Crypto and Batteries PT 3

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2 years ago

Part 1:

Part 2:

In a nutshell, money already in the economy loses its value. Or, as Michael Saylor puts it, he is melting ice. The rate of expansion of base money represents how much ice melts annually. That is, in a year in which the monetary base expanded by 10%, money “melted” 10% of its value.

Because of this thinking, it makes sense for anyone looking to preserve their purchasing power in the future to look for a store of value that I) is not fiat money (which is melting) and II) that preserves purchasing power in the long run.

But, why does a store of value need to be scarce?

To explain why a store of value must be scarce, let's think about the economy of the following country: the goods and assets represented by 4 labrador puppies and $10 in circulation representing the money supply. In this hypothetical scenario, each puppy is worth $2.5. If this country decides to expand its monetary base, that is, print more money, without new labrador puppies being produced, what will happen is an increase in the price of each pup. In the example, if the economy of this country starts to have $20 in circulation and still has only 4 puppies, each pup is now worth $5. If the economy of this country decides to believe that your money is infinite and print another $9990, each puppy will be worth $2500 and if the print goes to infinity, the value of the puppies will also go to infinity (divided by 4). In other words, expansion of the monetary base has no real-world action and does not increase the productivity of an economy.

Money losing value as it ceases to be scarce is at the heart of the collapse of the Roman Empire and the transatlantic slave trade, as the book The Bitcoin Standard and Robert Breedlove’s “Masters and Slaves of Money” explain in greater depth.

In Rome, as is characteristic of centralized powers, some of the emperors always wanted more than the money they had access to would allow. Be it more wines and feasts, or more army and conquests. In the phase of empire expansion this was possible, as riches were being taken from other peoples in zero-sum games. But when the borders stabilize, Rome is forced to play a non-zero-sum game and generate its own riches. The solution found by these emperors was to expand the empire's monetary base, that is, they "printed money" in the way that was possible at the time.

At the time, printing money meant cutting the edges of coins to confiscate some of the silver and also changing the amount of silver present in denarii, which went from a composition with more than 95% (3.9g) of silver to a composition with less than 10% (0.2g) of silver, until they were fully replaced in the 3rd century AD. C. When money loses its value, a society's exchange relations are shaken and often broken, as people feel that they are receiving something worthless in exchange for their work. This also happened to Roman soldiers who were no longer willing to fight and die for worthless and worthless coins. A consequence of this is that the barbarian invasions that took place in the following centuries (III to VIII) met little resistance.

In the case of the transatlantic slave trade (also known as the African Holocaust), money was purposefully used as a tool of subjugation and domination. In Africa at this time, glass beads were used as a form of money. These beads were passed from generation to generation and were also used as a means of payment between individuals. The glass production technology was still quite primitive in the region, so these beads were difficult to produce, which made them scarce relative to other goods and therefore valuable.

When European explorers realized the value that Africans placed on these items, which could easily be manufactured in Europe, they basically realized that they could manufacture money accepted in the region. Many European artisans began to organize expeditions to Africa, sending large quantities of European-made beads at virtually zero cost. This is the first known large-scale money counterfeiting scheme and the result is the theft of African wealth accumulated over generations. Basically, the ability that certain people had to make African money something non-scarce stole the energy accumulated in the Bead Battery by all Africans. In other words, the Bead Battery leaked and lost all stored energy. The direct result of this was an impoverished continent that was easier to plunder.

Image illustrating the volume of the slave trade between 1701–1810. The ability to counterfeit African money gave Europeans an economic weapon that weakened the entire continent, facilitating subjugation.

Why is fiat money not censorship resistant?

If fiat money is government money, that means it is centralized. Unlike distributed or decentralized things, centralized things are objectionable by definition. This is because it is much easier to control a single point than a network with thousands or even millions of distinct points. In other words, it is easier to capture and control an elephant than an ant bug or a swarm of wasps. And the current financial system is based on a few central points (the Central Banks), being extremely centralized, which means that it is easily controlled and objectionable.

What is easier to attack? A single point (no matter how big) or a distributed network? To illustrate this concept, the points of attack for the different types of network have been marked in red.

Objectionable money is unreliable money, as it can cease to be yours in just a few clicks. To say this is to state that the Money Battery is currently inherently broken. That's because, by our initial definition, if a battery is a portable energy reservoir and if fiat money can be censored, then its energy reservoir is no longer transportable, making that battery unreliable.

A clear example of fiat money being used for monetary censorship is the sanctions applied by the United States against other countries. You may or may not agree with US foreign policy, you may not even care at all about the matter. The point here is not that, but to show how the fiat money currently used does not respect basic characteristics of paramount importance for the Dinheiro Battery to work as a battery in its entirety, which is to be resistant to censorship.

Countries that suffer from US currency censorship in some way.

