Inflation Hedge
Bitcoin is a decentralized monetary network. The decentralization is a necessity, as it ensures that nobody controls the network. Without an organization to control and/or direct the network, Bitcoin can be used as electronic cash (two people can exchange it online without a need for a third party). However, this decentralization forces Bitcoin to develop outside of our current monetary systems, which all are controlled in some way by a government entity, and therefore are fully centralized in the hands of one organization. While removing companies like Venmo and PayPal from our transaction is beneficial, if a government still controls the entire monetary network, you still have a third party involved in your transaction and that can introduce friction. A few examples of this friction would be:
- Sending money internationally between two government’s monetary networks can add high fees
- Political or geo-political issues could cause transactions to fail
- Governments have a nasty habit of inflating their currencies when they don’t want to raise taxes, thereby increasing prices for those holding the currency
And so, because it is fully separate from all other modern monetary systems, Bitcoin must have its own, fully separate, rate of issuance of newly created bitcoin tokens. This rate is defined in the code and does not change. The code also specifies that there will never be more than 21 million bitcoin created. Therefore, while all other currencies in the world can inflate at any rate the government chooses, bitcoin’s supply is capped. And as this supply cap is coded into the Bitcoin protocol, nobody can change it. This means that Bitcoin is incredibly scarce, and therefore can be used as a hedge against inflation. This is perhaps one of the most important benefits that Bitcoin provides. People can once again save their money without the fear of it losing its purchasing power. Imagine that! You can save the money you earn and have that money increase its purchasing power over time.
Our current monetary system turns people into miniature day traders by requiring you to invest the money you earn so it doesn’t lose its purchasing power before you can spend it. You are basically having to earn your money twice! Bitcoin fixes this and returns the ability to save for the future to everybody. It exchanges the uncertainty and fear that inflation creates with the safety of a sound monetary system.
