In the previous chapter, we stated that once you decide that bitcoin is a form of money, the theoretical fundamentals about value, social construct and trust apply to all sorts of currencies. Thus, let´s assume that bitcoin is money.
What would be then the differences between cryptocurrencies and fiat currencies such as the euro or the dollar?
2021 was the year when inflation kicked in again and even the chairman of the Fed can’t lie about the fact inflation is here to stay; at least, as long as interest rates will stay next to zero.
Michael Saylor, the CEO of MicroStrategy said in 2021 that when he realized that the 500 million dollars, he had in the bank were an ice cube melting at a 15% rate a year, he decided to go 100% into bitcoin. In this case, bitcoin is seen as a store of value, a hard asset for multiple reasons. In this chapter, we will study these reasons and then, we will explain why a senior CEO such as Saylor decided to invest all his money in this new form of money/store of value.
The characteristics of fiat currencies have gradually taken on the aspect they have today after the end of the dollar gold parity decreed by President Nixon on August 15, 1971.
These characteristics are deplored by a whole school of thought, that of the disciples of Milton Freedman and Ludwig Von Mises. So, governments can create as much money as they want just like a magician would pull a rabbit out of his hat.
Unlimited monetary creation is, in fact, the first characteristic of fiduciary currencies. Rather left-wing economists say that the debt of states is not a problem, since they cannot go bankrupt and that a debt a little too heavy for the expenditure of the state can be technically canceled because repayable over one hundred years. On the other hand, the consequence of a monetary creation out of control certainly generates inflation.
Let's recap: fiat money is a type of currency that reappeared in 1971 when the Nixon government decided to cancel the dollar-gold parity. One of its characteristics is to be created by the states without any compensation and without any limit. The second characteristic of fiat currencies and currencies in general until the appearance of bitcoin, is that monetary creation is decided by a limited number of people. This centralization is thus seen as one of the causes of the evil which generates inflation as well as irresponsible monetary policies.
Bitcoin, on the contrary, is a currency that behaves differently, first because it is decentralized, and it is impossible to create more than the number of units initially programmed by Satoshi Nakamoto: 21 million in total.
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