentive structure of bitcoin is perhaps the best ever devised by man. Once you go down the bitcoin rabbit hole, so to speak, you understand the value in the prudent use of your money. Armed with an understanding of the savings technology that is bitcoin, gone are the days of wasteful spending and pointless consumption. Time preference becomes a part of your vocabulary when you begin to comprehend bitcoin, whereas the concept of time preference is nowhere to be found in modern economic thought. Bitcoiners have a low time preference with their money, meaning they seek to save and make the best use of their money's value into the future. Proponents of fiat money have a high time preference, as they wish to rid themselves of their money on anything and everything as quickly as possible, before their money loses too much value. It is a tragedy that a high time preference is as prevalent in our day and age as it is, as consumerism and a high load of debt/credit has become the norm. However, there is hope in the new technology that is bitcoin.


The approaching bitcoin era is a beacon of light in a gloomy world. People are waking up to the superiority of being financially sovereign versus being enslaved to debt. Money that retains its purchasing power over time, and even appreciates in value, is a freedom-maximizing proposition. Additionally, money that is not in the hands of a greedy government bureaucrat, who does not have your best interest in mind, is a tool to unlock liberty for the masses, especially when one considers the censorship-resistant properties of bitcoin. Bitcoin encourages people to prepare for the future and focus on happiness and gratification throughout an entire lifetime, not just the moment at hand.


In brief, bitcoin allows individuals to peacefully pursue their own best interests, storing value securely across space and time, free from government tyranny. Participants in the network know not who they are cooperating with, yet everyone has a strong incentive to play by the rules and work in the best interest of their fellow network participants. Anyone on the planet can mine bitcoin, run a node, and/or use the network through bitcoin transactions of their own. Bitcoin is the most fair and free economic system ever created.


It is this simple yet beautiful global alignment of financial incentives which makes bitcoin the most powerful economic force in the world today.


-TH


You should always consider seeking financial advice from a licensed advisor before making decisions with your money, and you should not consider anything I write as financial advice but merely my opinion. Getting your financial house in order is a prerequisite for Bitcoin saving, in my opinion.

Disclosure: nothing in this article should be considered financial advice and I am not a financial advisor. Do your own research as everything in finance carries risk.