I've been seeing a lot of new people that seem to have no grasp on the basics of economics regarding currency, what gives it value, etc. I posted this as a comment in another thread that didn't get much attention, so I thought I would post it again as its own post to help those who are new to Bitcoin or don't have much understanding of the fundamental value proposition of Bitcoin as a currency.
First you need to ask yourself why the Dollar has any value. Learn a bit about the history of money. The first currencies were commodity money. They derived their value from their intrinsic use. But they were cumbersome to use. So we invented paper money that was backed by commodities such as gold, which could be exchanged for it, and gave it value. In 1971 the US Fed stopped allowing Dollars to be exchanged for gold, making our money fiat money with no backing. Fiat means "command". It is created out of nothing by an issuing authority.
Now think about what the Federal Reserve has been doing, and the effects their actions have had on the economy. They previously lowered interest rates to 0%. Interest rates are the cost of obtaining money. Money that has no cost to obtain has an unlimited supply and its value will trend toward zero as the supply is diluted. The money supply has been increased by more than 40% over the last 2 years, and much more than that over the previous century. You can view the Fed's own data here: https://fred.stlouisfed.org/series/M2SL . The value of the Dollar over the long term is trending toward zero, along with every other fiat currency. Look at this chart and see how much value it has lost over time. https://www.officialdata.org/us/inflation/1800?amount=1
Most money is already digital. It's just a database in your bank's servers that has names associated with amounts. Less than 10% of the money supply exists as cash. It would be impossible for everyone to convert their electronic deposits into cash. Banks actually create even more money when they make loans.Reserve requirements were suspended in the COVID era meaning banks could create unlimited amounts of loans with no reserves at all. And what happened? The value of the Dollar tanked, of course. As it will continue to do once they start the money printer up again, once they get past the threat of higher than normal inflation.
This is stuff you would learn in an intro Economics class. But it's very fundamental to understanding why any currency has value, or loses its value. Money derives its value from being something that is: fungible, durable, divisible, portable, and limited in supply. The more of these properties it has, the better it is as money. It must serve as a unit of account, a medium of exchange, and a store of value. The better it is at these things, the better it is as money.
Bitcoin has all of these qualities, making it useful as money. It's much more divisible than the Dollar, much more portable, and more limited in supply. Since 2013, the Bitcoin network has not had a major outage or hack despite being an extremely high value target. It is free and open source, with out a central authority. So far, its value has only gone up over the long term despite its high volatility in the short term.
Limited supply is essential a currency's potential as a long term store of value. Many countries have hyperinflated their currencies with disastrous results. Right now around the world many countries are experiencing extremely high amounts of inflation. Learn about what has happened in Argentina, Venezuela, Zimbabwe, Hungary, and many more countries due to hyperinflation. It's a crisis around the world. Almost all the world's countries use fiat currency now. Many people in these countries face authoritarian governments, or do not have access to a stable currency. Bitcoin has obvious usefulness to these people as well as anyone else who wants an alternative to fiat money that will do nothing but lose value over time.
Submitted December 20, 2022 at 03:07AM by Future-Iterations https://bit.ly/3WxcHmx
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