Bitcoin, Fiat, and the Gold Standard: Three Sides of the Same Coin
Hint: The Answer to Our Monetary Problem Lies in All Three. It is a Standard that is Both Old and New. A Standard that Merges the Timeless Value of Gold, the Revolutionary New Technology of Blockchain, and the Elasticity of Fiat Without Breaking the Rule of Scarcity…
“This medium of exchange is the great problem which we will call the monetary problem… The great problem we have to deal with is the idea that you can improve your own situation by getting more of this medium of exchange, by getting more of this money… People being friendly to everybody, not being driven by the idea that they alone should be in a good situation say everybody should have more money, and there is a wonderful system to improve conditions of all, make more money… people don’t realize that the medium of exchange must first of all be restricted in quantity.” -Ludwig von Mises, 6/23/1970
Perhaps the most well-established truth of our current monetary system is that it is merely a postponement of the problems at hand for another time. Our flawed monetary system does not solve our problems and in the end, it will collapse underneath the weight of all the problems it has postponed. This is the unfortunate reality of the world’s primary currency, USD. Day after day, the need for a new standard grows stronger as we frantically search for a way to avoid the inevitable destruction of fiat.
Fiat introduced a new paradigm to our monetary problem. With the use of fiat, the government can artificially stimulate an economy in times of economic hardship by printing and distributing money. These actions offset deflation while giving buying power to citizens, which encourages people to continue circulating money rather than hoarding it. The problem with this paradigm is that it is little more than a new way to kick the can down the road. Ultimately, the money printing utilized to stimulate the economy will catch up to the system and trigger a period of high inflation, which will result in the prices of goods and services skyrocketing.
When the government stimulates the economy to offset deflation, the impact of the money shot into the economy is not immediately reflected in the prices of goods and services. When this money does become recognized, the result is disastrous and there is no way to fix this issue by moving in the opposite direction. Ultimately, we will be stuck with the consequences of using inflation to stimulate the economy, and it will destroy us if we do not find a better standard soon.
While the destruction of fiat is inevitable, it should not be discounted completely. To discount fiat completely is to ignore the one glaring advantage it brings to the table. Fiat is infinitely malleable in an inflationary sense. Another way of describing it could be as an elastic inflationary standard.
Fundamental to the health of any economy is the constant circulation of the currency it runs on. When economic disasters happen, it incentivizes people to spend less and save more. While these things may appear to be good on an individual basis, it is disastrous in the aggregate. People hoarding money by not spending it effectively takes it out of circulation. This results in the deflation of a currency which has the snowball effect of encouraging people to hoard even more because the value of their dollars increases as they sit on it.
The problem with this kind of deflation is that it creates economic stagnation. An economy needs its money to circulate to stay healthy and continue growing. When this kind of deflation begins to take place, it causes the total value of the goods and services produced by a market to slow, which can result in a shrinking market. If this behavior continues long enough, it can cause a country’s PPI (Producer Price Index) to turn negative, indicating deflation, while simultaneously coinciding with an increasing CPI (Consumer Price Index), indicating rising consumer prices. This vicious cycle has the potential to end with the implosion of a currency and the collapse of a market if the value of the assets backing the currency break down.
The Gold Standard
As the issues of fiat have continued to surface, many have called for a return to the gold standard. After all, gold is scarce and has continued to maintain a high degree of value for thousands of years. Therefore, gold is not vulnerable to government manipulation in the same capacity as fiat. A return to the gold standard would undoubtedly bring back some amount of accountability to the government as their ability to overspend and abuse the currency system to bail themselves out would be limited by the scarcity of gold.
Contrary to the belief of many within the cryptocurrency community, gold is a rigid asset. Gold is not formed within the earth, and there is no way to efficiently create gold in a lab. To prove the rigidity of gold, refer to the ultimate undoing of the gold standard: Banking panics of the early 1900s and the Great Depression of the 30s and 40s. In short, it was fairly common for banks to run out of gold supply which caused them to collapse. The inability of banks to keep up with the demand for gold during periods of market turbulence caused economic standstills which resulted in high levels of deflation and the loss of market value.
At the first sign of trouble, people rushed to the banks to exchange their dollars for gold in an attempt to protect themselves. The banks were not able to keep up with this demand, and there was no effective way to bail them out. Governments could not simply mine gold faster or borrow it to bail out the economy. The full extent of this problem was realized during the Great Depression. During this time, much of the world experienced high deflation and a shrinking market. Because of the rigidity of the gold standard, the only way the government could force circulation to wake up the economy was to issue an executive order forbidding the hoarding of gold, which was a political disaster. A return to the gold standard would undoubtedly bring with it the same problems it created in the past with a lack of circulation in times of economic turbulence.
