Bitcoin Cash and The Real Effect of El Salvador Monetary Experiment

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1 year ago

We have already written about the El Salvador issue and the legal tender of Bitcoin. But today we want to go back to it, because it is worth analyzing some particular details. One of these is the obligation to accept Bitcoin, which is in contrast with the very spirit from which it emerged. That statement is true, but it is what is seen. What is it not seen? Most people are still addicted to a concept of State or top-down organization of society, so the legitimacy of anything that is not canonical must first pass through that organization in order for it to be even superficially studied.

Needless to say, this is the case with Bitcoin, as it has been dubbed 'drug traffickers and scammers' money by the mainstream media for years. We can imagine the recent elevation of Bitcoin to legal tender as a Trojan horse, that is, weakening the most coercive structure in the world from within. We could say otherwise that if the five stages of grief processing are the process through which Bitcoin is trying to establish itself, we have reached the stage of compromise.

Due to the continuous tampering with interest rates by the central banking system and the progressive interventionism on the markets, the economic environment has become so distorted that it no longer sends genuine economic signals. They are highly artificial. That forces several economic players to turn to all those assets that still offer a decent return or at least experience some volatility. Among those players are pension funds and insurance funds, which represent the last pillar on which State legitimacy is based on an economic level. Once collapsed, the hard awakening on the part of individuals will be sudden and all the legitimizations advocated in the name of the State will collapse. That will be the moment in which those individuals will actively search for alternatives to safeguard themselves and finally turning to their own judgment they will probe those assets that will best suit their needs. That will be the genuine moment when the cryptocurrency world will be truly legitimized and the vision that gave it birth, included in the Genesis Block, will be fully realized.

Until then, legitimacy by a top-down organization that still enjoys residual trust from individuals is the only thing that can incentivize them to make even a slight effort to understand what they are talking about. An incentive to study, to learn, to experiment. Remember that the State apparatus, due to the central planning it refers to in its decision-making process, is inevitably doomed to seed the seeds of its own defeat. Why? Because as Mises demonstrated, it is unable to make economic calculations in accordance with the free market. Without genuine economic calculations, the State is blind. In fact, the legitimization of Bitcoin through legal tender is nothing more than an incentive for most individuals to start studying the phenomenon and the related social/philosophical/economic bases.

But how does this get us to Bitcoin Cash? Until Bitcoin was Bitcoin, or electronic cash as written by Nakamoto in the White Paper, people willingly spent it freely. There would have been no need for any legitimacy on the part of the State. If you remember the 2014 conferences, for example, bystanders boasted that they could show off luxurious clothes, expensive cars, etc. In short, an instrument that thanks to its popularity allowed its purchasing power to be preserved and therefore spent without worries. On this point, a digression is necessary to better understand where that enthusiasm came from. Look at the following chart: it explains price inflation and the progressive impoverishment resulting from fake money. The hours of work needed to buy a house are more than doubled.

When the 1971 ushered the monetary system we have today, the Fed should have to increase the dollar supply at a rate roughly equal to that of GDP growth. Milton Friedman fixed it at around 3-5%, but back then the economy was really growing at a rate of 3%. Over the past 14 years, the real GDP growth rate, adjusted for inflation, has been below 1.3%. So even a 3% increase in the money supply would have turned out to be double. Since the beginning of this century, the GDP of the United States has grown from $10 trillion to $22 trillion. But the FED's balance sheet? It was $700 billion 20 years ago, and if it had kept pace with GDP growth today it would be about $1.5 trillion. Instead it is now $8 trillion, five times where it should have been according to academics. But the latter remain silent in front of this giant elephant in the room. If you've been looking for a simple explanation for inflation, this is it. If you are looking for a tool that can unhinge this "deadly spiral" and that is not arbitrarily manipulated by any individual or group of individuals, all you have to do is study and use Bitcoin.

It is therefore logical to have observed all that enthusiasm: finally an instrument beyond the devaluation promoted by the central banking system and the State. The problem emerged when this spontaneous process underwent a sudden slowdown when it was decided to financialize Bitcoin. At that precise moment it stopped serving as a medium of exchange and became a "store of value", but an artificial one. It was not a mechanism dictated by the market but something covertly imposed through propaganda and slogans. It is no coincidence that since then the canonical financial world has winked at Bitcoin by providing a series of assets (eg ETFs, ETPs, etc.) through which to chain the Satoshi revolution.

It is no coincidence that intermediaries must exist now, such as the Lightning Network architecture, capable of processing daily transactions and giving a semblance of a medium of exchange to what has not been for years now. Problem: It is not user-fiendly, it kills the user experience and requires a high level of technological education that most people don't have and don't want to have. Raise your hand if you are interested in understanding the internal mechanisms of an ATM. People swipe their credit cards or withdraw money from ATMs without thinking about the underlying mechanisms. What matters? Simplicity and low accessing costs. These two adjectives are enough to understand why Bitcoin Cash has a huge advantage over the long term and is feared by Bitcoin maximalists.

For all the reasons listed so far, we think the experiment taking place in Central America is one that nevertheless bears fruit. Bitcoin is likely to be further popularized but as currently structured, El Salvador is not destined to be the cradle of a worldwide paradigm shift. The full realization of Bitcoin potential will only come from free consumers, producers, savers, and investors, who will choose it from among monies that best meet their needs. That can and will only occur in truly competitive markets. That can and will only occur with Bitcoin Cash.

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Avatar for Melis
Written by
1 year ago