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Introduction
- Final lecture of The Fiat Standard course and book.
- Builds on the question raised in The Bitcoin Standard: can Bitcoin fix fiat?
- Not a definitive prediction (future is uncertain), but an exploration using the analytical tools of fiat and Bitcoin.
- Examines:
- Threats to Bitcoin’s survival.
- Why these threats may fail.
- Possible scenarios for Bitcoin’s coexistence or dominance.
The Nature of Bitcoin as Money
- Digitally scarce, verifiably fixed-supply asset.
- Like cash or gold: held for its own value, not yield.
- Cash = low risk, no yield → hedge against uncertainty.
- Fiat century destroyed true cash → forced reliance on:
- Government bonds
- Gold
- Real estate
- Equity
- Even art
- Bitcoin adds a new form of cash:
- No dependence on political institutions.
- Strict, credible scarcity.
Total Addressable Market (TAM) for Bitcoin
- $90T fiat cash balances.
- $90T sovereign bonds.
- $40T corporate bonds.
- $10T gold.
- ~$280T real estate.
- ~$3T art.
- > $230T in addressable cash-like assets.
- Bitcoin (~$350B at time of lecture) = 0.15% rounding error in TAM.
- Bitcoin competes as a store of value and cash substitute, potentially absorbing demand from all these asset classes.
Threats to Bitcoin
1. Government Bans
- Fiat worldview: government decrees reality.
- But bans often fail (see drug trade, black markets).
- Bitcoin optimized for surviving bans:
- Decentralized, distributed nodes.
- One block of ~1–3.7 MB every 10 minutes → trivial to transmit globally.
- Billions of devices can join network.
- Economic incentive ensures circumvention: bans highlight Bitcoin’s core value—financial sovereignty.
- Political economy: small, motivated Bitcoin minority vs. indifferent majority → likely successful lobby (like corn subsidies in U.S.).
2. Software Bugs
- Bitcoin is open source: “with enough eyeballs, all bugs are shallow.”
- Incentive alignment: holders, companies, and developers all motivated to protect code.
- Defense is distributed and constant, not centralized.
- Bugs possible, but catastrophic failure unlikely.
3. Return to a Gold Standard
- Theoretically strong competitor: hard money with higher liquidity ($10T vs. $300B Bitcoin).
- Could undermine incentive to use Bitcoin.
- But unlikely:
- Requires governments to give up fiat control.
- Even if adopted, gold supply inflates ~2%/year vs. Bitcoin’s <0.5%.
- Governments could still confiscate gold.
- Bitcoin remains scarcer and seizure-resistant.
Growth Scenarios for Bitcoin
1. Central Bank Adoption
- Possible: neutral settlement asset, independent of U.S. Fed/ECB.
- Benefits: balance sheet appreciation, citizens save without debt.
- But unlikely:
- Central banks staffed by fiat loyalists.
- They benefit from fiat privilege.
- Low-time-preference mindset rare in bureaucracies.
- El Salvador exception: no central bank, dollarized → Bitcoin as legal tender.
2. Hyperinflation Scenario
- Common Bitcoin narrative: fiat collapses, Bitcoin rises.
- Ammous: unlikely.
- Hyperinflation requires supply explosion, not just demand decline.
- Bitcoin reduces demand for debt instruments, thus reduces fiat creation.
- Punchline of the book:
- Bitcoin encourages saving, discourages debt.
- Less debt = less fiat issuance.
- Transition may resemble a debt jubilee rather than hyperinflation.
3. Orderly Transition Scenario
- Bitcoin reduces fiat demand and fiat supply growth.
- Parallel Bitcoin economy grows as fiat economy shrinks.
- Could avoid major collapse → gradual downsizing of fiat into irrelevance.
- Savers and entrepreneurs flourish; central planners wither.
- Analogy: Wright brothers → innovation funded by savings, not fiat credit bubbles.
4. Speculative Attack Scenario
- Borrow fiat → buy Bitcoin → repay in devalued fiat.
- Accelerates fiat decline, Bitcoin rise.
- Examples: George Soros vs. Bank of England.
- Could prevent slow transition.
- Limits:
- Lenders may refuse to enable Bitcoin leverage.
- Governments could restrict borrowing for Bitcoin.
- Volatility discourages leveraged speculation.
5. CBDC (Central Bank Digital Currency) Scenario
- True systemic threat.
- CBDCs = fiat without credit discipline: pure money printing.
- Optimized for surveillance, censorship, inflation.
- Resembles Soviet Gosbank model: one account for everyone.
- Inflation “managed” by restricting spending:
- Meat quotas
- Fuel limits
- Rationing, lockdowns
- Digital + propaganda → force compliance (fiat science: climate, nutrition, medicine).
- Creates economic apartheid:
- CBDC world: surveilled, centrally planned, soy-bug diet, metaverse escapism.
- Bitcoin world: free market, hard money, energy abundance.
- CBDCs advertise Bitcoin’s advantages: censorship-resistance and inflation-resistance.
Possible Outcomes
- Debt Jubilee Scenario: Bitcoin allows fiat debts to be devalued without hyperinflation → peaceful transition.
- Speculative Attack Scenario: fiat collapses faster via leveraged arbitrage.
- CBDC Scenario: authoritarian dystopia coexists with Bitcoin free market → financial apartheid.
- Mixed Scenario: some regions manage fiat responsibly → coexistence for decades.
Conclusion
- Bitcoin is reintroducing free-market competition in cash balances after a century of fiat monopoly.
- Threats exist, but economics favors Bitcoin’s survival:
- Bans are impractical.
- Bugs unlikely catastrophic.
- Gold standard revival unrealistic.
- Two paths forward:
- Orderly Transition → debt deflation, fiat shrinks peacefully.
- CBDC Dystopia → authoritarian control vs. Bitcoin black market freedom.
- Either way: Bitcoin remains the escape hatch.