Despite its shortcomings as a monetary standard, it is undeniable that gold has been, is currently, and will remain a reliable store of value. Even after the official abandonment of the gold standard in 1971, gold has continued to remain valuable. To say that gold has little or no reason to be as valuable as it is today is ignorant of historical precedent. The case for gold as a store of value is ever-growing. The use of gold as a display of wealth continues to be the foundation of the 300+ billion dollar jewelry industry. The jewelry industry has been around for thousands of years and will continue to be a massive industry for many years to come.
To strengthen the case for gold as a store of value even further, gold has achieved a very valuable use as a non-corrosive conductor of electricity. Many sophisticated electronics use gold as a conductor because it is not corrosive like copper or silver. Bitcoin miners, computers, cellphones, television sets, navigation systems, etc. all need gold because of its benefit as a non-corrosive conductor of electricity. As these systems grow more sophisticated, so too does the demand for gold to be used in these systems. While gold falls short as a monetary standard, its continued use as a store of value is undeniable. Gold has thousands of years of precedent as a store of value and display of wealth and has an ever-growing use case as a conductor of electricity in increasingly sophisticated electronics.
The Bitcoin Standard
To say that Bitcoin is a rigid monetary standard is an understatement. Ultimately Bitcoin is a mildly deflationary standard. It is inevitable that Bitcoins over time will be lost due to the deaths of people who hold the currency and from people who lose their secret keys. The same reason that gold failed as a monetary standard is the same reason that Bitcoin will never replace USD or any other foundational currency as a monetary standard. Bitcoin blatantly encourages people to NOT circulate it and NOT spend it with its model. This makes Bitcoin prone to prolonged depressions that will inevitably result in its implosion, and the implosion of any economy built on top of it.
Today, Bitcoin does not act as a currency. Its main use is as a store of value like gold that can be used as a hedge against fiat inflation. This kind of application is more reasonable. However, there are several reasons why utilizing Bitcoin as a store of value and a hedge against inflation is a short-sighted use. Unlike gold, Bitcoin is backed purely by speculation. Bitcoin is borderline worthless as a transactional currency, and it can not act as the foundation of any sophisticated economy because its standard is rigid and primitive. There are plenty of other transactional cryptocurrencies on the market that are faster, cheaper, and superior in design.
To counter Bitcoins shortcomings, Bitcoin advocates repeat the Bitcoin mantra over and over again that Bitcoin is backed by the blockchain ledger which is backed by electricity. And yes, electricity is indeed both valuable and expensive. However, to say that Bitcoin is backed by electricity is an egregious fallacy. Bitcoin is not backed by electricity, it is based on electricity. The electricity powering Bitcoin provides little support for the price of Bitcoin. The electricity powering Bitcoin cannot be stockpiled to back the token, and it cannot be redeemed for Bitcoins or any other asset. Since electricity is only the means by which Bitcoin is able to function, it is wrong to say that Bitcoin is backed by electricity. Bitcoin is little more than a worthless tool that guzzles valuable energy for no purpose.
The relationship between electricity and Bitcoin is the same as the relationship between gas and your car. Your car does not gain its value from the gas it runs on, it gains its value from the service it provides you. If a car does not work, it is worthless to be used as a car. At that point, the only thing that can be done is to deconstruct it to salvage individual pieces that can be sold and used to build something that does work. However, unlike a car, a Bitcoin cannot be deconstructed and salvaged for value. Whereas gold gains much of its value from real-life use cases via jewelry and electronics, Bitcoins can be used for nothing. It is worthless as a foundational currency, it’s worthless as a transactional currency, it’s worthless as a store of value, and it cannot be broken down to be salvaged for value in other things. In other words, Bitcoin gains its value from the same place fiat gains its value, the speculation of its holders that it should be valuable.
Despite all of these shortcomings, the introduction of Bitcoin provided the final piece to the puzzle of our monetary problem. This final piece is known as blockchain technology. Blockchain has allowed for the construction of a system that enables transparent, secure, and efficient peer-to-peer transactions that can revolutionize the supply chain and every industry connected to it. Bitcoin’s monetary standard is outdated, but the blockchain technology it introduced has since been used to make valuable contributions. For example, Ethereum is using blockchain technology to provide a service as a decentralized computing platform on top of which one can build other valuable applications. In recent months, Ethereum has given rise to the sector known as Defi (Decentralized Finance). The leading Defi applications provide real, efficient, and valuable financial services to their users. All of these valuable services were made possible by blockchain technology.
