Bitcoin As a Store Of Value – 003
Bitcoin’s primary core promise is that it is a store of value. In this section you’re going to learn one of the most fun parts of history, it’s a little-known part of history it’s not taught in schools it’s not taught in college, but it is the history of money.
We are going to do it briefly and it’s the most important thing there is that money is one half of every single transaction on the planet. If you go to your job, you’re trading your time for money. If you buy something at the garage sale you are trading your money for whatever it is that you are buying.
You are always trading money for time, money for services, money for goods. And so that’s why when the government wants to kind of manipulate the economy the most powerful lever, they have is that of changing the interest rates. That’s changing the price of money.
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So when money is broken, when money is not efficient, when money is not sound, when money is corrupt, when anything is wrong with money it is the single biggest factor in all our lives. It changes the economy; it changes our personal standard of living.
It changes absolutely everything. There are social things that happen as a result of that. And so, it’s unbelievably important and if there is something wrong with money that it gets fixed. That is what this section is all about – fixing what is broken with our existing system and how do we fix it and why is bitcoin important in that role.
So let’s go ahead and get into it. I think this is probably the most powerful chart that I have ever seen in my entire life. If you really, really grasp what’s happening here in this chart, your whole world changes. Again, this is not taught in school, it’s not taught in college. But it is the most important thing that you’ll ever learn.
We see here a graph, there’s two lines on it. The yellow line is the growth of productivity of the average worker. So, every year there is new tools invented, new ways of doing things, new management systems. We get smarter and smarter as a society and our workers get more and more productive. So, over time up and up and up – we have the productivity of workers increasing. It’s been that way forever.
Now, the red line shows the compensation for the average worker. What the red line reveals is that once upon a time, when the big bad capitalists and the industrial revolution , he bought a new factory and just crammed all these workers in and back then it was like children who were 5 years old and 6 years old and 10 years old, going to work in these factories.
What happened was that as new inventions came along, even though maybe only the factory owner could afford the steam engine. Even though the very richest of societies could afford the tools that increased the productivity of workers, what happened was through a whole bunch of different mechanisms and the free market – the quality of life of the workers also increased, right? As the productivity of the worker increased, the compensation in real money went up. Through some mechanism or another, somehow it trickled down to the worker. Even though it was the factory owner who owned the tools, nonetheless the quality of life of the average worker went up.
Until 1971 / 1972.
What happened in that era? As I mentioned in a previous video, In 1971, Nixon closed the gold window. What does that mean? It means that prior to that date the amount of money that the governments could print was fixed. As only as much gold as they had could they create the money. When you had a US dollar note, if you had it, that was a promise on gold sitting in a vault. You bring in the paper note and say, “Here’s my dollar give me my gold” and you take your gold. It was a promise for gold.
The only way to expand the money supply, to print money, was to go and do the dirty hard work of mining and digging up the gold. You do the digging and get the gold and put it in the vaults and now you can print more money. This is said to be a sound money system. Money is considered sound because it cannot be at the whim of a government at the stroke of a pen. The supply of money cannot just be changed. In 1971, that is no longer the case for the worlds reserve currency, the United States dollar.
Nixon closes the gold window and now governments can print money at their leisure. They vote on it and just decide “Let’s go and make more money” and this creates what is inflation. It’s important to understand – this creates what we call inflation. Inflation is actually inflation of the money supply.
The moment they create the money, the inflation has occurred. We then measure the inflation by how high prices go up. As prices go up, we measure that inflation. But in today’s vernacular, we say the inflation IS the rising prices. That’s not actually true.
The inflation is the inflating of the money supply like a balloon it gets bigger, in inflates. The money supply is getting bigger that’s when the inflation occurs. We measure the inflation by higher prices, okay? Now, why is this chart so revealing? Why is it so telling?
When money is not sound, the average worker does not get to participate in the technological advance of the day. As new technologies are created, productivity increases. Without sound money, the worker doesn’t get to benefit from that. And that creates this massive divide. A massive, wealth divide.
And that is why you’ll see in certain totalitarian countries and things like that where they have been doing this the whole time, there is the biggest gap between richest and poor countries. It’s usually the socialist, communist countries with totalitarian rule.
