Do you know what "hard money" is? Hard money is a good that serves as money and cannot produced easily in big quantities. First, money has three functions:
1. Medium of Exchange
2. Store of Value
3. Unit of Account
To achieve the first it must be salable across time and space and it must be
accepted.
For the second point it must
hold its value for a extended period of time.
And for the third it must be
divisible.
Fiat-money has 1. and 3. but lacks the Store-of-Value aspect.
Why?
Because fiat-currencies have a low Stock-to-Flow ratio.
Let me explain this ratio...
"stock" is the ammount of the monetary good that is already in circulation and it involves the whole amount that ever was produced.
"flow" refers to new units of this good that are or will be produced.
So, if a good has a low stock-to-flow ratio it means that new units of this monetary good can be produced easily and if a monetary good has a high stock-to-flow ratio - it means that new units can't be produced easily. The higher the stock-to-flow ratio the higher the quality of a Store-of-Value, the "harder" the money.
For example, in ancient times Seashells were used as money, the rarer they were the more valuable. Because of the high stock-to-flow ratio. Now industrialisation began and with modern Boots and steam engines and what not the seashells could be pulled out of the ocean in far more easily and in large quantities. The stock-to-flow ratio sunk and with it the use of Seashells as money. Seashells were superseded with something that was hard to produce. Monetary medals set in and Gold established its status as the leader, because it was indestructible and the rarest.
For centuries, every government currency was backed by Gold, this was turned over to finance World War 1, but that is another story.
Till this day, central Banks keep large reserves of Gold, because they know what they don't admit:
hard money is far more valuable than "easy money".Gold has a very high stock-to flow ratio because it is hard to produce. And it doesn't matter how much Gold they pull out of the earthcrust in one year it cannot rise by more than 2.6% on the flow side. Because there is so much Gold circulating around the globe, it was used as SoV for hundreds of years.
Now Bitcoin comes into play,
BTC is the hardest money that was ever invented since the first ape turned to man (or however the evolution happened). It has a fixed supply (as opposed to Gold) and its flow-ratio halves every 4 years. That is the best Store-of-Value currency that exists and its stock-to-flow ratio is as high as it gets. Plus it is easy to transport, can't be seized by governments if stored properly and can be transferred far more easier than Gold.
Don't let anyone fool you by saying "BTC has no intrinsic value", it has. And now you know why.
For Blockchain Whispers,
Mr. Y
t.me/blockchainwhispers - the best free crypto channel out there
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