This is an opinion editorial by Knut Svanholm, author of “Bitcoin: sovereignty through mathematics. »
Bitcoin skeptics often claim that bitcoin does not scale. They say bitcoin’s on-chain transaction capacity of around seven transactions per second is too low, especially when compared to more common credit and debit card networks. These networks are centralized databases capable of more than one hundred thousand transactions per second. Bitcoiner’s standard answer is that these critics haven’t heard of Layer 2 solutions to the scaling problem, such as the Lightning Network. While it’s true that Layer 2 will likely solve the problem eventually, it’s not a fast enough fix for rapid hyperbitcoinization. After all, if all base layer transactions are new Lightning nodes, only seven new nodes can be activated per second, right? In truth, critics and most Bitcoiners don’t see the big picture here. Both groups miss the forest for all the trees. Let’s think about that.
We live in a world where fiat currency dominates the global economy. Every country on Earth has a national currency or uses one minted (printed) in another country, such as the Euro or US Dollar. These currencies have in common that they are all inflationary, which means that there are central authorities that have the right to issue new units of them. As anyone who has studied bitcoin or economics will know, prices denominated in these currencies continually increase over time. Bitcoin is often compared to gold because the cost of gold mining is relatively unaffected by changes in the price of gold. But this analogy is false. Bitcoin is not gold. The cost of bitcoin mining correlates with the price of bitcoin, but not the rate at which new bitcoins are issued. This fixed emission rate is an entirely new phenomenon and only exists in bitcoin. No other commodity behaves this way. Prices increase over time on a fiat currency standard, but transactions are fast. Prices were relatively stable during the gold standard, but gold was very expensive to transport. Bitcoin is cheap to transport and absolutely finite, which means bitcoin-denominated prices will continue to fall over time.
As technology advances faster and faster, prices should come down. The only reason they don’t is to print money or “monetary policy” as those who have access to printers call it. Nothing in bitcoin allows this to happen. The long-term implications of the absolute scarcity of money are very difficult for people who have only known fiat economies to understand. We just can’t understand the constantly falling prices. No one can imagine what such a society will look like. But one thing is certain: transactions per second are an important metric for the old system, not for the new one.
The “Zeitgeist” films of a decade ago tried to depict what a future without money might look like. They explained how flawed our ancient institutions are, from religious institutions to political and legal institutions and, perhaps most importantly, the fractional-reserve banking system. Then they proposed somewhat naively that if the world stopped using money, we would usher in a new era of peace and prosperity. These movies, however, lacked an explanation of how to get there. They forgot that there is no difference between voluntary interactions and monetary transactions, since money is honest. A sound currency, a free market society is a voluntary society. The path to the utopian “Project Venus” cities depicted in these films is bitcoin.
Brilliant Canadian serial entrepreneur Jeff Booth has often described bitcoin as a “bridge to the other side”. Almost all Bitcoiners agree that our current system is flawed and we need a way out. Bitcoin is that way out. But what is on the other side of the bridge? This is the deeper question here. When you think long and hard about it, you realize that the world across the bridge is the real scaling solution. With truth in the base layer of society, the need for monetary transactions will diminish, not increase.
Every good is a service. Every human interaction is a transaction. We are not hungry for money; we want what we think he will buy us. We don’t want the couch; we want to be able to sit on a couch whenever we feel like it. In other words, we want to have access to the abundance that technological progress allows. Inflationary money is a force in the opposite direction. This requires higher prices and therefore less access to the wealth that technology unlocks. This creates an elite class that gets richer over time at the expense of everyone else. Deflationary money will do the opposite. This will give everyone a reason to save rather than overconsume, giving more people access to everything they want over time as prices drop. If you defer spending, your bitcoin will buy you more in the future. In other words, fewer transactions. Quality before quantity. The need for transactions per second will decrease.
Now think about how you interact with your family and friends. You rarely use money, do you? Remember that every voluntary interaction is a transaction. You exchange information and share experiences with your loved ones all the time, all without ever exchanging a single satoshi. The Bitcoin community is like that too. Everyone is very generous with their time and effort. You notice this when you hang out with so-called toxic Bitcoin maximalists. We don’t care about making money. We care about making the world a better place. I received unlimited help from other Bitcoiners in the form of proofreading, translations, art, website building and many different things, all for free. All I had to do was provide something of value in return. As in my family and with my friends, there was mutual trust; thus, no money was needed.
After all, the only reason corporations need money in the first place is to enable transactions between people who don’t know or trust each other. Unfortunately, everyone seems to have forgotten this in fiat land. All Bitcoiners benefit from the success and ever-increasing purchasing power of bitcoin. Therefore, every Bitcoiner is encouraged to help each other. When hyperbitcoinization is upon us, everyone will be a Bitcoiner. Everyone will have this incentive. Ironically, “Don’t Trust, Verify” has somehow unlocked an ability to trust oneself on a scale never before known to man. The most important thing is that we had this ability from the beginning. Bitcoin is a private key to our hearts, so we can wear them on our sleeves in public. The real solution to scaling is honesty. When we have that, the division of labor happens automatically.
By running the mathematical experiment called Bitcoin in the back of our heads at all times, we unleash the true power of human cooperation. The need for small transactions disappears as one’s time preference decreases and our ability to love our neighbor increases. You will no longer pay for your coffee in the future. You will get it for free. Only large and essential investments that bring enough value to humanity will be worth making, because simply holding onto your bitcoin will be a better strategy in most cases. The ability to make fast and cheap micropayments to anyone in the world will still be there with Layer 2 scaling solutions, but people won’t need to use it very often. . Bitcoin culture is the opposite of fiat culture. We have a bright orange future; the sooner we adopt it, the better off we will be.
This is a guest post by Knut Svanholm. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.