Where the rich and the bureaucrats are the richest (as they get to print the money) and the workers they just stay very poor. That’s just typically how it works, right?
And it’s all revealed right here in this very elegant chart. So for a lot of people, (I would say I would be one of them) the wealth divide and the growing wealth divide causes a big problems in society. This fact is hidden from most of us.
So, people are running around like chickens with their heads cut off, advocating for things that actually make it worse. Free government programs, free this for poor people, free that for poor people, higher minimum wage. All of these things actually exacerbate the problem and actually make it worse. The thing that fixes the problem is actually very simple and elementary. We just need a sound money. Then, the quality of life for workers goes up.
Now, I want to help you quantify just how bad this graph is. This happened in 1970 and almost with barely any movement, for the following 50 years every technological advance, every invention since 1971, the benefit of that invention has NOT gone to the average worker. I want you to think about that and conceptualize that. It is mind blowing. The invention of the internet hasn’t helped the average worker. The invention of the cell phone, of the digital camera, of the fax system, of email, of the millions of inventions that have happened in the last 50 years, NONE of it has benefited the average worker.
That just blows my mind. Go and watch a 1970s sitcom or a 1970s movie. It’s barbaric – there’s no dishwashers in the houses. Women are outside hanging clothes on the line, there’s no dryer. It’s primitive.
Every single invention in the last 50 years, the value of it has not attributed to the worker because of a broken and corrupt monetary system. That is mind blowing. Absolutely mind blowing. As you’ll come to see what’s happening is, that it is being stolen from the average worker and concentrated in the hands of a very small, privileged class of people.
We are going to go and check out and understand how that works. So, understanding the gravity of the problem- money is half of every transaction in the world. When it’s broken, it is a big deal.
What is inflation? Inflation is the printing of the money supply but let’s understand that at a deeper level. To really understand inflation and how it works, how this theft occurs, remember the wealth from every productive advance since 1970 has been stolen from the average worker. How did it get stolen? Let’s understand that.
I’ll do this a couple ways. When you counterfeit, you’re printing up money that didn’t exist. And it’s illegal. You’ll go to jail for doing it. For very good reason. People think the reason is that you’re getting something for nothing. “It’s not fair that you get something for nothing when I have to work. You have to work” That’s not true. It doesn’t get punished because you get something for nothing. You’re getting punished because it is theft. But it’s a hard theft to see.
What’s happening is when you print up money, what you’re doing is you are stealing a little bit of purchasing power from everyone. The money that everybody else has is becoming less valuable by the exact degree to which you created the new money.
To help understand this it’s useful to take an extreme example. Let’s say we live in a village; you and I are the only two people in the village and this village just has two commodities- and money. We will call it gold money. I grow bananas and you grow strawberries, let’s say. And I’ve got 5 gold ounces and you’ve got 5 gold ounces. And every year we just use that to trade. It’s like “Hey I want Bananas today. Do you want Strawberries?” “No, I don’t want strawberries” “Well, we can’t barter. But I’ll tell you what. I’ll give you a one ounce gold coin for this that way you’ve got more gold and you can use that gold to buy the bananas off me back off me at some later day”.
Okay, what happens if I find a gold mine? And I had 5 ounces, you’ve got 5 ounces. All of a sudden, I find this gold mine and I find 5,000 ounces of gold there. I come back over here, and I say “Hey dude, I am starving for these strawberries. I’ll give you 5 gold bars for all of your strawberries, everything you’ve got” So now, I’ve got all the strawberries and all the bananas. He’s like “Oh cool, I look forward to spending this next week to buy some of the strawberries and bananas back”. Okay, he comes back next week and says “Hey I’m ready to buy. I’ve got 10 ounces of gold to buy some strawberries and bananas back”. You’re like, “Actually I’ve got 5,000 ounces of gold here and your 10 is pitiful and pathetic and I don’t care. So, your gold here, can’t buy these bananas. I’ll give you half a banana for ALL your gold”.
What’s happened there, is that economy went into hyper-inflation in one transaction. The gold became worthless because of all this new gold that came into the system. That is what hyperinflation is. He had 10 gold – but the purchasing power of it was stolen. I didn’t steal the GOLD. He still has 10 gold. It’s there.