The Complete Picture… Behold the MetaWhale
“METAWHALE is a suite of self-renewable deflationary and elastic supply assets backed by its own automated self-filling reserves and liquidity.”
“METAWHALE acknowledges the colossal mistakes in monetary policy prevalent in the entire crypto market and starts from scratch with a set of brand new tokenomic practices that will lead the awareness, research and development into what will truly be the future of monetary policy. Inflationary currencies like our fiats won’t be the future, nor will deflationary assets like Bitcoin. MetaWhale brings the sustainability of these systems into question as it puts forth a model of solid economic concepts. The future of monetary policy is hybrid, complex, dynamic, intelligent. It is both inflationary and deflationary, and attains growth, stability and prosperity to all.” -Dr. Mantis, Introduction to the MetaWhale Documentation
MetaWhale is the first mover in tackling the monumental task of building a currency that is elastic, scarce, and value-backed. MetaWhale has two separate tokens, MetaWhale Gold (MWG) and MetaWhale Bitcoin (mwBTC). The focus of this segment will be on the former, MetaWhale Gold. In short, MetaWhale Gold offers up the solution to our current monetary problem while MetaWhale Bitcoin is designed to draw attention to the MetaWhale ecosystem. Both of these tokens are valuable and integrated with one another.
The elasticity of MetaWhale Gold enables it to adjust to big changes in market conditions far quicker than what Bitcoin is capable of. It accomplishes this through two features: 1) It is backed by self-filling reserves of real gold 2) The currency operates on an elastic deflationary model.
MetaWhale Gold can sustain an ever-growing and self-filling gold reserve by having 1.25% of every buying transaction and 3.75% of every selling transaction converted to gold and contributed to the reserve. MetaWhale Gold maintains a minimum amount of volume by having mechanisms that force the circulation of its token, MWG. These mechanisms require holders to either sell or transfer at least 6% of their holdings every 35 days or else they will become eligible to have a function called on them that will force sell 6% of their holdings for them. If they do not heed the warning after 4 months of inactivity, a function can be called that will burn their entire holdings because it assumed that they are either dead or have lost their secret keys.
These mechanisms ensure that the token will always add value in the form of gold to back the token. The amount of gold in the reserve can never decrease, and can never remain stagnant, it can only increase. How fast these reserves increase is dependent entirely on trading volume. In times of low volume, the token will add gold slowly, in times of high volume, the token will add gold quickly.
MetaWhale Gold is deflationary and elastic. Every buying transaction burns 1.25% of the transaction value and every selling transaction burns 2.50% of the total transaction value. This puts a deflationary measure on the token that can never remain stagnant. Much like the filling of the gold reserve, the rate of deflation that occurs is dependent on the amount of trading volume. During periods of high volume, the rate of deflation will be higher, and during periods of low volume, the rate of deflation will be lower. This deflationary measure will take place until the number of tokens in circulation reaches 1. When 1 token is reached, all trading will halt and holders of the MWG token will be given 35 days to claim their share of the gold reserve. After the claiming period ends, MetaWhale will create a new supply and the process will begin again from the beginning.
These two metrics offer up the first attempt to answer this monetary problem by utilizing the strengths of past and current systems. Gold is valuable, and the MetaWhale Gold token is backed by an ever-growing reserve of gold. The deflationary nature of the token means that it is scarce, and therefore, not prone to the same destruction of fiat because it follows the rule of scarcity. The elastic nature of the token means that it can adjust to market conditions, speeding up recoveries, which can mitigate the long and painful bear markets or depressions experienced by rigid currencies. MetaWhale will hopefully lay the foundation for the solutions to our ongoing monetary problems.
In the event of a negative shock to the market, the MWG token will enter a period of hyper deflation while simultaneously entering a period of hyper gold accumulation to back the token as short-sighted panic sellers abandon their holdings on high volume. These shocks make it inevitable that the price of the MetaWhale Gold token will recover and be driven to new highs in the intermediate term as the price of the token experiences accelerated and ever-growing upward pressure from the rising floor of gold and the rapid drop in the supply of the token.
It is experiments like these that will save us from the inevitable destruction of our current flawed standards and take us into a brighter future. We must be careful to not abandon the lessons learned from our histories. We must also be careful to not return to previous flawed systems. The future of innovation should be a combination of those things well established in the past, and those things being established in the present. This is MetaWhale.
To find out exactly how these mechanisms work, read the MetaWhale documentation: https://metawhale.io/docs
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