Lesson 14 - Sound money

Lesson 14 Sound money "The first thing I've got to do," said Alice to herself, as she wandered about in the wood, "is to grow to my right size, and the second thing is to find my way into that lovely garden. I think that will be the best plan."   The most important lesson I have learned from Bitcoin is that in the long run, hard money is superior to soft money. Hard money, also referred to as sound money, is any globally traded currency that serves as a reliable store of value. Granted, Bitcoin is still young and volatile. Critics will say that it does not store value reliably. The volatility argument is missing the point. Volatility is to be expected. The market will take a while to figure out the just price of this new money. Also, as is often jokingly pointed out, it is grounded in an error of measurement. If you think in dollars you will fail to see that one bitcoin will always be worth one bitcoin. “A fixed money supply, or a supply altered only in accord with objective and calculable criteria, is a necessary condition to a meaningful just price of money.”Fr. Bernard W. Dempsey, S.J. As a quick stroll through the graveyard of forgotten currencies has shown, money which can be printed will be printed. So far, no human in history was able to resist this temptation. Bitcoin does away with the temptation to print money in an ingenious way. Satoshi was aware of our greed and fallibility?—?this is why he chose something more reliable than human restraint: mathematics. While this formula is useful to describe Bitcoin’s supply, it is actually nowhere to be found in the code. Issuance of new bitcoin is done in an algorithmically controlled fashion, by reducing the reward which is paid to miners every four years. The formula above is used to quickly sum up what is happening under the hood. What really happens can be best seen by looking at the change in block reward, the reward paid out to whoever finds a valid block, which roughly happens every 10 minutes. The hardness of fiat currency depends on who is in charge of the respective printing presses. Some governments might be more willing to print large amounts of currency than others, resulting in a weaker currency. Other governments might be more restrictive in their money printing, resulting in harder currency.Formulas, logarithmic functions and exponentials are not exactly intuitive to understand. The concept of soundness might be easier to understand if looked at in another way. Once we know how much there is of something, and once we know how hard this something is to produce or get our hands on, we immediately understand its