Knut Svanholm

@knut.svanholm

Weapons of mass adoption

If mass Bitcoin adoption occurs… wait a minute? Shall we use an “if” or a “when”? There’s a pretty solid case suggesting it’s a “when”. Perhaps not due to the brilliance of Bitcoin but rather due to the flaws of everything that has preceded it. In any case, what we’re seeing in the Bitcoin price right now is either a bubble or the tip of a massive iceberg. Here’s what’s pointing to the latter.

What constitutes good money is a combination of three things. It needs to be a strong Store Of Value, it needs to function as a good Medium Of Exchange and it needs to be a Unit Of Account. One could argue that no money has ever ticked off all of the three boxes before.

Traditional fiat currencies can’t hold value as we’ve all experienced. Think of what a pizza used to cost when you were a kid for instance. Einstein once replied “compound interest” when asked what he thought humanity’s greatest invention was. Our brains seem to be born with an inability to intuitively grasp exponential functions. With a 2 percent inflation rate the aforementioned pizza will more than double in price every 35 years, meaning that some entity stole half of everyone’s money during that time period and no one seemed to even notice. By the way, what really happened to the lost money was that it was given back to the public as a gigantic loan but that’s a story for another time.

While fiat currencies function very well as a medium of exchange but can’t hold value, the opposite is true for traditional assets such as gold. It’s very hard to divide a bar of gold, a piece of art or a yacht into smaller pieces. There seems to be an inverse correlation between fungibility and stability in media of exchange.

The third property, unit of account, is a little trickier to wrap your head around. This basically means trust. Trust in what belongs to whom, who owes what and when things change. Whether you can trust governments and central banks depends a lot on where you live but what you can trust is that counterfeiting exists, both the adventurous personal kind and the criminal governmental kind.

The blockchain might not yet be perfect but it’s far better than fiat as a store of value, far better than precious metals as a medium of exchange and superior to everything as a unit of account since it decentralizes and quantifies trust. If there’s one thing in this world you can trust, it’s mathematics. One day everyone will realize this. On that day everything changes. Remember the phone book? The fax-machine? When truly disruptive changes happen they happen fast and the only people who can’t benefit from adopting cryptocurrency are the ones at the very top, the 80 people who own half the planet. All Bitcoin needs to do is to continue doing what it’s already doing — being an alternative.

The higher the price, the more adopters. The more adopters, the higher the price. If there’s a limited supply this is an absolute truth. If you give someone some Bitcoin a couple of things can happen. They can start using it and thereby increase adoption. They can hold onto it and see the price rise for themselves or they can lose the Bitcoin somehow and thereby limit the available supply even more. Either way, since there’s a limited supply prices can’t go anywhere but up in the long run. This is what a limited supply inevitably does as long as there’s demand. There’s a feedback loop inherent in the system which serves as a self-fulfilling prophecy. Most people don’t realize this since nothing like this has never existed before but when they do… well hodl on tight because you’re in for the ride of a lifetime.

To be continued….

More by Knut Svanholm

Topics of interest

More Related Stories