The structure of the bitcoin ‘system’ limits the number of bitcoins that can ever exist to 21 million; so the imbalance between supply and demand becomes mind boggling as the beckoning horizon of ever rising value turns most bitcoin users into hysteria-buyers and hoarders, as more and more ‘investors’ scramble to acquire them. As the price of bitcoin continually rises, bitcoin demand is forced up against the finite total. This drives the incentive to hold on to them and buy more.
This pressure increases the conceptual value, based on what someone else might be persuaded to pay for them at some future time.
So how can something that exists only in digital terms have value in our everyday living reality?
When something inflates in value by 47% in a week. 180% in a month and 2000% as it did in 2017 when bitcoin mania seemed to hit a peak, many names can be affixed to it: bubble, Ponzi scheme, fraud; if you believe that such a meteoric rise in apparent value is real, then you need only regard it as an investment opportunity.
To the rest of us it doesn’t make sense, yet the apparent worth still holds dizzying percentages from the original start of the bitcoin idea in 2011. Can this be any different than the Dutch tulip bulb mania and the South Sea bubbles of previous times, or the Dotcom hysteria at the start of this century?
You must decide for yourself.
But bitcoin is just another kind of money isn’t it? Before we answer that, it’s important to know (and accept) what money is.
There is a common belief that we live in a money economy, where bits of coloured paper and plastic have intrinsic value. But we don’t live in a money economy, we live in an energy economy.
If that concept is unacceptable, then best to reject this article and buy bitcoin.
We have an energy economy, not a crypto-economy.
Money is merely a token of energy exchange: You expend energy by digging my garden. I give you a token by which you can buy food to replace the day’s worth of energy you used up to do it. (Plus a proportion of housing, clothing etc.)
You will not accept a currency that depends on the opinion of others as to its value. But that is what crypto currency is.
I could barter for your services with a steak dinner, but the ‘energy exchange’ still holds. If I don’t pay you enough or feed you enough to replace energy expended, you either refuse to work for me, or work and go hungry afterwards.
Which explains why some working people are forced to use foodbanks.
The global economic system is no more complex than that.
Access to our energy systems controls our commerce and the values of our currencies.
We use money to buy and sell energy. If for some reason there is no energy available, then money ceases to have any value.
When fuel availability and/or use decreases, employment declines in lockstep and the value of currency falls. If this continues over time, commercial infrastructure and entire civilisations collapse. When (not if) our energy systems fail, billionaire bitcoiners will not be able to exchange their bitcoins for a loaf of bread.
A house is a block of embodied energy-units, (the coal, oil and gas extracted from the earth and used to make bricks, plastics, glass, steel etc.) Thus the mortgage on it is money borrowed against the security of that energy and embodied material.
Which is why it isn’t possible to get a mortgage on a tent.
And why the house buyer must keep working (consuming more energy) over 25 years to pay it off. If those fuels and materials had been left in the ground, they could not have formed the block of debt that forms the house.
The fossil fuels that were converted to build the house have become the collateral for the debt against future earnings. If insufficient money is earned over the next 25 years, the house is forfeited and the occupier becomes homeless.
All enterprises function in the same way within an industrialised society. All constructions in whatever context take real energy and material in and pay real wages out. In a house, those wages mean shelter and comfort in return for energy input. The laws of thermodynamics demand that energy input is constant. A house cannot be ‘digital’ any more than money can be ‘digital’.
This is why it is not possible for a ‘digital’ building to have ‘actual’ value.
When the mortgage is paid off, that block of embodied energy will revert to the owner. The value of the house will (hopefully) have risen, but so will the value of all comparable houses, so that increase is cancelled out. If he chooses to sell the house, the energy that went into constructing it will not have increased or diminished. The owner is unlikely to bank or spend the money and make himself homeless, so he must exchange the cash for another (energy equivalent) home if he wants to maintain his living standards. If he wants to trade up, he must buy more ‘embodied energy’ using his own energy tokens.
Or he can trade down and pocket the difference. (part of the ‘real energy’ in the house being exchanged for someone else’s energy tokens.)
It is not possible to live in a digital home.
Thus money is just a token of energy exchange; it has no intrinsic value. If a home is worth $200,000, (in a “$200,000” area) and it goes on sale for $1,000,000. it will remain unsold because the $800,000 difference isn’t backed up by the correct level of energy collateral. The house cannot be physically moved to a more upmarket area to increase its value.
Whether currency is in gold, silver, paper money, plastic card or barter is an irrelevance; it can only be a token of the energy within the goods and services being traded.
Money cannot have value unless it is backed up by energy.
But crypto currency is seen as detached from the laws set out here. It has become infinity money, where rising value is based on the belief that it will go on forever, and the percentage increases week on week represent actual cash in real terms. True, some are bailing out early, and cashing in, but they are transferring bitcoin money into real currency, which is supported by real energy.
They recognise the first (and only) Ponzi law: get out early.
Those who ‘know’ it isn’t a Ponzi scheme are keeping their bitcoins safe, and buying more.
The sustainability of any such scheme is based on sufficient monies being paid in at the bottom tiers, and kept there to enable those at the top to get out early with a hefty profit. If everyone bails at once, the result is panic; all ‘value’ evaporates and the pyramid collapses.
Thus the bitcoin system can only sustain itself with hoarders and a constant stream of buyers. And those hoarders must be incentivised by ever rising values. Those who invest in Ponzi schemes can never admit to doing so, because that would invite ridicule. Instead, it is hailed as a revolutionary monetary system.
you can follow me on twitter