Another analogy to really help this sink through. I like to think of a big pot of soup, it’s a nutritional soup lots of vegetables in it. It’s great. Some person steps in and grabs a bowl out of it and drinks the bowl of soup has a very nutritional meal, fills up the bowl with water, tips it back into the thing so now the soup is just a little bit more watered down. Each person in a “soup ” line does this, they all have a drink with the soup, and they all fill it up. Each person gets a little less nutritionally useful meal. The person at the end of the line, he ends up with just a bowl of water.
There’s no nutritional content whatsoever, but he STILL has a bowl of soup. The reason is the value of the soup was stolen by filling it up with water, alright? So that is the concept.
Inflation is when you put 100 dollars in your bank and you come back 20 years later and the 100 dollars is still sitting there, but the purchasing power has been stolen. It buys less. That’s why your grandma probably paid 5 cents for a gallon of milk but now you pay 5 dollars for a gallon of milk. The purchasing power was stolen even though the money was still there. You had 5 dollars in the bank account, it’s still there, but the purchasing power has evaporated. Now, it didn’t just disappear. It was stolen by the people who printed the money. And that is the magic concept.
If you were to counterfeit money, you are stealing the purchasing power from somebody else. It’s a theft. That is why it’s illegal. Tell me if you were wearing a suit and someone (a government official) gave you permission to counterfeit, does that mean that when you counterfeit, although it’s lawful, are you still stealing the purchasing power of the money? The answer is YES.
The mechanism of theft still takes place whether it’s legal or illegal. We live in a world today where a handful of very privileged people have the exclusive monopoly, legal authority, to print money. You might think it happens at the government. It happens at the government at a little bit of a level, and I guess you could argue that we as taxpayers’ benefit.
But it happens in the private banking system the vast majority of it. There are certain people who have the privilege of being able to print money. I want you to really understand now that privilege is really stealing money from the working class of the country. That is where ALL that power and wealth has gravitated toward that.
They have an unbelievable amount of power, an unbelievable amount of wealth and unbelievable privilege that they are protecting. So, they have influenced the education system, the media system, Hollywood and there is a reason that you don’t know this unbelievable important fact about how the world works. And how money works.
There is some problems with gold and now you understand Bitcoin is the promise to solve it. You might say “Hang on, Max. If this is such a gigantic problem as you are suggesting. Then surely there would have been entrepreneurs out there trying to solve the problem before?” and the answer is that there absolutely were.
This is another incredible part of history that you need to understand because without understanding this you won’t fully appreciate the gift from the gods that bitcoin is.
So let’s say 2, 3, or 4 percent of the population understands this problem, but the vast majority do not. We have understood it for decades and much longer. So, what can a private citizen do about that? Well, if you can NOT save your money in gold, you can invest in stuff. We call it investing. You can invest in the stock market; you can invest in a whole slew of things. But arguably for the longest time, for thousands of years the safest thing was gold. “Just buy gold”. Gold DOES hold its value it’s a good store of value, you can put it somewhere and store it. And that’s pretty good.
Gold has done a good job of holding its value, but it’s very hard to work with and it’s very hard to be useful especially in a 21st century digital economy. Now it COULD be easy to deal with. Free market entrepreneurs have tried to solve this, but here’s the problem with is. Here’s the problem.
Gold can serve as an excellent use of money. You can store its value. Here’s what entrepreneurs have tried to do. They’ve said “Listen. Send your gold to me and stick it in the vault. Max, you send me your gold and I’ll create an account for you, and I’ll say you’ve sent me 10 ounces of gold and Bob, you send me your gold and I’ll create an account for YOU. Then they’ve just got a big vault with all this gold in it and we’ve all just got accounts with them. It’s kind of like a PayPal account except you send gold in to fund it.
Then, what we could do is we could say just right there online , I can say pay for something from an online store with 1/10th of an ounce of gold from my vault and without any cost (it’s just a computer entry ) the entrepreneur who runs the vault just like Paypal does can say “Well deduct Max’s account by this much, add to Bob’s account by this much” and it’s very easy to do. But here’s the BIG problem with it.