In how many countries is the US imposing sanctions (effectively censorship) right now?

Currently, 6 countries suffer full US sanctions and 25 countries have citizens, whether government officials or not, suffering sanctions. This is only possible because fiat money is centralized and controlled by a few “feudal lords”, who control who can and cannot use it. Maybe you're trying to convince yourself that the US and other politicians only do this because they mean well and are trying to do what's best for the world. And that, therefore, just act correctly that this issue of censorship will not affect you, since you are not a criminal. But this line of argument makes no sense because it makes no sense to believe that a person who was born in some random country is guilty of having been born in a country with a totalitarian regime. Basically, no one chose to be born where they were born. In other words, the vast majority of Venezuelans, Cubans, Argentines, etc., are just victims of regimes that take advantage of this characteristic of fiat money being easily objectionable and, therefore, usable for political purposes. The author of this text agrees with Eiaine, that in the text “Rejecting the Nocoiner Orthodoxy” that says that “UN sanctions should be considered war crimes”, since these sanctions affect the population, accentuating inequality and concentrating even more the power of dictators.

Did the Money Battery problems continue to seem distant? So you must have been born in the late 80s onwards. I say this because I was born in 1988 and I remember very little of when Collor literally disappeared with the savings of the entire Brazilian population overnight. This measure was taken to try to combat the hyperinflation that had plagued the country since the late 1980s. It is important to note that, unlike today, in the early 1990s there were not many investment products offered by banks and the overwhelming majority of Brazilians stored ALL of his money in savings.

News from the time of the Collor government and the confiscation of Brazilian savings.

To delve deeper into Brazilian hyperinflation in the late 1980s and early 1990s goes far beyond the scope of this text. An example that well illustrates the impact of inflation is that Brazil is one of the few countries in the world where there is a custom of making “shopping of the month”. Monthly purchases were originally made because in this time of high inflation, purchasing power eroded rapidly over the course of a month, which meant that the salary bought much more at the beginning of the month than at the end. The chart below shows an average monthly inflation of 16.4%, which means an aggressive loss of purchasing power. A salary of 100 reais at the beginning of the month would have a purchasing power of around 85.9% at the end of the month, on average. In March 1990, inflation was 82%, which means that the same salary bought a little more than half of things because the cost of living almost doubled (and considering the previous month, it more than doubled). This is why Brazilian pantries are also larger than the average in European countries and the US, where people usually make several purchases throughout the month. (Whoever is interested in delving deeper, start with these videos 1, 2, 3, and 4).

Official measures of monthly inflation in Brazil from 1980 to 1995, the year of the creation of the Real Plan

Another clear example of fiat money being used as a form of censorship is the Minister of the Federal Supreme Court (STF), Alexandre de Moraes, managing to determine the blocking of financial transactions between Brazilian citizens. In the specific case, the judge blocked a Pix key that would be used to receive donations to organize the demonstrations on September 7, in which the protesters preach the invasion of the Senate and the STF itself. You may be for or against these acts, you may not even care about it, that is not the point raised here. The point made is that, thanks to the digitization of fiat money, it has become even more objectionable. Currently, it is possible that a few in power manage to exclude others from using the fiat money network. For something that might happen in the future, but hasn't happened yet, which is even worse.

In short, fiat money will never work, because its assumptions are wrong. In practice, putting governments and central banks to manage the money is tantamount to putting wolves in charge of the chicken coop. That's because they are the main beneficiaries of fiat money, being able to print it at will based on credit with the future. In practice, this system allows governments to rob the next generations by accumulating unpayable debts that accumulate for those who come later.

2.6.3. The oracle of the senile elders

You've probably heard of the Oracle of Delphi, which was known as the “navel of the world” in antiquity. Not only Greeks, but Romans and even Egyptians went to him to consult him. +- 2500 years ago, this oracle was one of the most powerful and influential institutions in the Greek world. The Oracle of Delphi consulted both great figures in history, such as Alexander the Great, and ambassadors from the Greek city-states seeking advice as well as ordinary citizens. Consultations could relate to personal problems as well as to large and complex political and foreign affairs issues.

The ritual involved the sacrifice of animals and a High Priestess (known as Pythia) in a trance state who would be in direct contact with the gods and link them to humanity. This trance was induced in a chamber that only the priestesses had access to, where the body of a mythological python was supposed to be. The Pythia wielded enormous influence, with powers to instigate government policy, determine where to build cities, and even start or end wars.

Representation of a ritual at the Oracle of Delphi

The ritual initially involved a fountain in which the visitor had to purify himself and then a sacrifice of lamb or bird to the gods, where its entrails were analyzed by the priestesses in search of divine signs. The answers given by the oracles were mysterious and enigmatic, being difficult to interpret. And when they were not confirmed, the justification is that they had been interpreted incorrectly by whoever was consulting the oracle.

