marrukin on Nostr: My dad asked me: how the transition to a bitcoin standard would happen in practice? ...
My dad asked me: how the transition to a bitcoin standard would happen in practice? how nations would do it?
I tried to answer him with an example:
Imagine you are a beer producer, selling a can of beer for $1. Suppose Bitcoin is trading at 1 BTC = $100,000.
If you want to move to a Bitcoin standard, you could start by accepting BTC for beers. In this case, you would set the price of a beer in BTC terms to 1/100,000 = 0.00001 BTC or, more readably, 1,000 satoshis.
Since we are at the beginning of the transition, goods and services would be priced based on the current exchange rate between BTC and fiat.
Over time, supply, demand and other competitors in the beer market would adjust the price of a beer in BTC(or satoshi) terms. People would gradually become accustomed to transacting in BTC. Eventually, we would define how much a certain basket of goods and services is worth in BTC(or satoshi) terms. Because bitcoin supply is fixed, the price of that basket of goods and services tends to Decrease over time in BTC(or satoshi) terms.
This is where we start pricing goods and services based solely in bitcoin`s purchasing power instead of the exchange rate between BTC and fiat.
Then my dad replied:
"Ok, so i started accepting satoshis in exchange for beers. What if my input suppliers don`t accept satoshis for inputs? What if i take my profit in satoshis and when i go to the grocery store, they dont accept satoshis for food either?"
I replied, saying this is a risk. People might not understand bitcoin enough to see that it`s a better money, so they just won`t use it.
But, because we know bitcoin is the best form of money and we understand that the concept of money only works within a NETWORK of people exchanging value with each other, we should do our best to use and accept bitcoin in our transactions. After all, we are all producers and consumers.
As a producer of goods, services or labor, we can start by accepting bitcoin in exchange for what we produce. We could incentivize ppl to buy our products or services with bitcoin (e.g "If you pay with bitcoin, a can of beer will cost $0.90 instead of $1). As for labor(working for a company) we could try negotiating with our employer to pay us in bitcoin (e.g "you currently pay me $3000. If you pay me in bitcoin, i`ll accept $2700"). Of course, if the employer says no, theres not much we can do.
As consumers, we can start by looking for places that accept bitcoin in exchange for goods and services. If none exist, we could incentivize business by offering them to pay a premium to transact in bitcoin (e.g, "My grocery bill is $100, but i`ll pay $110 in bitcoin if you accept it"). If the business say No, theres not much we can do either.
We should NOT force ppl to use bitcoin. Instead, over time, some business might ask "what is that bitcoin thing? why are you willing to pay more if i accept it?" We can explain or indicate them resources to learn more.
And my dad.. "What if the state ban it? or make it a pain to use?"
I said that we shouldn`t expect the state to say "lets all use bitcoin now because is the best money". That wont happen because it would require the state to give up control over money, and most states(especially powerful ones) won`t do that willingly. The change wont happen in a top-down manner. Instead, It will come from the bottom-up, starting from us, the plebs, transacting in bitcoin. Over time, the state might notice..
"Those ppl are transacting in a money i cant control. The wealth of the nation is flowing into this thing, weakening my fiat currency, creating inflation. I need to stop this"
The state might try to forbid bitcoin or make it costly and difficult to use. But these countermeasures won`t work because there are alternative ways to transact in bitcoin that the state cant block and because of the permissionless nature of bitcoin that makes it resilient to state interference. Eventually the state will bend..
"Ok, If most of the ppl and business are transacting in bitcoin and the nation`s wealth is in it, i have no choice but to adopt it too"
And my dad.. "What if the bitcoin holders just hoard it forever and refuse to transact with it?"
I admitted that this is also a risk. Some Bitcoiners who don`t fully understand bitcoin might treat it as just another asset in the fiat system, holding it only to see its price rise in fiat terms. However, If we truly see bitcoin as the best form of money and a revolutionary tool, HOLDING it should only be the first step. The second step is actively looking for ways to USE bitcoin in exchange for goods and services. Third step is expressing our expenses in bitcoin, business expressing their balance sheet in bitcoin and states expressing their growth in bitcoin.
If we fail to go to the second step, we strengthen the state and its fiat currency system. It`s like the state saying:
"Go ahead and buy Bitcoin with my fiat and hold it as long as you wish. Eventually, you’ll need goods and services because you need to survive or satisfy desires. But most businesses accept only my fiat, so you’ll have to trade your Bitcoin for my currency first and then trade my currency for goods and services. This keeps demand for my fiat high, making it stronger and maintaining my control."
If we believe that money and state should be separate, we need to stop using the money created by the state. Reducing demand for fiat is key.
I like to think that another implied incentive of bitcoin is that, in order for it to function as intended and help build a better society, it FORCES us to be supportive and act collectively. Otherwise bitcoin will fail and we`ll remain trapped in the current system of control.
