What if there was only bitcoin (BTC) left?

What did a world with bitcoin as its only currency apply to? Here are a few things to think about with in the first place this simple question: will the fiat currency self-destruct?

Could fiat money disappear?

Is the use of a single currency available in absolutely limited quantities possible. Desirable? Would this paradigm shift have profound implications for society?

Before looking into these questions, it must already be said that such a scenario assumes the disappearance of fiduciary currencies. Is it possible ? Yes. To be convinced of this, you have to look at two things:

  • How the fiat system works
  • The physical limits of growth

Let’s start by defining what exactly a “fiat” currency is. Here are three quotes to get an idea:

“The only currency is gold, everything else is debt”

JP Morgan

“If there was no debt in the system, there would be no money. »

Marriner Eccles, former Fed Chairman

“Every time a bank makes a loan, it’s brand new money. »

Graham Towers, Director of the Bank of Canada

Fiat money is “debt money”. Every euro, every dollar, every yen in circulation originally comes from a debt. About 60% of the money in circulation comes from mortgages. The rest is the responsibility of states and companies.

Notes and coins are not actually created from debt, but represent only a very small part of the money in circulation. Barely 1600 billion euros. To be compared with the total debt of the Euro Zone (States, households, companies) which reached 32,300 billion euros. Or less than 5% of the entire money supply.

So, and to put it another way, if we paid off all the debts with the wave of a magic wand, there would be hardly a penny left in circulation.

Which brings us to the word ponzi. Fiat currency is a ponzi. The reason being that the debt must always increase for the system to work. It’s math. It is enough to decomplexify things to count it.

Imagine an economy starting from scratch with one bank and two borrowers. The banker creates twice 100,000 euros ex nihilo and lends them. With 4% interest, for one year.

Could both borrowers pay this interest? No, for the good and simple reason that the money corresponding to the interests does not initially exist in the economy.

To make interest payments possible, a third person must move in and in turn borrow money. In which case, it’s technically possible that our first two borrowers could find enough money to pay the interest.

This simple demonstration is true in an economy of 2 people, 10 people, 100 people, or a billion people.

In sum, since the money corresponding to the interest is never initially in circulation in the economy, if some managed to repay their debt and the interest, mathematically, others could not even repay the principal of the debt. ‘ loan. Unless the overall debt (the amount of money in circulation) grows without.

Understand that these interests are not nothing. Borrowing 100,000 euros at 4% over 30 years amounts to ultimately having to pay 71,800 euros in interest! Bankers are therefore forced to increase the duration of loans. The but being that there is always enough money in the magma of the economy to ensure the payment of interest. Hence the real estate inflation.

Except that the trees do not go up to the sky… One day, the new generation will refuse to go into debt over 40 or 50 years. There will then no longer be enough money in the economy for the repayment of debts to be done without a hitch. Then came the time of bankruptcies, unemployment and the bursting of the real estate bubble. Unless we set up a universal income…

Public debt is also a ponzi. Especially since unlike households, States never repay their debts. They just “roll” them. That is, they borrow to pay off old debts.

This is terrible, because it means states are accumulating interest on interest. And that is an exponential mathematical process that can only end badly. Hence the zero rates.

So to speak, the fiat system carries within it the seeds of its self-destruction. The question of interest is a tricky one. It is not for nothing that they have long been banned by the Church…

Here is what John Maynard Keynes said about interest (usury):

“I therefore see nothing to prevent us from returning some day to some of the surest and least doubtful tenets of traditional religion and virtue – that avarice is a vice, the practice of usury, a crime, and the love of money, detestable. » -John Maynard Keynes

All this being said, it is clear that the system of fiat money works relatively well if the economy can grow without constraints. An abundance of energy and material resources can even result in wages rising faster than inflation as well as a modest and stable public debt relative to GDP.

(This is the case of Russia, for example, with a debt that has fluctuated between 20% and 12% of GDP since 2004. Its immense energy resources allow it.)

But the fact is that physical limits eventually stem economic production. Our planet is not expandable and 84% of the energy we use still comes from oil, coal and gas. This energy IS the economy. Without it, nothing moves, nothing changes. Humans have become pilots of machines that work with… energy.

The peak in the extraction of fossil fuels inevitably caused a drop in production and the sale of almost everything. Real GDP will fall. Unemployment will increase. Tax revenues will shrink, forcing states to take on even more debt in a mad hyperinflationary headlong rush. Until rationing.

Feeling of deja vu? Here we are. The growth rate of energy extraction has been falling steadily since the 1970s. The downturn is even clearer if we talk about energy per capita.

World energy consumption per capita
Energy consumption divided by the number of humans

As Voltaire said, “Paper money still ends up returning to its intrinsic value, that is to say zero”. The next jubilee is near and a currency of another kind is already waiting for its time. We hear his heart beating every 10 minutes, block after block, ready to take over.

Yes, a “hyperbitcoinization” is not pure fantasy. We will talk about it in a next article to be published tomorrow.

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Avatar Nicolas Teterel

Nicolas Teterel

Journalist reporting on the Bitcoin revolution. My solicited papers of bitcoin through geopolitical, economic and libertarian prisms.

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