These days, the description of this ritual sounds absurd and often makes people wonder “how did these people believe in these things? How could they not think that the priestesses were not in a trance just because of the consumption of some hallucinogenic fungus, wine or tobacco?” This is an anachronism, because people are and will always be children of their time and their culture will always seem the best and most logical compared to cultures and customs of other times and places.

In the same way, nowadays the entire world financial structure is structured by a kind of oracle composed of a senile group disconnected from reality, which believes to be able to govern the world economy as a conductor governs an orchestra. An arrogance and arrogance that clearly disregards all the complexities of a complex system and the unexpected 2nd order effects associated with interventionist policies.

The interests of central bankers, this senile group I am referring to, are not aligned with the interests of the general population, as they have access to free money, printed straight from the air, while the general population has to work and produce. to gain access to capital.

Two clear examples (among the many possible ones) of how their interest is not aligned with the public good are:

I) the fact that the president of the European Central Bank and former director of the International Monetary Fund (IMF), Christine Lagarde, is a criminal condemns and

II) current US Treasury Secretary and former Fed President Janet Yellen is against the Fed audit and has received more than $7 million to “speech” to Wall Street firms between the years of 2019 and 2020 while her salary as Treasury Secretary was $221K USD in 2020. Who really pays Janet Yellen's bills if the vast majority of her income comes from Wall Street firms?

Christine Lagarde, a convicted criminal and now President of the European Central Bank, in the trial that found her guilty of criminal negligence.

Janet Yellen testifying at a congressional hearing and saying she is “strongly against auditing the Fed”, which is supposed to be the “Federal Reserve”, but which is neither federal nor has reserves, just printing money from the air.

Note that the criticism here is not specific to Lagarde or Yellen, but rather to the concept that a few “philosopher kings” possess the wisdom to manipulate the economy and determine things in general. And even if this group of “philosopher kings” possessed wisdom, their interests would still not be aligned with those of the population.

Believing that, after a few meetings, a group of senile bankers has the magic answer to the interest rate and, therefore, the correct beacon for the entire world economy is a thought as magical and incoherent as believing that stoned priestesses can advise generals after have talked with the gods. Perhaps it is even worse, as at least the priestesses were stoned and could invent predictions that were in their favor, whereas the bankers will never be in their favor.

Why will they never be? Simple, because people who are closest to the money printing machine benefit from this printing, a fact known as the Cantillon Effect, which will be explained below.

Bankers and politicians, seeing ordinary people defending them and their good nature.

2.6.4. Cantillon Effect

The issuance of new currency has a localized effect on inflation and the closer the individual/company is to the issuance, the less inflationary effect they will feel. In other words, the result of this asymmetric distribution is an inflation that is also asymmetrical, which benefits those who are closest to issuing the new currency.

In the time of Richard Cantillon (1680 -1734), when this process was first described, it meant that those closest to the king reaped more benefits than those farther away.

In other words, money is not neutral and the king's friends always take advantage of their privileged positions. The Cantillon Effect could basically be understood as a redistribution of income from the poor to the rich, a kind of Robin Hood in reverse.

Whoever receives the money first uses it, increasing demand in the economy and generating inflation. So while money is still starting to permeate society as a whole, inflation is already taking place. That is, the general population does not gain any purchasing power from issuing new currency, despite having received more money. Only those who had access at the beginning of the circulation of this gold reap the real fruits, being able to use more cheap money and without the associated inflation.

This means that when Central Banks make money more accessible (such as with subsidies to sectors of the economy or expansion of credit), there will be no increase in demand at the same time. In fact, history shows that certain asset classes are favored over others, which causes prices to rise in certain areas while prices fall in others.

In practice, there is a portion of the population that benefits from its proximity to currency issuance. This portion obtains cheaper credit, manages to renegotiate multimillion-dollar debts with governments, has a political role in lobbies and in the search for subsidies for their companies. In short, they are parasites. They are known as “Cantilionaires”, a term that alludes to this money conquered on the basis of advantages and favors that would not occur in a real free market with real meritocracy (which has not yet existed in history, since free market = absence of coercion) .

Richard Cantillon described this process in the 18th century, when the entire economy was still backed by gold. This means that the Cantillon Effect, although already exacerbated, was still backed by the real world. But the money changed in 1971, when US President Richard Nixon stopped the dollar from being backed by gold.

