Well, stocks are back at all-time highs. Ignited by the Fed’s “Not-QE” program and endless Trump administration teases of an “imminent” China deal, the S&P 500 has been propelled above its upward Bollinger band — a hyperextension only seen one other time since 2007.
Monetary inflation in its present form has generated a “hunt for yield” and fertile conditions for the flourishing of speculative narratives (investors desperate for yield drop their normal cynicism towards hypotheses about the future). Present or future monopoly power has become a fantastic narrative to tell by equity sales promoters. Monetary inflation-dosed markets put sky-high valuations on equities which enjoy present high monopoly profits (dropping cynicism regarding their long-run survival) or future monopoly profits. Investors are promised a certain road to Eldorado — never mind the big risks along the way — but the destination is never reached).
The cost of equity advantage bestowed by such speculation on monopoly profits in some cases entrenches present monopoly power and in others gives those promising Eldorado scope to rapidly expand due to the ability to give great bargains to customers and win market share from competitors. Meanwhile the huge boom of passive investment in ETFs made up of large capitalization US stocks (principally S&P 500), driven by asset inflation, lowers the costs of capital for many firms enjoying various degrees of monopoly power.
Hence there is no political pressure to rein back monetary inflation whose virulence is evident in asset markets.
The paradigm shift of Bitcoin is that it is the first technology for transferring digital “goods”. Since the inception of computer networks, it has been possible to send digital data and objects between computers, but such a “transfer” actually only sends a copy of the data to the recipient, maintaining another copy with the sender. In other words, it is a method of copying, not sending. By using public-key cryptography on a decentralized asset ledger, Bitcoin allows for goods to be stored on the public asset ledger and for their ownership to be restricted to the person who has the requisite public key. As such, Bitcoin is the world’s first instance of digital cash, bringing the scarcity, rivalry, finality, and irreversibility of physical transactions to the digital realm, and most importantly, allowing digital transaction without the need for trusted third party intermediaries.
This, on its own, is a significant blow to governments’ attempts to financially control their subjects. Bitcoin has opened a crack in the ever-growing wall of restrictions on the movement of digital and physical money. Very large quantities of money can now be moved globally without governments having any ability to stop them. But more important than permissionless transactions is the monetary policy of Bitcoin, and the formidable challenge it poses to national monetary sovereignty.
As governments continue to inflate their currencies to fund their ever-growing welfare and warfare commitments, citizens have been deprived of a reliable instrument for saving their wealth into the future and across generations. Bitcoin is the elegant technological solution to this political problem which sidesteps the political process.
The secret to Bitcoin’s economic success is inextricably linked to Bitcoin solving the engineering solution of digital cash with practically unassailable security and robustness. By being a decentralized and distributed network, Bitcoin has no single point of failure that could be turned into a security hole. The veracity of Bitcoin’s record of transactions is guaranteed by the expenditure of this processing power on a very elaborate procedure of verification called Proof-Of-Work. Network members who expend electricity and processing power on verifying transactions are rewarded with the new issuance of the network’s currency. This economic security model has generated very strong incentives for owners of processing power to direct it at securing the Bitcoin network, and has resulted in it today becoming by far the largest computer network in the world.
As the validity of the record of transactions is determined by verifying actual expenditure of processing power, the only way to alter the record of bitcoin transactions is to spend more processing power than the entirety of the network combined. After 10 years of investment into hardware to verify bitcoin transactions, the cost to producing a more powerful network would likely run into the billions of dollars today. As a result, in 10 years of operation, the Bitcoin network was not compromised once.
By channeling the power of distributed networks and low supply inflation rates, and offering economic rewards for accurate verification of transactions, Bitcoin has provided a transparent technical computing solution to problems which political theorists had long deemed the exclusive purview of the state, namely the provision of money and banking services. The impeccable reliability of the inflation schedule and the veracity of balance holdings and transactions, without the need to rely on trusted third parties, makes Bitcoin a very interesting non-state competitor to an arena long monopolized by coercive government control.