In order for gold to be used in that way and be useful as a payment rail, to be able to make payments and buy groceries, make payments at ecommerce, to buy things – it needs to be in a centralized vault. Here is where the problem starts. Being in a centralized vault, those very powerful people who have this incredible privilege to steal from the entire country all day every day, every day they are printing out money out of nothing.
They have a lot of money to fight that. In fact they’ve got a lot of good buddies in congress and parliament, in both political parties. Very much in the same way in the Dark ages it was the Kings, and the Popes were like this union.
The pope would say “hey, God ordains the king as the divine right to rule over you. You must obey him”. The king says, “Give me the taxes” and then the criminals divvy up the loot. The king and the pope split the money and they rob from the peasants. This is the modern day version of that.
The banking cartel and the politicians and even these days it includes the media and Hollywood and everything else, they all work together to keep this information not well understood, little known, never reported, where most people don’t understand it, to keep their privilege and then they divvy up the loot. That is how the world works.
So, with that in mind. When these entrepreneurs have created these gold vaults (many of them have. There were liberty dollars, there was gold money dot com, there has been several over the years) invariably what happens is that this cohort of politicians and bureaucrats and bankers etc., who all participate in the stealing – they thwart it.
What they do is they say “Oh that business over there? That’s allowing people to transact in gold – it’s being used by Criminals. It’s being used by Terrorists. It’s being used by drug cartels. It’s being used by the worst people in the world and to protect you good citizen, don’t worry, we will send men with guns to go over and confiscate everyone’s gold. Good news, the country just got richer we just took everyone’s gold.”
And here is the big problem. The gold solution is centralized. It is a centralized system in order to be used as a payment rail. You can buy gold and stick it in your house, and it will serve as a store of value, but it’s not useful in transactions in the 21st century. it’s just not. In order to be useful, it must be centralized.
When it’s centralized, to protect their privilege and power, men with guns, who you are forced to pay for with taxes, armies, police forces, will go and destroy that business and kick it down just like a mafia comes around for protection money – the way you pay them taxes is through using dollars. If you try to do a business and pay them outside of inflation, they will come and break down your store.
They do that, and they confiscate all the gold. Gold doesn’t work because it is centralized. Now I hope that you really understand the answer to two important questions here. One – “Why did Satoshi Nakamoto choose to be anonymous, whether it was a person or a group?” For very good reasons.
He made the most powerful people in the world his enemies. He took power out of the most corrupt human beings on the planet and put it back in the hands of the individual. Anytime anyone in the world chooses to leave the broken corrupt system, they can jump into the Bitcoin system of honest money, sound money, fair money, and vote with their feet vote with their dollars and leave the corrupt system and stop being the product of that old environment.
You are the asset that is stolen from. You go out and work, you pay your taxes one time in the year that you earned it – but then you pay through the inflation tax of everything you got to keep. Every single year, year over year, compound. It’s a very big problem. So that was question one – Satoshi CHOSE to be anonymous because he made the most powerful people in the world his enemy.
Number two is “Why is it important that bitcoin be decentralized?” It’s so that it is invulnerable to men with guns. It must be violence proof.
The solution that solves the world’s biggest problem has to be resistant to violence. It must be censorship resistant because the people who want to censor it are the most powerful people in the world. They want to keep their privilege, alright? Very important concept and I hope you understand just why the Bitcoin concept is so earth shattering. Really it should answer another question is that if you’ve spoken to a Bitcoiner (the ones who really get it) there’s almost a religiosity to it, a passion to it.
It’s like “I don’t care if the price goes up, I don’t care if the price goes down. I want this Bitcoin and I’m not selling”. And I think you understand now, you’re beginning to understand. Bitcoin is hope. Bitcoin is life. Bitcoin is your chance to get out from under the most oppressive and elaborate caper. It’s a bank robbery. It’s your chance to stop being stolen from.
Very powerful concepts. I really hope it’s starting to sink in just how deep and powerful these concepts go. This is the biggest problem in the world.
It was one of the hardest problems in the world to solve because you have enormous forces raging against you and anyone trying to take away their ability, that privilege to print money and steal from other people. To print money and steal purchasing power from the rest of the world – they’re going to come at you. The solution had to be leader-less. Because a leader can be decapitated. It had to be decentralized because servers can be unplugged. You’re really starting to understand the power of why Bitcoin is so important.