What is this Bitcoin everyone talks about?
Everything they've told us about urban development was wrong. And Bitcoin can help right many wrongs.
We are broke. Not only because we’ve spent ourselves out of a future but because we’ve created the illusion that debt can pay for things. A time of reckoning shall come in which we’ll have to pay for debt. And that bill may not be in US Dollars.
I’m not gonna bore you with Economic history but there is one thing we need to know before proceeding: our money is not ours. It is owned by a group of private banks who control it at will. The short story is that this is the reason some folks have to make a choice between paying their student loan or purchasing food on a given month.
Since this will be a short piece proposing we open our minds to a new standard that could potentially disrupt failing small town economies, it’s worth a few paragraphs explaining what Bitcoin is and how it can help.
If you’re wondering what this has to do with my work with small businesses, you’d be surprised to learn all the connections between the wellbeing of our main streets and downtowns and a sound monetary policy, which, sadly, no country in the world seems to have.
Hope you make it till the end, or you can just skim it all and plain write me an email so I can tell you all about these ideas directly and answer any questions you may have. Or, better, read on and let’s have a great conversation. In any case, I am grateful you are a part of the Vertical Sidewalk. As always, you can just hit the Unsubscribe button and you won’t get any more emails from me. It’ll be sad to see you go but such is life in the tropics.
Onward. As I was telling you, inflation is not an isolated phenomenon. It is created when prices increase. It is not tied to productivity but rather to external factors. If anything, productivity should lower prices. The process of making TVs, cellphones and computers becomes more efficient each day and a $3000 phone from 1992 is worth about $100 today.
Looking at the items that have increased disproportionately we can see that external factors have caused those price hikes. Higher education, healthcare and housing, particularly.
In most cases, there will be a regulation that forces the increase. Whether it’s building standards, insurance scams, red tape or zoning codes, if we dig deep enough, big ticket price hikes will have a legal genesis.
Earning a salary and then getting a pension used to be enough to buy a house and even start a new business after retirement. The productivity has grown at roughly the same rate since the 70s but real earnings of full time workers have been stagnant. Inflation makes assets increasingly more expensive while wages do not increase.
To make things worse, the system we’ve built to try to mitigate the effects of inflation on families’ budgets is based on debt. People “buy” a house but the actual building is not theirs. Their mortgage is. Cities fund projects by selling debt obligations to investors. It’s all so convoluted that even Nobel prize winners think we “owe ourselves” and that debt can be “cancelled”.
Questioning and disrupting this system will raise suspicion, because it questions the way a few people get very, very rich, and disrupting that will not be a welcome concept. Regardless, Bitcoin has come and if it doesn’t do anything else, it has already put those questions on the table.
It’s easy to misunderstand Bitcoin if it is seen from the lens of current normal monetary policy. The algorithm invented by the pseudonymous “Satoshi Nakamoto” in the years after the housing crisis of 2008 is not trying to replace state-issued currency. Rather, it’s there to upend the entire monetary system.
Bitcoin is not a currency. It is an entire system of exchange that is validated in a public ledger where every transaction is recorded and accessible by every node on the network. There is a finite number of tokens named “satoshi”, each of which can be embedded with a form of “smart contract” that can determine its origin and destination and are public record.
Each Bitcoin can be divided into 100 million “satoshis” and the algorithm is set up so there will only be 21 million Bitcoin ever minted. The value of scarcity as opposed to the printing frenzy of the current monetary system are pitted on opposite corners of the ring.
Every Bitcoin transaction can be precisely and accurately traced. The blockchain serves as a system of checks and balances, as fact checker and arbiter of good faith.
Smart contracts, a distinguished feature of other cryptos, can also be carried by the Bitcoin protocols securing all sorts of information, such as title deeds, zoning standards or tax information pertaining parcels in a city, validated by the blockchain. The funds used to pay for property can be allocated with permissions embedded, so they can only be used for the purpose of buying a certain house, for example.
They can be so fine-grained that potentially, they could include detailed instructions that a historic property is not to be modified, or a penalty may be charged and traceable tokens would automatically be taken from the deed holder.
The disruption of government, court records, tax assessments, property registration and banks is a perk, but only scratch the surface in terms of the systemic change that a Bitcoin standard can bring.
Paying for infrastructure right now entails constantly increasing costs, and lots of resources devoted to managing and seeking efficiency. The time preference for what are mostly political decisions is high, meaning that politicians who allocate funds for infrastructure need to show something for it. They would rather build stuff fast without caring much about how to pay for things and accruing debt by borrowing directly from the state or Federal government, or issuing bonds.
A Bitcoin standard has a fixed supply of money. When paired with high productivity, the value of the currency will go up infinitely. Paying for things thus requires proof of work. Incurring in debt to pay for wars or other useless endeavors would be unheard of. This condition determines that things will be “cheaper” in the long run.
Going from thinking in terms of things going up in price, such as a highway and its maintenance, to thinking in terms of things costing less as they age creates a paradigm shift. If we are unconstrained by debt or bond terms, and without a need to write off depreciation, we could start building things with a low time preference.
In plain English: if we don’t need to mind debt limits and if buildings cannot be used to offset losses, we can start building better things again, as we have for the best part of human history. Think of the low time preference of a building like the Pantheon in Rome. Over 2000 years of concrete and the dome still stands, in one of the most beautiful and luxurious buildings in the world, to this day.
This is when things start to get interesting. Cities under a Bitcoin standard could function very differently, they could provide much better services and have better infrastructure. Local governments could be more transparent and lean. Buildings, parks and public spaces could be built with better materials, thinking on the long term and seeking actual efficiency, as opposed to a mere financial deal. Dense, compact and productive cities would make sense once more.
Prosperous and beautiful would be the norm. Worth a look, isn’t it?
That long intro to Bitcoin only barely peeks into the rabbit hole. If you want to explore deeper, I’d recommend getting a hold of Saifedean Ammous’ book “The Bitcoin Standard”. Drop me a line and we can talk more about how this great new paradigm can help your city or town.