Voima Gold analyst Jan Nieuwenhuijs wrote in 2020: “The spot gold price broke through $2,070 per ounce on August 6, setting a new record high.” In the 50 years since 1973, the value of the US dollar relative to gold has shrunk by more than 98%. Figure 1 clearly shows this phenomenon. The horizontal axis of the figure is the time axis. From 1780 to 2022. The vertical axis is the price of the US dollar.
The value of the US dollar backed by asset coins is stable
In 1780, the US dollar was anchored to gold. From 1860 to 1865, the US Civil War saw a sharp depreciation of the US dollar. With the war’s end, the US dollar soon recovered its exchange rate with gold. From 1780 to 1930 was 150 years, and the dollar basically maintained an ounce of gold equivalent to more than 20 US dollars. In the Great Depression of 1929, Roosevelt’s New Deal was introduced. The dollar depreciated against gold, and each ounce of gold was equivalent to about 35 US dollars. Although there are fluctuations, it is also a straight line. That is, saving dollars is value-preserving.
Studying this chart, we can conclude that the dollar, as a currency backed by gold, has a stable value. The disadvantage is that the amount of gold mined cannot match the economic development, and deflation occurs. Keynes’ theory cooperated with Roosevelt’s New Deal to restore the economic growth of the United States. Since then, Keynesianism has been widespread and planted the evil consequences of future inflation.
The credit-backed dollar is unstable
By 1973, the Bretton Woods system collapsed, and the dollar’s depreciation was like a wild horse that ran away, resulting in the fact that saving dollars will definitely not preserve value. From 1973 to 2020, gold rose from $35 to $2,070, an increase of more than 59 times in dollar terms. If calculated at 50 times, the compound depreciation rate of the dollar in 50 years exceeded 8.1%.
In other words, only by maintaining a return of more than 8.1% for 50 consecutive years can it outperform real inflation. Who can do it? Obviously, only a very small. This is also the case. The concentration of wealth in the hands of a few people is getting higher and higher. Hard work cannot make you wealthy; working can only make a living. The depreciation of legal tender has made society lose fairness and, of course, justice. Only speculators may still have the opportunity to get rich, and humans have entered a speculative society and enjoyed the doomsday carnival.
Compared with the historical legal tender, how long will the dollar last?
China is the ancestor of issuing legal tender. On January 12, 1024 (November 28, the first year of Tiansheng in the Northern Song Dynasty), the Northern Song Dynasty established the Yizhou Jiaozi Office in Chengdu. The issuance of “Jiaozi” is equivalent to today’s legal tender issued by the government. Later, due to over-issuance, Jiaozi depreciated severely. The issuance stopped in 1105. A total of 80 years. The Northern Song Dynasty lacked a relatively independent central bank system to unify the country’s monetary policy. It did not conduct real-time tracking, analysis, and unified management of critical economic indicators such as inflation.
The legal currency “Hui Zi,” issued from 1161 to 1724 in the Southern Song Dynasty, and the Ming Baochao, issued from 1375 to 1444 in the Ming Dynasty, lasted no more than 100 years. The Zhongtong Banknote, issued from 1260 to 1368 in the Yuan Dynasty, lasted for 108 years at most.
Regarding the reasons for the demise, Guo Jianlong wrote in “The Financial Code of the Central Empire”: “As long as there is a monopoly on the issuance of paper money, it is a natural behavior for the government to use paper money to subsidize the finances, and no matter how people prevent it, there is no way to stop it. When there is an imbalance in fiscal revenue and expenditure, the problem can be solved by starting the printing press, and no one can stop this temptation.”
This sentence is on point. Even if there is a central bank, looking at Figure 1, you can see that the US dollar also meets Guo Jianlong’s conclusion. The three dynasties are different, but human nature remains unchanged. The life of legal currency is about 100 years. In comparison, the US dollar has an expected lifespan of about 50 years.
Analyzing history, if the Bitcoin standard is realized, a safer way requires Bitcoin to achieve the measurement of GDP growth within 50 years—that is, synchronized with GDP growth. This is the constraint condition for designing the Bitcoin standard. I calculated the reasonable growth curve of Bitcoin in 48 years from its natural growth curve. For the meaning of the Bitcoin standard, please refer to the DW20 white paper and series of explanations.
Analyzing history and economic development, increased trade demand leads to a strong demand for legal currency, and inflation makes legal currency inevitably go to asset currency. Therefore, the emergence of modern Bitcoin is not accidental, not a special case, and conforms to the law of history.
