Mythbusting on Bitcoin Cash #1: Deflationary money is bad

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There are several myths and above all fallacies that are struggling to disappear. In this series of articles, we will analyze five of them, particularly because they are having a particular flare up lately due to the aura of holiness bestowed on them by academia constructivists. The first concerns the alleged deflationary nature of some commodities used as a medium of exchange. Theoretical rigor would require the discussion of how the market environment interfaces with the various forms of money, from the gold standard to the fiat standard, but for practical and time reasons we will focus only on Bitcoin Cash.

Let's begin by saying that money is the most traded commodity and the cryptocurrency invented by Satoshi is walking this path, day after day. There is no one, anywhere in the world, with a seal in his hand waiting bored in a dark room for the moment when he can decree to the world that Bitcoin Cash has finally become money. It's a self-determining process. Taking note of this is not only synonymous with humility, but above all respect for a science that studies market phenomena and doesn't want to control them. In fact, in this case the question should not be what is money, albeit legitimate, but how did it become such. When the market players ask themselves this question, it means that the commodity in question is becoming more traded than others, so it can aspire to the role of general means of exchange. The current confusion arises from the fact that there is a monopoly on a particular form of money, so individuals (a good portion of them) have been accustomed to considering something as money only if imputed by an authority.

Bitcoin Cash is undermining this fallacious belief, showing everyone, including constructivists, that money is decreed by the free market and by individual choices. The "curse" of Bitcoin Cash is precisely this: it tears open the veil of ignorance that has gripped the monetary system for a century now, a poisonous tradition perpetrated by the constructivists themselves who are anxious to convince the unwary to still believe in their alleged "higher knowledge". So the fact that something has become money is understood by most people ex post that the phenomenon has established itself, in the meantime you can sit back and see how it develops (i.e. Lindy Effect). As this essay is written, Bitcoin Cash is progressively digging its niche within the perceptions of individuals, providing its usefulness when they need it. The more Bitcoin Cash is used out of necessity, the more its use will become customary and habit. This event, in fact, has been observed in countries such as Nigeria, Venezuela, Argentina, Iran, etc.

Parallel to the accusation against Bitcoin Cash, namely that of not being money, there is another: it is deflationary money. This definition makes no sense. Why? Because a macro phenomenon like deflation cannot be attached to money. The cap on the Bitcoin Cash supply is by no means a malus, quite the opposite: critics rhetorically transform it into a defect to corroborate their criticism. It is useful to remember in this context that F. A. Hayek, in his book Prices and Production, reminds us that any supply of money can be useful to allow transactions and exchanges between individuals, the fundamental thing is the non-manipulability of the medium of exchange. With fiat money the over-printing of banknotes is always around the corner; with gold, on the other hand, it is more complicated, but feasible, since it is possible to forge it with tungsten; with Bitcoin Cash, on the other hand, this manipulation is practically impossible (or in the remote case of a 51% attack, but at that point there would be a fork and the resources "invested" for the attack would be burned). The ceiling on the Bitcoin Cash supply, in reality, represents a factor of predictability that every entrepreneur dreams of regarding the stability and safety of the factors of production (unlike the prevailing uncertainty of the current wild bureaucracy). Not only that, but honest pricing and genuine market signals are also added to that. The ideal environment for doing business.

And this, in turn, means greater production and consequently an expansion of the pool of real wealth. Individuals are not timeless beings to be encapsulated in a mathematical function, their time preferences matter and are primarily present-oriented. This means that they won't stay put waiting to die, but they will seize the deal: if the pool of real wealth increases and increases the possibilities of purchase, with the same monetary unit of yesterday, with which it bought only a thing, they can buy a thing and a half today. This phenomenon of human action is undeniable, otherwise discounts and offers of this nature would have long since been abandoned. Instead they are here, still, and more popular than ever.

The factor that is overlooked when we hear of "deflationary money" is the purchasing power of money in relation to income. In an economic environment in which the pool of real wealth grows, incomes also grow in value of potential purchasing power. To the contrary, in an economic environment like the present one where incomes are crippled in terms of purchasing power, they are able to buy less and less. Why? Because the process of widening the pool of real wealth is hindered by the manipulability of the medium of exchange, inducing individuals to make economic mistakes that must be corrected. This wastes time and scarce economic resources.

Furthermore, credit would not be a problem in an economic environment in which price deflation is a widespread phenomenon. Already now the world of cryptocurrencies is offering an initial solution, but it will be the creativity and inventiveness of human beings to consolidate it. Furthermore, let us not forget that the gold standard, for example, has been the background to historical periods of enormous progress, both technological (i.e. Industrial Revolution) and prestige (i.e. Byzantine Empire). Who would it be a problem for? Obviously for the biggest debtor of all: the State. It would not be a problem at all for those companies that produce in accordance with genuine market signals and that undertake a sustainable entrepreneurial project. Moral hazard reduced to a minimum, which is good. Indeed, those who fear a credit disaster in an environment with price deflation are (conveniently) leaving out the individual preferences of individuals. When the price of something falls, more is demanded: this is an ironclad economic law. This means that, in the face of a constant supply of money, the increase in the pool of real wealth allows individuals to buy more goods with the same amount of money of yesterday, while sellers are able to cash in what they need to survive and devote the rest to pay off their debts.

Read here Part 2 of this series of essays: https://read.cash/@Melis/mythbusting-on-bitcoin-cash-2-arbitrarily-reproducible-money-200336b4

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This is pretty interesting. I was lost a couple time but I was able grasp what you wanna say.

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