Why is Bitcoin the best weapon against inflation and inequality between rich and poor?

For Bitcoin enthusiasts, one of the most appealing things about this cryptocurrency is its escape from fiat money systems, which devalue cash due to inflation.

The process that leads to this result is not as complicated as people think. To put it very simply, central banks keep the wheels of the economy running by constantly printing new money. A larger amount of money makes it easier for companies to spend and pay off debts. It is worth noting, however, that with each new dollar added to the spending pool, the purchasing power of each dollar decreases proportionally.

In other words, changing the amount of money does not magically create wealth or value. Let’s try a simple comparison to better understand this point. If the economy is kindergarten and the money supply is crayons, then the children won’t get richer if the number of crayons in the room is doubled. They all have twice as many crayons as before, double the amount offered for toys, books, etc.

When things get more complicated and Bitcoiner realizes the need for a more equitable system, what if supply and distribution are unequal?

Central bankers insist that this is not a problem because they assume that all of the cash will eventually go into ordinary people’s pockets – whether through stimulus checks, higher salaries, higher pensions, or otherwise.

In the real world, billionaires are by far the biggest winners from massive money printing decisions in the Covid era. They used their larger supply of money (including large amounts of money borrowed at lower rates and easier to borrow) for inflation-resistant assets such as the stock market, real estate, and collections. … The middle classes are doing the same thing, but on a smaller scale: save while social distancing due to the epidemic and redistribute a fair share of that money to other assets. Property is valued for its value.

Next, consider the poor and the working class. The meager benefits they receive during the pandemic are primarily for survival. So they can no longer build wealth, benefit from rising property prices, or invest in stocks by replacing rent (money that goes into someone else’s pocket) with replacement payments. Technically, the stock market may be within reach, but due to high transaction fees and a limited understanding of investment strategies, it’s nearly impossible.

This imbalance leads to inequality.

When you are rich, you can use the larger amount of money to your advantage. On the contrary, if you are poor you really cannot. You keep fiddling with all the money you have in the new economy without figuring out how to get rich. And, as we know, the value of these stocks is actively diluted by inflation. The more money that is printed, the poorer you are.

Of course, interest rates can also be profitable if central banks want. When interest rates rise above inflation, any one of us can add value to our cash by simply transferring it to a savings account. But the politicians don’t want that because the only thing keeping the world economy alive right now is easy borrowing. As soon as the interest borrowers have to pay increases, the already unstable foundations and foundations of our economic recovery in the Covid era will quickly collapse. Businesses and homeowners who tried their hand at low interest loans suddenly found themselves unable to repay their loans. A wave of bankruptcies and foreclosures will cripple the global economy.

No wonder central bankers (none of whom happen to be working class) prefer the easy option but deal a heavy blow to the poor. You could argue that “this may not be perfect, but everything seems stable and everyone I know is doing pretty well!” In short, central banks are the biggest driver of inequality between rich and poor.

With central bankers and politicians in charge, there is really no way we can change the direction of this economic journey. Those in power will always push for policies in their personal favor and do whatever they can to delay the global economic fallout – although a long-term collapse could also be good for the inadequate system.

If there is a solution, it would have to be an alternative monetary system that is resistant to both inflation and central bank manipulation.

Human civilization has longed for such a system for millennia. The problem is that it has never been easy to build a currency network that is not supported by anyone but defends everyone’s interests so convincingly that ordinary people trust the network with their savings, save their entire lives. That didn’t happen until 2009, when the launch of the Bitcoin currency network gave the world its first taste of decentralized blockchain technology.

Need an objective view

Convincing readers of the digital benefits of blockchain is like convincing overweight people of the health benefits of diet.

Or, one cannot understand the genius that created Bitcoin without having at least a basic understanding of the revolutionary nature of blockchain technology.

Trust is everything. As mentioned above, creating a monetary system is almost impossible because money has no value unless enough people believe it has value. The easiest way to build that trust is to ask the government to pledge to maintain or endorse its worth. But that is almost impossible. Another, simpler option is to offer a popular attractive asset that has a firm offer. Gold fulfills this condition perfectly: it is aesthetically pleasing, cannot be manipulated because it has a unique density, and cannot be made by anyone because it is a gift from nature to man.

However, gold causes inconvenience and inconvenience. It’s hard, so hard to move. It’s not easily divisible, so it’s difficult to pay out the exact value. Not many people buy gold every week. But what if you could create a digital gold version that wasn’t heavy, moves at the speed of light, and is divisible by the smallest fraction of its value. That became a reality in 2009.

If there’s just one thing you can understand about blockchain technology, let’s talk about it: for the first time in history, blockchain really gives us immutable data.

This means that the information it contains cannot be changed. To do this, it is necessary to understand the decentralized nature of the ledger. The ledger lists all transactions ever carried out on the blockchain and is secured by 1) the number of existing copies (full nodes, all cross-checks), 2) the process of recording new data (cryptographic encryption) and 3) the power consumption of the network (hashrate making it impossible to tame or change the encryption process). Once you have immutable data, you have the option to create an autonomous digital currency.

By ensuring that Bitcoin’s transaction history can never be changed, humanity has created a digital asset that meets 5 of the criteria of money: sustainability, mobility, scarcity, divisible and interchangeable (interchangeable). The last criterion – people’s acceptance or willingness to view Bitcoin as real money – is not defined by the specification, but rather by people’s attitudes towards it. In the increasingly digital age, this is very promising.

Of course, there are many Bitcoin critics, typically older middle-class people, who have gotten very rich from the status quo. They give a different definition of money, namely that it must be accepted by society as a medium of exchange, a unit of account and a store of value.

They say Bitcoin fails in all respects because too few people use it on a daily basis and the price is too volatile to measure or store in value. That’s not wrong, but it also hit a market cap of $ 3 trillion in just 12 years. I don’t want to, but I have to admit that it has grown at a rate that no other asset class can match.

While we criticize Bitcoin, we must also look at the state of the US dollar and other fiat currencies for an objective view. Are they convenient means of international cross-border exchanges? Do they offer us stable, predictable prices year after year? Most importantly, are they an effective store of value in times of high inflation? If you’ve ever complained about the rising cost of living, you have your answer.

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Minh Anh

According to Forbes

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