Bitcoin vs Your Dollar

The fundamentals

Anthony Pappas

To Readers,

Many of you have heard about Bitcoin at this point. If you have not already done a deep dive into what Bitcoin is, you already "know" it is a tool used for illegal activities on the internet. Even my first exposure to Bitcoin came from a movie named "Dope" on Netflix, where the premise was setting up a black-market website to sell drugs through Bitcoin transactions. Even as I am typing this, the top articles on Google when you search "Bitcoin" are about Twitter being hacked and the accounts of the most influential people on the platform were used to extract Bitcoin from unsuspecting individuals. As with any technology it can be used for both good and bad intentions. At the end of the day, Bitcoin is simply a software that allows for peer to peer transfer of wealth or money almost instantaneously across the world without any third party, such as a bank.

If you put all the bad press aside, Bitcoin is the BEST performing asset over the past 10 years by a huge margin with a nearly 9,000,000% rise since July 2010. The main reason, scarcity. Unlike your U.S Dollar, there are only currently 18.4 million of them at the time of this writing and will only ever be 21 million of them in total by the year 2140. This makes Bitcoin and its value simply a measure of supply and demand. Bitcoin being a scarce supply makes it a deflationary asset, meaning, over time as your dollar loses value from inflation (the printing of money), Bitcoin's value will continue to rise as it will take more dollars to purchase that same Bitcoin over time, aside from the supply and demand aspect.

When looking at the U.S dollar it is easy to forget that a brand-new Ford Mustang was able to be purchased for $2500 in 1965 and today the same base model for a 2020 Mustang is $26,000. A high-level explanation for this is we use a structuralists economic theory and believe that inflation is a necessary tool for economic growth and solving economic problems. I am not here to debate economic theory, just simply stating that inflation is built right into our economic system. The best example of this is the most recent stimulus bill that went out to American's and their businesses where the Federal Reserve "printed" $3 Trillion. This move did seem necessary as many people are struggling to pay for basic needs, and I offer no better solutions, however, doing this actually undercuts a vast majority of Americans who only hold cash and have limited amount of assets. Printing $3 trillion will reduce the purchasing power of the dollar overall, meaning your $10,000 in your savings account now only has the purchasing power of $9,900 and your job that pays $70,000 a year really only pays you $68,000 of purchasing power (These values are arbitrary and examples only). On the contrary, inflation is a net 0 or benefit for those who are fortunate enough to own assets, such as stocks, real estate, etc. The prices of those assets will rise as the purchasing power of your dollar decreases. That $1,200 stimulus may feel helpful now, however, most American's live paycheck to paycheck and do not have major assets to their name. Therefore, the printing of this money will take away from individuals who live their life in cash and place more wealth in the hands of those with assets.

FIAT currency is any currency established as money by governments but does not have intrinsic value. Simply put, it is not backed by any asset. The U.S dollar used to be backed by gold, but then changed in 1971. Your U.S dollar and all major FIAT currencies are now a belief system that a government will pay its debt. The FIAT system works in the U.S because we have the reserve currency of the world, however, countries like Venezuela and Zimbabwe have not been so lucky as their currency are worthless after going through hyperinflation. This is where you can really see Bitcoin's importance on a global scale as it does not have borders, cannot be duplicated, and is not controlled by any single country or entity.

This document is by no means a plea for you to get rid of your Fiat currency and start transacting in Bitcoin, rather, it is to inform of the fundamental differences between the two. FIAT currencies themselves are not bad, it is the manipulation from corrupt governments and banks that make them susceptible to crashes. I have been dabbling with Bitcoin for nearly 4.5 years now and have heard every single argument for it and against it. Most people who do not understand Bitcoin will tell you its bad because its not traceable and is only used by criminals. Taking a deeper look, you will find that your U.S dollar is used for more crime and is much less traceable than Bitcoin. But that is a topic for another day.

Thank you for your time,

-AP

Disclosure: I own Bitcoin and other Cryptocurrencies. Please note that Bitcoin and other cryptocurrencies are highly speculative, and this is not investment advice.