Why Bitcoin is the natural response to legalised theft.

Updated: Oct 22, 2021

In my last article I wrote about why inflation is theft and put this in the context of property rights as being the basis for civilisation itself. In this article I will expand on that idea and explain why Bitcoin is the natural response to this theft by a system that has been pushed upon the world by governments and Central Banks.

In most countries property rights are quite good, for example you can open a bank account and put your fiat currency in it and have a degree of trust in the custodian to keep it safe.

However the system that has been imposed on the world by governments and Central Banks means that those rights will in fact become violated by inflation and in order to outpace it's effects some other form of investment is needed, otherwise your property will become significantly diluted over time.

On the face of it this might seem acceptable to you as this is the way it's always been and you might not have thought too much more about it. But the reality is you don't actually have full property rights over your money that you hold in a bank. Consider the restrictions that are imposed on where you can wire it to; think about the fact that you are constantly being surveilled in terms of how you choose to use your money and in essence your privacy rights are constantly being undermined by ever imposing custodians.

Bitcoin however is the first permanent implementation of this principle of inviolable property; it actually cannot be violated by anyone. No one can produce more than 21 million Bitcoin. It is not only an invention, but something has been discovered with Bitcoin, it is absolute scarcity for money. So in terms of the 5 properties of money, in terms of scarcity Bitcoin is not relative it is actually absolute, meaning it doesn't and will never change.

Bitcoin has proven itself over 13 years of flawless operation that it does 2 things essentially perfectly which is to turn out a block on average every 10 minutes and adhere to a supply cap of 21 million coins. So it is the first fixed money supply there has ever been and as such it can't be violated by inflation.

If you were fortunate to hold 1000 Bitcoin you hold 1000 of a possible 21 million forever; you have a guaranteed fraction of the total money supply, you cannot get that level of assurance with any other asset in the world. That doesn't exist even with gold. You can hold all of the gold that you want, but you are not immune to some type of technological breakthrough where gold could be created cheaply in a laboratory or someone devises a way to mine it on an asteroid or a new previously undiscovered pocket of gold is found.

To some people Bitcoin remains somewhat of a bet as it is still relatively young, however it has done these things perfectly so far. If it continues to do what it has been doing you have a guaranteed fraction of the total money supply; you have inviolable property rights.

Further, society has always needed an enforcer, be that the Police force or the military to ensure no one comes into your house and violates your relationship with your house. A protection producing enterprise has been needed, which has historically been the role of government to enshrine your property rights. The problem however is that they wield the power to violate those property rights which historically has been very tempting for governments and bureaucrats to give into it which then leads to them being overthrown over time.

Bitcoin is the first property right that is independent of the monopoly on violence or physical protection production; its an informational property right, its an alphanumeric string that can be stored in any information bearing medium. It can be stored in your mind, you can put it in your computer, you can do whatever you want with it. The enforcement is done by the miners in the Bitcoin network. The algorithm and the free market competition that is going into Bitcoin mining is effectively displacing the protection mechanism that government was historically necessary to provide.

So Bitcoin could be seen as a metaphysical, informational property right. So an entirely new sphere of ways in which you can custody it is opened up. It can be held in multi-signature schemas that are almost immune to theft, the private key can be chopped into a number of different pieces and they can be distributed geographically, and you can have military grade protocols wrapped around it. It gives you the highest implementation of human self ownership that we have ever had.

In the past these principles have been written on pieces of paper and consequently adhered to, but over time they have been subject to change. Bitcoin however has taken those principles of foundational documents and they have been permanently set in an unbreakable computer code. It is the invention of inviolable property, its no longer just a principle.

But what about the governments?

One question many ask is 'won't governments get really upset about this?' and 'isn't their only option to either mimic it, which in effect would introduce counterparty risk?'

Bitcoin has co-existed next to many other fiat currencies since its launch and it has grown to a trillion dollar asset. It is so revolutionary and so far outside our world view that many are still trying to understand its full potential and in actual fact it is an innovation as significant as the very first printing press and the implications of it's emergence will be similarly disruptive to institutions around the world.

10 years after the invention of the first printing press 10 million books were produced, so the amount of books produced in 10 years was more than all the books produced in the 500 years prior. This lead to the rapid proliferation of literacy, math and science and books became widely dispersed. The church at first didn't see this an existential threat, but once it did it tried to clamp down on the printing press but this created an interesting dynamic in that books were at that point being produced on how to make the printing press.

So when the institution tried to clamp down on the disruptive, subversive technology it drove it to it highest and most useful form of subversion. The result was more thinkers, a higher quality of thinking and in general it created a market for heresy. The printing press effectively lead to the dissolution of the church as the dominant institution in the world; the separation of the church and state and the benefits that created.

Encryption technology actually disrupts functions of the government that we previously needed the government for, this can now be provided by computer code. We needed the physical property enforcer historically, but now that enforcer in not needed for money.

