Black Hole Effect
SALtoshi Whitepaper #102
Our economy is no longer limited to what the eyes can see and what the hands can touch. Because of the internet, we often conduct business globally without leaving our homes. Shopping, communicating, and publishing newsletters from my apartment in New York City has become a normal experience. You can be anywhere in the world, and receive my newsletter instantly.
Many things are becoming digitized/dematerialized. For example — Amazon dematerialized books, music, and shopping. All three experiences now exist in a digital space. Before, we needed a physical book, physical CD, and in-person visit to the store. Now all we need is a computer and internet connection, and we end up with the same results.
If somebody told my grandmother (when she was a young adult) that she would someday be able to go shopping for nearly anything on a computer, without ever leaving her house, and have the items delivered directly to her front porch within two days, she probably would not have believed. As humans, we tend to limit our imagination to our experiences. Just because we cannot imagine something today, doesn’t mean somebody else is not already bringing the idea to life for the future.
Assuming our economy will continue moving to a digital space (as much as possible), we would need a currency which is native to the internet. Physical money cannot work on the internet for obvious reasons. Digital dollars would certainly work. However, the dollar’s value has been trending towards zero since 1695, which likely means the dollar will have zero value at some point in the future. Unless we believe our government will become financially responsible within the next few decades.
Let’s run with the presumption that the dollar will not survive much longer as a sound representation of money. After all, gold hasn’t backed the dollar for the past 50 years, which means the only thing backing the dollar is the *trust* we’re supposed to have in our politicians. The monetary policy of the dollar has been compromised, and I refuse to believe our nation’s money will ever be based on integrity again.
Unless today’s letter is your first, you already know how I think and feel about Bitcoin as superior money compared to the dollar and every other form of money. Maybe different forms of money coexist for a while, maybe they don’t. Nobody knows. I do know about Bitcoin’s properties as money, which leads me to believe that educated people will choose bitcoin over the dollar.
Bitcoin has a maximum supply of 21 million coins (scarce)
The dollar has no maximum supply
Anybody can send/receive bitcoin anytime, any place, for any reason (censorship-resistant)
Nobody can send dollars over the internet without somebody else’s permission
Bitcoin is not a company, not controlled by any government, and the network is open for anybody to utilize (decentralized)
A very small group of politicians have total control over the dollar
The market value of bitcoin has been increasing for the past 12 years and shows no signs of stopping (deflationary)
See above chart for market value history/outlook of the dollar
Bitcoin is mined (created) through an energy extensive process called proof of work, which means work is accomplished to create new bitcoin (based on something of value — energy)
The dollar is created through a process called corruption and theft
I would be willing to continue listing reasons, but today’s letter is not a debate about which money is better. Bitcoin is clearly better. Can I buy groceries or pay bills with bitcoin? Hold your horses, these things take time. Bitcoin is best used as a store of value right now. Someday we will likely be able to spend bitcoin if we want. The nation of El Salvador is already spending bitcoin within their economy. Someone has to lead the way.
Today’s letter is about a concept called the black hole effect, which basically means Bitcoin is becoming a black hole for money/economic value. Any money or anything with assigned value will eventually be absorbed by bitcoin (as a black hole absorbs everything in the area). For example — all fiat currency, the entire stock market, real estate market, etc. Anything with a fiat price tag will be repriced in bitcoin.
What does this mean?
Bitcoin will eventually have a market cap of hundreds of trillions of dollars, then stabilize, and most people will feel comfortable holding and spending. I have no idea how many decades this process will take, but I’m very confident of bitcoin repricing the world and becoming the next global reserve currency. Why? Because I can find more reasons for this happening than not happening.
The dollar has too many flaws, and bitcoin has too many features (benefits). Gold is irrelevant, because it’s literally a rock, and rocks cannot transact via the internet. Going back to the gold standard would be the next best option, but this still requires central banking to issue digital gold certificates, which is basically the root of the problem for fiat currencies. We cannot trust our governments to manage our money. Other than fiat currency and gold, Bitcoin has no competition.
Bitcoin is managed by the people, not a centralized authority. If you want to mine bitcoin, mine bitcoin. If you want to run a full node, run a full node. If you want to buy bitcoin, buy bitcoin. If you want to send bitcoin to someone, send bitcoin to someone. Nobody is stopping us. Nobody can stop us. Similar to how the internet provides freedom for information, Bitcoin provides freedom for money. Be free.
Until next time,
P.S. — The bears have been dominant for the past 12 days. The bulls have been dominant for the past 12 years. Don’t be weak-handed.