After Bretton Woods money backing became subjective, based on the strength of the US domestic economy. Consumption, increase in GDP and production (war power) basically. It would be something like: “I can go to the bank to take on more debt because today my position is better, my salary is better and they will still increase as I get promoted”. In other words, the backing of current money is in the credit of US treasury bonds and in their credibility to pay this debt associated with the credit. The ballast is in future productivity, which may or may not exist

2.6.5. What happened in 1971?

The year 1971 is not a year we hear about in our history classes. Generally, we know well the year that the two great wars began and ended (1914–1918 and 1939–1945) or the Getúlio Vargas and Militar coups (in 1930 and 1964), the year of the fall of the Berlin Wall (in 1991 ), the crisis of 29 or even the death of Senna and the years of the tetra and the penta (1994 for the first two and 2002 for the penta) or some other remarkable fact. But, despite being a significant year for the structuring of today's world, the year 1971 passes by unnoticed for most people. Other than bitcoiners who have already gone deeper down the rabbit hole, few people know how the events of 1971 impacted the world.

It was in the year 1971 that US President Richard Nixonbroke the dollar's convertibility into gold. It was the definitive end of the gold standard and when money ceased to be backed and became fiat. That is, instead of a real ballast, from the 1970s onwards, money started to be based purely on trust in the political system, that is, on trust in the economy and in the US military arsenal.

Image of different dollar bills, one from when the dollar was still backed by gold, the other two are already fiat.

There is a vast bibliography that talks only about this topic, and this is not the focus of this text, so let's just focus on how this rupture affected Battery Dinheiro. They say that a picture is worth a thousand words and, despite the risk of confusing causality with correlation, a graph is worth even more. So to demonstrate in graphs the meaning of the year 1971 in the lives of all of us, I have separated some graphs from the website with a brief explanation of them:

1) the number of national currency collapses (when currencies depreciate more than 15 % per year) has experienced an unprecedented increase in the last century;

2) from the 1970s onwards, the richest (1%) started to get richer in relation to others, with wealth concentration rates equal to the end of the 1920s (and anyone who knows history knows what that means ). It is no coincidence that the Top1%, which are many of the cantillionaires in the world, had an increase in income as the issuance of money increased;

3) The chart with the history of US inflation since its independence in 1775 shows that inflation showed a significant increase after 1971, even the revolution, the civil war or even the two world wars did not raise inflation at all, when compared with the post-70s reality.

4) and the result of the significant increase in inflation from the 1970s onwards reflected in Google's collection of books, showing that it was felt, commented on and described.

5) This change in money also influenced the behavior between the productivity X remuneration relationship. Until the 1970s, both were together, then productivity continued at an accelerated pace and remuneration stagnated;

6) The increase in remuneration was also not able to cope with asset inflation. Which means, in practice, that it is much more difficult to buy a property today than it was in the 1970s and 1980s.

It is not by chance that the concentration of income increased significantly after money stopped being anchored in reality and passed to be printed at will, backed by the petrodollar arrangement that has already been discussed in previous sections. The graphs presented above only help to illustrate how the Cantillon Effect is significantly potentiated in a world without ballast, which in practice means that the incentives for Elites are not to fix the money. On the contrary, money being “broken” is not an accident, but the project of our oracles, outdated entities of a failed and parasitic system. Basically, this current Money Battery technology has many technical flaws and needs to be updated.

All these fiat money problems give rise to the bitcoiners' phrase “fix the money, fix the world”, or also “bitcoin fixes this” (bitcoin fixes this). How does Bitcoin fix this? That's what the next section will discuss, but first let's understand why gold didn't fulfill the functions of a good money battery.

2.6.6. The Gold Battery

First, let's explain why gold has been used for so long as the basis of money. In the beginning, the value of gold was in its beauty, which made it become a collectible object for some people, then for several people, until this collectible object started to be used as a store of value (since everyone valued it) and currency (trade could use it for trade and no longer had to use salt or cattle).

Gold has 2 chemical characteristics that were vital for it to become a universally valued metal:

I) it does not rust, that is, it does not undergo environmental degradation via chemical weathering. This means that it is viable to use it as a store of value and that, even after decades or even centuries, the amount of gold you have stored will remain constant.

That is, gold is NOT a melting ice cube and does not lose matter over time.

II) it is scarce, and therefore annual production does not significantly dilute the gold stock already mined. That is, as gold is resistant to chemical weathering, it is preserved for eternity. This means that all the gold that has been mined by humanity is still preserved in the total gold stock, either in circulation in the financial market or in jewelry that passes from generation to generation by families. This means that the annual production, which is low, since it is a scarce element in nature, cannot significantly dilute the stock.

Valued in millions of dollars, Fabergé eggs were made between 1885 and 1916 by order of the Russian Imperial Court.

That is, gold is a significantly better store of value than fiat money, as it cannot be diluted at the will of some senile oracle.

But gold has unavoidable flaws, which make it no longer a good monetary battery.” used above for fiat money, but now being used to analyze gold:

Bitcoin believe that these scores should be lower than those given in the text “the bullish case”. Gold verifiability should be at most C grade and gold censorship resistance is clearly D grade, tending to F. Here, we will discuss these two grades and also the D grade of gold portability, which also tends to F.Would

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