This a bold prediction, however in time Bitcoin's emergence could ultimately lead to the dissolution of the nation state as the dominant organisational model for human beings.

Forms of transition

In some respects we have been indoctrinated into thinking that significant societal transitions have to be violent, but much of this is rooted in the violability of property.

What is the logic of violence and how has this changed the behaviour of humans and institutions over time?

Consider the knight on horseback, he once was the dominant force on the land, but when gunpowder was invented the dynamic changed completely.

So when the logic of violence changes, which means the economic returns of violence, coercion or the cost of defence diminishes, the way in which we organise ourselves changes as well.

So you can think of Bitcoin as this new technology that so radically increases the cost to benefit ratio of violence, in that if someone has properly custodied it, i.e. in a multi-signature format, there is not much incentive for someone to try and rob the coins from the holder.

As Bitcoin evolves and grows in popularity the geopolitical upheaval that could occur due to its monetisation may be very uncertain initially. Governments may try to use their powers in unfavourable ways, but over time as more and more people are holding their wealth in this inviolable property, the incentives towards peaceful co-operation outweigh the incentives to coercion. Although it may be a little rocky in the beginning the long term outcome is considerably more fruitful for those who believe in it.

Bitcoin as a fixed supply asset is the emergence of a new, seemingly perfected invariant in the market for money. It forces everyone to change their strategies to adopt this invariant in the space - at the individual level, at the institutional level and at the nation state level.

Purchasing power v the supply of money

The purchasing power of money is going to increase the more wealth we create through free exchange. Although there will only ever be 21 million Bitcoin, the amount of purchasing power it contains can actually be unlimited.

First of all you don't have to buy a whole Bitcoin, each is divisible into 100 million sub-units called Satoshi's. If that divisibility were ever inadequate liquidity to support economic activity globally, there could be a simple software update that would allow for the divisibility to be increased. There is no limitation on Bitcoin.

This however doesn't have the same effect as printing money. If you increase the divisibility in something it doesn't mean you are back to inflation. The problem with inflation is actually the distributive effects of it; a group is producing new money for themselves and you're not one of the chosen few.

By increasing the divisibility of the money its like a stock split; you had 1 share of stock and now everyone has 10, no one was diluted, just the divisibility of the stock increased.

The more productive we become as a global economy the more purchasing power Bitcoin can contain and that is unlimited, that is only limited by the amount of capital (all the stuff - cars, buildings, factories, equipment, etc.) we can produce.

Money is effectively a call option on all these things, as it is denominating the value of these assets as they are traded. There is also a reservation demand for money in so far as people are just holding money as a call option on this stuff, so its effectively an insurance policy on uncertainty.

The only reason people are holding money is for its option value as you don't know what is going to happen in the future. Therefore, the answer to uncertainty is optionality. If you don't know what is going to happen you want the maximum number of options to deal with all contingences.

So, if you have fixed supply Bitcoin on one side that doesn't change, and on the other side you have non-monetary capital stock growing as we trade and produce more, this would imply that the purchasing power per Bitcoin is growing, its a call option on more and more stuff.

The amount of stuff is only limited by how much we can innovate and create, but there is no limitation on Bitcoin itself.

What if a super wealthy individual decided to hold a large amount of their net worth in Bitcoin, would that outsized portion of the money supply have a detrimental effect?

Well, firstly that is capitalism, however what Bitcoin has done is to remove the ability of this individual to change the rules of the monetary network.

This is effectively what the US Central Bank, the FED has done - they owned all the gold as a result of Bretton Woods in 1944 and they subsequently decided to award themselves a perpetual free lunch on the productive economy for the right of monopolising money. This is not possible on the Bitcoin standard. The immutability of rules as set in the code is the bedrock of peaceful and productive co-operation.

Games need rules

Games are enjoyable and people look to play then again and again because rules are set and people can formulate strategies.

If you want to drive people mad and create a lot of conflict, don't stick to the rules just keep changing them every so often. This is what inflation is doing:

  • nobody knows the rules of the US Dollar

  • how many are in circulation?

  • how many will be in circulation?

  • who is profiting?

  • who exactly are the shareholders of the FED?

  • what's their dividend?

  • what's the criteria for deciding how many to produce?

  • who's getting it first?

  • who's going to be the FED chair next year?

All of this uncertainty injected into an asset that is supposed to be an insurance policy against uncertainty, it's oxymoronic!

Bitcoin on the other hand is the most certain form of money we have ever had. If money is an insurance policy for dealing with uncertainty, you would want maximal credibility in the properties of money to deal with that uncertainty.

If you prefer wealth to poverty and if you depend on the market place for wealth, and that is the only generator of wealth, then you have to pay attention to Bitcoin, because it is monetising. Should it continue to succeed this has the capability of moving us to a more free market, laisse faire, capitalistic market environmen

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I'm Paul

I am on a mission to help people start a journey to financial freedom. The key to long term success is education and understanding the incredible opportunity that exists right now.

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