We explained HERE how fiat currencies end up in hyperinflation. Now, what about a world that gets a single currency, bitcoin?
From solidus to bitcoin
Fiat currency is essentially a Ponzian construct. His fate is sealed in advance. Only the year of its complete dissolution is known. This ultimately depends on our ability to produce more than ever before. And therefore always get more sources of energy.
The lack of energy resources is often the cause of the collapse of civilizations. A new theory suggests that deforestation caused the fall of the Roman Empire.
Wood was the main source of energy for Roman industries (90%). Almost all of them needed wood. It is burned to cook the bricks used in building aqueducts, glass windows, lime (cement) kilns or smelting metals. Not to mention the wood used for heating, cooking, buildings, etc.
Steve Hallett in his book “life without oil” asserts that the fall of the Roman Empire could be linked to a peak in timber production in the Mediterranean basin. As wood needed to be transported farther and farther away, the output of the economy began to decline, leaving Rome vulnerable to the well-documented problems of invasions, epidemics, and internal divisions.
Others stubbornly argue that the debasement of the currency would be mainly responsible for the Roman disaster. The reduction in the amount of silver and gold in the coins started hyperinflation and the economic collapse of Rome.
Inflation certainly came from the increase in the number of coins in circulation. As Milton Friedman said, “Inflation is always a monetary phenomenon in the sense that it is and can only be generated by an increase in the quantity of money faster than production”.
The end of this quote, often forgotten, and very interesting. It prompts us to think that the devaluation of Rome’s currency was not somehow forced by the decrease in production (rare wood)?
As the great Roman orator Cicero said: “serit arbores quae alteri seculo percent” (He plants trees for another age to enjoy).
The drop in production may have prompted a drop in revenue for the Roman state, which forced it to reduce the amount of money in its coins to create more.
Increase in number of parts + decrease in production = inflation.
In other words, isn’t the egg the fall in production, and the chicken the devaluation and inflation? Closer to home, remember that the FED has increased the size of its balance sheet by 9 times since 2007, the date of the traditional oil peak. Could the oil of our thermo-industrial civilization be the wood of Roman civilization?
Another interesting question: Would the Roman Empire have fallen faster if it hadn’t devalued its currency (because it couldn’t pay its armies)?
Which brings us to the question that interests us. How about a world with a single currency in completely fixed quantity. After all, the Roman Empire was run on gold, right?
True, but there were gold mines that constantly increased the money supply. At its mining peak, the Roman Empire is estimated to have produced up to 9 tonnes of gold per year. That was not enough to exchange oil for an empire of 70 million people.
Therefore the use of silver, bronze, copper and zinc coins increased the money supply. And monetary devaluation: only 40% of the pure silver coins struck around 50 AD by 200. And more than 3% around 270.
In short, money was not created from debt as it is today. It was created by the state in the form of metal coins and incorporated into the economy forever.
The growth in output was more or less in line with the growth in the quantity of money. The pay of the Roman soldier suggests that there was still some inflation:
Thus the salary inflation of the Legion was relatively low until the hyperinflation of the 3rd century. Add to that the difficulty historians have in explaining how the Roman Empire could lose its sovereignty. And the culprit appears to have been a slow decline in economic output. From the year 40, the wood used in Rome came from the Jura mountains, 1700 km away, with the barrier of the Alps in the middle…
Either way, the Romans had to continually create more currency(s) out of necessity anyway. The exchanges had to be oiled. It is problematic that the population of the empire is growing much faster than the amount of gold coins. Hard to pay in gold dust.
Bitcoin does not have this problem since it is highly divisible. Global debt ($300 trillion) divided by 21 million gives us $14 million per BTC. That is fourteen cents per satoshi. Knowing that we could add some decimal places to bitcoins if needed.
It would be technically possible for 21 million BTC to be enough to oil the global economy. Provided that prices can be reduced as the population increases.
Say fiat disappears and one BTC is worth $14 million. We have a deflated currency. And now ?
What would happen if the extraction of the resources needed to run the economy (oil, gas, lithium, copper, etc.) fell? We would have inflation. Definitely. A world with only BTC as its currency would not be immune to inflation.
In this case of rising prices, can the 21 million bitcoins still exchange oil in light of a growing population? No. There would be crises.
Let’s assume for a moment that energy and mineral resources are not a problem. We then have prices that naturally fall as the population increases. Another problem then arises. What about the borrower who inevitably sees his salary fall as prices fall. It is becoming increasingly difficult to repay his debt.
One way to remedy this is to create a society where borrowing is prohibited. It would be a profound paradigm shift. Even the change of civilization.
In addition, and in the case that lending is not prohibited, what can be done for large loans if everyone keeps their BTC on their own wallet?
How to borrow tens of billions to create a TGV line, a fleet of nuclear power stations where oil can be found by sea? Will it be necessary to go door to door to convince Mrs. Michu to lend her money for the next ten years?
Bitcoin does not adapt well to a complex society that requires a lot of energy and very expensive infrastructure to operate. Things might work out in the case of a reduction in all aspects (and a ban on borrowing).
Another way would be to maintain monetary elasticity (for the loan necessary for a complex civilization) by replacing the central currency with bitcoin.
Central banks would be gone. Only the banks that will continue their work, namely financing the projects that conserve water, would be left. No more “bailouts”. It would mean bringing back the “tear in”.
But then, as in the eighteenth century in the United States, the banks could go bankrupt and ruin their customers? Sure, but everyone will be free to deposit all or part of their BTC in a bank to earn interest.
Finally, bitcoin may not need to be the only global currency to fulfill its purpose. It can be the greatest store of value known to mankind and drains much of the world’s wealth. Especially now that the ponzi is pushing against the backdrop of peak oil…
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Journalist reporting on the Bitcoin revolution. My papers deal with bitcoin through geopolitical, economic and libertarian prisms.