What is bitcoin and who needs it?

Bitcoin is a combination of 3 things:

1. A digital protocol for exchanging value

Fiat currencies allow us to exchange value and the banking sector provides payments infrastructure. Bitcoin has these functions built into its protocol, allowing users to exchange value and execute payments.

2. A non-state sound monetary commodity

Gold’s scarcity, monetary characteristics and network effects implies that it has served as a store of value commodity. Similarly, bitcoin’s scarcity and growing network implies that it serves as a digital store of value (the price change is positive over almost all 3-year rolling periods).

3. An independent system of property rights

Current ownership rights are enforced through the banking sector and legal infrastructure. Bitcoin doesn’t require an existing legal system to enforce ownership. Rights are enforced through cryptography and transactions are irreversible.

Who needs bitcoin?

1. People who want to store wealth through time and space

Everyone fits into this category. Some people may have less investment opportunities, which increases desire for bitcoin. Like qualified investor restrictions (like in America) or capital controls (like South Africa). Others could live under high inflation regimes (like Venezuela), which creates acute demand for store of value assets.

2. People who suffer property rights infringements

Women can’t have bank accounts in some countries (like Afghanistan) and political opponents are excluded from commerce in others (like Belarus). Another example could be the inability of certain investors to purchase GME stocks in Jan 2021, which is also a property rights infringement. If you have access to the internet, no one can prevent you from exchanging bitcoin.

Tax provides another example; Wealth taxes, ownership laws, unrealised capital gains taxes, inheritances taxes and or property confiscation hinder productivity and freedom, creating a greater need for a non-state monetary asset where these taxes would be trickier to execute.

People who understand the consequences of unsound money

Unsound money mortgages our future, saturates society with debt, lowers our economic prospects, accentuates inequality, lowers social mobility, fosters social divisions, centralises power in the hands of politicians and encourages short-termism. People who understand these consequences may desire to invest in a sounder future for society, their children and future generations.

4. People who want to speculate on bitcoin undervaluation

Investors and or speculators who understand what bitcoin is and the number of people who may desire bitcoin in the future, can be compelled to buy bitcoin in the hope of price appreciation.

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