I’m pretty sure it was 1971, but it could have been 1972. Anyway, it was kindergarten, and I was five years old. Our teachers have created a system to motivate us children to behave well. They hung a big sign on the wall, with all our names written on it. If you’re well-behaved, kind, helpful or polite, they’ll draw a black dot next to your name. You misbehave, and they give you a red one. It was all about following the kindergarten rules, and the sheer transparency of it motivated most of us to do our best.
At some point, an additional reward for exceptionally good behavior was offered: a small piece of cloth. From the group’s point of view, that was worth much more than the highest rank in a row of black dots. It was tangible. You can prove your elite status, even in sandbox mode.
Eventually, a trading system developed among us kids. For a piece of cloth, you can get a bucket of sifted sand. For two people, you get a piece of dessert. Suddenly, we could replace work (sifting sand) with status symbols or sweets.
Then one day, a new teacher arrived. For whatever reason, she distributed those scraps of fabric more generously. It simply changed the rules governing its distribution. Suddenly everyone had them, and you had to spend four for a candy bar instead of two. Some of the children started complaining. Their hard-earned scraps of cloth were now less valuable, and they demanded more of them.
As you would expect, the fabric scraps were distributed more freely. It wasn’t long before anyone could take as many as they wanted. In the end, they were lying everywhere. They were worthless. No one wanted them anymore. You can’t replace them with anything. And so, when I was only five years old, I experienced real hyperinflation.
What does this have to do with Bitcoin?
In kindergarten, the rules were simply changed. The new teacher wanted to be nice, so we kids complained, and suddenly more and more scraps of fabric were being handed out.
The rules of Bitcoin simply cannot be changed.
It’s a completely different story with our paper currencies. They also have rules. The problem is that no one can be sure that these rules are actually followed. Here’s an example: The European Central Bank is not allowed to permanently finance governments by buying bonds, but it does so anyway, brazenly and without anyone doing anything – or even being able to do anything about it. Who would intervene anyway?
Here’s another example. The Stability and Growth Pact of the Maastricht Treaty stipulates that the budget deficit of European Union member states shall not exceed 3% of their gross domestic product, although there are permissible exceptions. But between 2000 and 2010, stability standards were repeatedly violated without sanctions – not only by Greece (11 times) but also by larger countries such as Italy (seven times), France (six times), and Germany (five times). According to the Maastricht Treaty, there are clear sanctions imposed on countries that illegally fail to adhere to the deficit limit. But such a penalty was not imposed even once. No attempt was ever made.
This may be politically expedient and justified for whatever reason, but it shows how difficult it is for us to abide by the rules. It’s like New Year’s resolutions that we make with the utmost conviction, but then usually don’t stick to them for very long. The result is what matters. Currencies inflate and, sooner or later, become worthless. The US dollar has lost 97% of its value over the past 100 years. The pound sterling, originally a pound of silver, suffered the same fate. All because more and more new dollars, euros or pounds were created, or in other words, printed.
The result is the same: when scraps of cloth become worthless, everyone who keeps them loses their fortune.
This cannot happen with Bitcoin. Its rules are fixed, and no one controls the system and cannot simply change those rules.
Find out more at Bitcoin: honest money!
This snippet is just the beginning. Dive deeper into how inflation affects your money, savings and time Bitcoin: honest money By Alex von Frankenberg, Ph.D. Paperback is available now.
