Wednesday, December 13, 2017

We Need a Softcoin

The Austrian School and hard money advocates want hard money, that's why they like gold and Bitcoin:

The difference between hard money and soft money is that people are always happy to take hard money, not so happy to take soft money. Always willing to give you soft money for hard money, not so keen to give you hard money for soft money.
Hard money isn't popular because people want to borrow in soft money. And since nearly everyone borrows, he who controls the soft money controls the world. I don't know what percent of the people really want hard money, but I'd guess it is not more than 20%. Most people do not save for the long-term. Is that a consequence of living under debt money for a century or hardwired attitudes? I can't deny that credit money system is degenerate. It is hyperinflation in slow motion. That said, it's the system we have.

Anyone who goes into debt wants soft money. If you are the sovereign and you have absolute power, you can enforce a hard money system. If you do not have absolute political control, then the soft money crowd will eventually win a victory, and get soft money monetized, and then it's all downhill from there. You can't ever go back because it will cause an economic collapse. Monetary resets usually happen after hyperinflation, and that often comes during or at the end of a war.

A Bitcoin miner can take out a 100 Bitcoin mortgage (when Bitcoin was $1,000) and not worry about repaying his now $1.7 million mortgage because he mines Bitcoins. But a moron who borrowed 100 Bitcoins is now comically insolvent and his lender owns a $125,000 house instead of $1.7 million worth of Bitcoin.

If you want to live in the dollar system, but have hard money alternatives, the best you can hope for is Bitcoin and gold get treated as money for tax purposes, as in no taxes. Your gains cannot be taxed, your losses cannot offset your income.

If you want to try for a monetary kill shot, you need a soft currency. What would that look like? In cryptcurrency, it might operate as upfront inflation. Create a cryptocurrency software that everyone wants to have on their devices because everyone running the app is "gifted" a certain amount of crypto. (Bitcoin pays out a block to the winning miner. "Softcoin" would pay out a flat rate to everyone running the software, plus a bonus to the winning miner or the largest stakers.) As more users get onto the system, coin issuance would increase proportionally. Inflation would be limited organically by the number of users. If everyone is running the app, it will scale and transactions will be fast. Since the amount of coins are always going up, the exchange rate with Bitcoin will go down over time, and maybe even decline slightly against USD, in which case it will make sense to borrow in it instead of USD. And then the banks come to you and want to get in on your currency.

If someone doesn't invent "Softcoin," a government or central bank will. It makes too much sense, especially in a deeply indebted democracy addicted to welfare. We are in a period of stagnation because the credit money system expanded to its natural limit. More debt cannot be forced into the system. Debt must be devalued or defaulted on.

There is very little fiat money in the U.S. money supply. It is mostly debt, more than 90%. Most people looking ahead expect the U.S. government will start repaying credit money (Treasury debt) with new fiat dollars. The Federal Reserve doesn't print fiat money, it creates debt notes that it swaps for bonds. In order for the Fed to "print money", it needs a huge borrower to sell it lots of bonds. The only borrower capable of inflating the credit supply enough to generate significant price inflation in the wider economy is USG.

Add in the "bonus" of the public blockchain that reveals all economic activity to the government.

Bitcoin (as opposed to cryptocurrency in general) isn't a threat to the U.S. dollar. It is probably a threat to gold, although the overlap between the markets is probably small. And gold isn't a threat to the dollar because it's controlled by the futures market, which is settled in USD. What launched this week? Bitcoin futures.
Newly launched bitcoin futures on Monday suggested that traders expect the cryptocurrency’s blistering price gains to slow in the coming months, even as it blasted above $17,000 to a fresh record high in the spot market.
This isn't a conspiracy. It's the power of soft money.

Gresham's Law says bad money drives out good money. If you want to replace the dollar, you have to make something that's a little bit worse.

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