I tried to answer him with an example:
Imagine you are a beer producer, selling a can of beer for $1. Suppose Bitcoin is trading at 1 BTC = $100,000.
If you want to move to a Bitcoin standard, you could start by accepting BTC for beers. In this case, you would set the price of a beer in BTC terms to 1/100,000 = 0.00001 BTC or, more readably, 1,000 satoshis.
Since we are at the beginning of the transition, goods and services would be priced based on the current exchange rate between BTC and fiat.
Over time, supply, demand and other competitors in the beer market would adjust the price of a beer in BTC(or satoshi) terms. People would gradually become accustomed to transacting in BTC. Eventually, we would define how much a certain basket of goods and services is worth in BTC(or satoshi) terms. Because bitcoin supply is fixed, the price of that basket of goods and services tends to Decrease over time in BTC(or satoshi) terms.
This is where we start pricing goods and services based solely in bitcoin`s purchasing power instead of the exchange rate between BTC and fiat.
Then my dad replied:
"Ok, so i started accepting satoshis in exchange for beers. What if my input suppliers don`t accept satoshis for inputs? What if i take my profit in satoshis and when i go to the grocery store, they dont accept satoshis for food either?"
I replied, saying this is a risk. People might not understand bitcoin enough to see that it`s a better money, so they just won`t use it.
But, because we know bitcoin is the best form of money and we understand that the concept of money only works within a NETWORK of people exchanging value with each other, we should do our best to use and accept bitcoin in our transactions. After all, we are all producers and consumers.
As a producer of goods, services or labor, we can start by accepting bitcoin in exchange for what we produce. We could incentivize ppl to buy our products or services with bitcoin (e.g "If you pay with bitcoin, a can of beer will cost $0.90 instead of $1). As for labor(working for a company) we could try negotiating with our employer to pay us in bitcoin (e.g "you currently pay me $3000. If you pay me in bitcoin, i`ll accept $2700"). Of course, if the employer says no, theres not much we can do.
As consumers, we can start by looking for places that accept bitcoin in exchange for goods and services. If none exist, we could incentivize business by offering them to pay a premium to transact in bitcoin (e.g, "My grocery bill is $100, but i`ll pay $110 in bitcoin if you accept it"). If the business say No, theres not much we can do either.
We should NOT force ppl to use bitcoin. Instead, over time, some business might ask "what is that bitcoin thing? why are you willing to pay more if i accept it?" We can explain or indicate them resources to learn more.
And my dad.. "What if the state ban it? or make it a pain to use?"
I said that we shouldn`t expect the state to say "lets all use bitcoin now because is the best money". That wont happen because it would require the state to give up control over money, and most states(especially powerful ones) won`t do that willingly. The change wont happen in a top-down manner. Instead, It will come from the bottom-up, starting from us, the plebs, transacting in bitcoin. Over time, the state might notice..
"Those ppl are transacting in a money i cant control. The wealth of the nation is flowing into this thing, weakening my fiat currency, creating inflation. I need to stop this"
The state might try to forbid bitcoin or make it costly and difficult to use. But these countermeasures won`t work because there are alternative ways to transact in bitcoin that the state cant block and because of the permissionless nature of bitcoin that makes it resilient to state interference. Eventually the state will bend..
"Ok, If most of the ppl and business are transacting in bitcoin and the nation`s wealth is in it, i have no choice but to adopt it too"
And my dad.. "What if the bitcoin holders just hoard it forever and refuse to transact with it?"
I admitted that this is also a risk. Some Bitcoiners who don`t fully understand bitcoin might treat it as just another asset in the fiat system, holding it only to see its price rise in fiat terms. However, If we truly see bitcoin as the best form of money and a revolutionary tool, HOLDING it should only be the first step. The second step is actively looking for ways to USE bitcoin in exchange for goods and services. Third step is expressing our expenses in bitcoin, business expressing their balance sheet in bitcoin and states expressing their growth in bitcoin.
If we fail to go to the second step, we strengthen the state and its fiat currency system. It`s like the state saying:
"Go ahead and buy Bitcoin with my fiat and hold it as long as you wish. Eventually, you’ll need goods and services because you need to survive or satisfy desires. But most businesses accept only my fiat, so you’ll have to trade your Bitcoin for my currency first and then trade my currency for goods and services. This keeps demand for my fiat high, making it stronger and maintaining my control."
If we believe that money and state should be separate, we need to stop using the money created by the state. Reducing demand for fiat is key.
I like to think that another implied incentive of bitcoin is that, in order for it to function as intended and help build a better society, it FORCES us to be supportive and act collectively. Otherwise bitcoin will fail and we`ll remain trapped in the current system of control.