I’m pretty sure it was 1971, but it could have been 1972. In any case, it was kindergarten, and I was five years old. Our teachers had established a program to encourage us children to behave well. They hung a big board on the wall, which had all our names written on it. If you behaved well, were kind, helpful, or polite, they would draw a black dot next to your name. You behave badly, and they give you a red one. It was all about following the rules of the nursery, and its transparency motivated most of us to try our best.
Sometimes, an additional reward is presented for excellent behavior: a small piece of cloth. From the team’s point of view, that was more expensive than being placed at the top of the black dot line. And it was portable. You can prove your elite status, even outside the sandbox.
Finally, a trading system was established between us children. To get pieces of fabric, you can get a bucket of sifted sand. For two, you can get a piece of candy. Suddenly, we can trade work (sorting sand) for status symbols or sweets.
Then one day a new teacher arrived. For whatever reason, he freely gave away those pieces of cloth. He simply changed the rules governing their distribution. Suddenly, everyone had them, and you had to spend four to get a piece of candy instead of two. Some of the children started complaining. Their hard-earned scraps of cloth were no longer valuable, and they desperately wanted them.
As you would expect, fabric scraps were given more liberally and more. Before long, anyone could take as many as they wanted. Finally, they were sleeping everywhere. They were nothing. No one wanted them anymore. You couldn’t trade them for anything. So, when I was just 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, we children groaned, and suddenly more cloth scraps were given.
Bitcoin rules cannot be easily changed.
It is a completely different story with our fiat currencies. They also have rules. The problem is that no one can ensure that those laws are actually followed. Here’s an example: The European Central Bank isn’t allowed to fund governments forever by buying bonds, yet it does it anyway, defiantly and nobody does—or knows how—to do anything about it. And who could intervene?
Here is another example. The Maastricht Treaty’s Stability and Growth Pact stipulated that the budget deficit of EU member states could not exceed 3% of their GDP, although valid exceptions were made. However, between 2000 and 2010, the Stability Criteria were repeatedly violated without sanctions – not only by Greece (11 times), as well as by Italy (11 times), as well as by Italy (five times). According to the Maastricht Treaty, there are clear penalties for countries that illegally fail to comply with the deficit limit. But no such sanctions have ever been issued. No attempt was ever made.
This may have been politically expedient and justified for whatever reason, but it shows how difficult it is for us to stick to the rules. It’s like New Year’s resolutions that we make with great conviction, but usually don’t stick to for long. The result is what matters. Funds rise and, sooner or later, become worthless. The US dollar has lost 97% of its value over the past 100 years. The British pound, which originally stood for the silver pound, has suffered a similar fate. It’s all because new dollars, euros, or pounds have been printed, or to put it differently.
The result is the same: when the scraps of cloth become worthless, everyone who owns them loses their wealth.
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: Trusted Money!
This quote is just the beginning. Dive deeper into how inflation reduces the value of your money, your savings, and your access time Bitcoin: Trusted Money by Alex von Frankenberg, Ph.D. The paperback is available now.
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