Thread by @WittyUsername30

I've been doing a deep dive into money - what it is, how it works, history, etc.

Money is taken for granted by most, but it's really the first principle of the economy (and society). Money is the base layer, and everything else is built on top.

The base layer / first principle of a complex system is profoundly important and should not be meddled with, because the second, third, and nth order consequences are not predictable.

Well-intentioned changes to the base layer can unexpectedly wreck the entire system.

Another feature of such a complex system like the economy is that there are a lot of (complicated) arguments for which factors drive certain effects.

You can read entire books on what's allegedly driving the wealth inequality gap, inflation, etc. Most explanations range anywhere from 'complete hogwash' to 'directionally correct but missing the point.'

Instead of looking at all sorts of complex equations and assumptions, perhaps it makes more sense to just look at the base layer: money.

Simply put, if you change the distribution of the allocation of money, there will be unintended consequences to the rest of the system.

So, if I own 1% of all the available dollars, and then the Fed prints money and puts it in my bank account to where I now own 5% of all the available dollars, that's clearly great for me.

There is an informational asymmetry to my advantage: I can spend my extra share of dollars before anyone else catches on that they have a smaller share of dollars than they did yesterday.

Whoever is closest to the source of new money will have an advantage over everyone else. They will have a larger share of all dollars while everyone else will have a smaller share of all dollars, but the *average* share of dollars across the entire population will stay the same.

This is a classic x != f(x) problem. If you have $100,000 distributed evenly across 10 people, the average person will own 10% of all dollars. If you then give $1 billion to 1 of these 10 people, the average person will still own 10% of all dollars, but one person owns 99.99%.

Put simply, whenever new dollars are added to the system, asymmetries are created: whoever is closest to the source of the new dollars will have an advantage at the expense of everyone else.

Once people figure this out, then the game can shift from trying to increase your size of the existing pie of dollars, to trying to figure out how to get first in line for the expansion of the pie of dollars.

This is the key reason why gold has held value for so long: you can't get more gold by gaming the system.

It is far easier to increase your share of the total gold by delivering value to others than by trying to be first in line to a new supply of gold (i.e. mining).

In other words, you could start a business and use your profits to acquire an ounce of gold far easier than you could go out and mine an ounce of gold. This makes the distribution of gold much more equitable than the distribution of dollars.

If I tell you that someone who had zero gold in February has 10 ounces today, you can be very certain that they gave up value in exchange for this gold.

This isn't true with dollars: a new supply of dollars could go to a failing company deemed 'too big to fail.'

Put another way:

- It is nearly impossible to obtain more gold without providing value in exchange for this gold

- It is very possible to obtain more dollars without providing value in exchange for these dollars

So the only way to get closer to a new gold supply is to put in a huge amount of effort to mine gold. Contrast that with dollars, where I could gain an advantage over you simply by being born into a hyper wealthy banking family that happens to get bailout money.

This is also why Bitcoin has gone from $0 to a $200B market cap in a decade. The only way to be first in line to a new supply of Bitcoin is to put in the effort to mine it (with computing power).

Bitcoin's key advantage over gold is that the new supply has a predefined schedule that is verifiable by anyone. We don't know exactly how much gold exists today, nor how much new gold will be discovered tomorrow. We know both for Bitcoin.

With gold, we can estimate what the supply will be 100 years from now, but there will be an error rate. With Bitcoin, we know exactly what the supply will be 100 years from now.

This isn't to say that Bitcoin can't fail. While Bitcoin is better money in theory, gold has the advantage of being used for thousands of years as a store of value, so the burden of proof is on Bitcoin to show that it truly is better money than gold in practice.

But, to dismiss Bitcoin as worthless or Internet funny money or a bubble seems very wrong at this point. It is a decentralized, provably scarce asset whose supply cannot be gamed, which is incredibly hard to come by.

Every day that I hold Bitcoin, I can know my *exact* percentage share of the total Bitcoin in existence, and I can know the *exact* amount of Bitcoin that has been created.

This gives us information *symmetry* that has never existed in money before: everyone can know how much money they have relative to everyone else today and, critically, at any point in the future.

If I put $2,000, 1 oz of gold, and 0.2 BTC in a vault and let it sit for 120 years, which one will be more valuable in 2140?

1 oz of gold will almost definitely be more valuable than the $2,000, but even gold has a ~1% inflation rate each year due to mining.

We don't *see* the inflation of gold in a chart of the gold price, because the gold price is quoted in USD, which is inflating at a higher rate than gold.

Each year that BTC continues to work, it becomes more and more likely that the 0.1 BTC will be the best of the three long-term, as its inflation rate predictably drifts from <2% this year to <1% in a few years, and eventually to zero.

BTC is not a guarantee to ultimately unseat the dollar or gold - its still relatively young and the future is inherently uncertain. But based on everything we know about it right now, it has distinct advantages over both the dollar and gold.