Analyzing history, the emergence of Bitcoin is very similar to the Song Dynasty. Due to the depreciation of paper money, people chose gold, silver, copper, and iron as means of payment. Just like people’s choice of Bitcoin now. Without Bitcoin, the inconvenience of gold makes it not a rival of legal currency, and people have no choice. Satoshi Nakamoto opened Pandora’s box and sounded the death knell of legal currency.
Analyzing the growth cycle of Bitcoin, only the first 48 years of 132 years of growth are the most important. The 48 years are divided into the first and second half of Bitcoin, and the rules are entirely different. The first half is the first three cycles, with over 90% of Bitcoin issued. Only when Bitcoin can survive and grow will the mainstream of finance pay attention to it, and there will be opportunities for the next step. Fortunately, Bitcoin has done it. I will discuss this in detail in the next article.
David Chaum, who began to explore in the 1980s
In 1973, the United States began implementing a floating exchange rate for the US dollar. By the 1980s, problems had already emerged, such as continued inflation and excessive government intervention. At this time, liberal monetary theory and policy research emerged, trying to improve the problems of legal currency. Friedman emphasized the importance of stable currency, proposed a single currency rule, and increased the central bank’s independence to stabilize the money supply. Hayek proposed a radical route: to abandon legal currency, implement “denationalization of currency”, issue currency by private individuals, and form a market-endogenous monetary system through competition.
Against this background, cryptography expert David Chaum imagined in 1981 whether digital currency could be issued in an encrypted manner. He proposed ecash in 1982 and commercialized it through Digicash in 1989, but failed. His actions profoundly influenced a generation of technological pioneers. After him, there were free dollars and egold, etc. Unfortunately, their founders were sentenced.
Satoshi Nakamoto, the master of cryptocurrency who absorbed the wisdom of predecessors
The time came in 1998. Wei Dai and Szabo both proposed their currency ideas in 1998. In 2005, Nick Szabo absorbed everyone’s views. He improved the Bit Gold idea to form a white paper, completing the theoretical construction of cryptocurrency. He was only one step away from Bitcoin. When discussing this, Satoshi Nakamoto said that Bitcoin is realizing Wei Dai and Nick Szabo’s ideas. Of course, Satoshi Nakamoto has his creation.
Everything is ready, and only the east wind is missing. The financial crisis that began in 2007 transformed the ideas of a generation into Bitcoin through Satoshi Nakamoto. It was “born to establish a new monetary system.” In view of the previous cases of sentencing, Satoshi Nakamoto had to choose anonymity. After the WikiLeaks incident, he decided to leave.
His departure left the biggest “unfinished project.” Bitcoin has only completed half of the work and has become a stored-value currency, but which is excellent. On the third day after its launch, the goal of “Bitcoin becoming the main payment system” proposed by industry leader Hal Finney could not be achieved.
From David Chaum to Satoshi Nakamoto, it took humans 28 years to issue a digital stored-value currency similar to gold.
To achieve Hal Finney’s requirements, Bitcoin needs to be equipped with a ruler
Currency has three properties: stored-value, means of payment (transaction medium), and pricing unit (ruler). Bitcoin has stored value and can be used to measure GDP. The volatility of Bitcoin plus the volatility of the US dollar will inevitably have greater volatility. Using Bitcoin alone as a ruler will encounter the same problem as gold.
We need a ruler with an unchanging scale and a ruler with less volatility than the US dollar. This ruler should be ownerless like Bitcoin and cannot be an owner stablecoin. The DW20 we designed is a currency that meets this requirement. It has three stages. The first stage is the consensus formation stage, like Bitcoin; it stops rising when it reaches $1, which is the stablecoin stage. The volatility is smaller than the US dollar because it has a real-time negative feedback mechanism. That is, it will eventually become a standard currency more stable than the US dollar, which is used to help Bitcoin complete the Bitcoin standard. For a detailed introduction, please refer to the DW2 white paper and postscript: The new world needs a financial scale with an unchanging scale.
The DW 20 is the yardstick to implement the Bitcoin standard
DW20 is being airdropped, a fair and straightforward issuance method. Currently, 17,000 will be given away for registration. For all introductions, please refer to the chainless website, which has operation videos and article introductions.
It took another 15 years, from Satoshi Nakamoto’s Bitcoin to the launch of the DW20 standard currency. It will take another 33 years to achieve the replacement of the Bitcoin standard for the US dollar.
Regarding financial anchor replacement, it will take at least 75 years for humans.
There will be no inflation then, and morality and kindness will return. This is an ideal world. Utopian socialists, Hayek, and cypherpunks have pursued it. Today, we are closer to achieving a fair society than they are.
