Bitcoin As A Hedge Against Inflation

Article number seven of a series of blog posts. As a heads up, I don’t claim to be an expert, I don’t have a Fidenza, nor a Bored Ape and at that I’m not a Cool Cat. I am a market participant who has been in a handful of discord servers, minted many cool NFTs, engaged with numerous artists, etc. At the end of the day, I identify as an artist, a designer, and somewhat of a marketer.

It’s through these lenses that I intend to shine some light on artists, developers and creators to provide some insight or behind the scenes into how their journey has been so far. Through learning from each other, by trial and error, I believe we can create an even better space for years to come.

My exploration of Bitcoin taught me more about traditional finance than any classroom did. The first idea that sold me was using Bitcoin as a hedge against inflation. I've been fortunate to live in a country with one of the most stable economies. Euro however is not as notorious as the American dollar, as it has been the world's reserve currency since WWII, used to issue and settle debts across the world. In some countries, the U.S. Dollar is more sought after than the money their government issues.

And yet, because saving rates are lower than inflation, American citizens lose purchasing power everyday their money sits in a savings account. With current events during COVID, over 18% of all dollars in circulation were printed in 2020 alone.

The Dollar used to be backed by gold, allowing you to redeem gold for every dollar you held. But in 1971 President Nixon took them off the gold standard allowing the dollar to be printed on a promise of paying it back later.

After reading Rich Dad, Poor Dad by Robert Kiyosaki, I learned that people make their wealth by having their money make money. The idea of using a savings account to create wealth was thrown out of the window. Let's talk about how Bitcoin offers you and everyone in the world a hedge against inflation and centralized Bitcoin's Supply

Bitcoin is deflationary, meaning there is a limited amount that will ever exist. 21,000,000 Bitcoin to be exact. This means out of all 7.8 Billion people in the world, if you own .0026 Bitcoin ($158 as of writing), you have more Bitcoin than the average human can. And for the record, you don't have to buy a whole Bitcoin. You can buy as little as a $1 worth of Bitcoin on platforms like Coinbase and CashApp. There's a common saying in the crypto community….. ‘Not your keys, not your coins'. It's generally a good idea to send your coins to a wallet where you hold the Secret Recovery Phrase, especially if your holdings get to a significant amount ($1,000+)

You may be wondering... How do we know there will only be 21,000,000 Bitcoin? Remember when I talked about mining Bitcoin in the beginning? This is where the rules of Bitcoin supply are enforced. Miners run a piece of software to secure the Bitcoin network using a Proof of Work algorithm. The concept of Proof of Work is a beautiful and complex system. If you're tech savvy, I urge you to deep dive into the Proof of Work algorithm because it's truly a beautiful

Simply put, the Proof of Work algorithm connects thousands of computers across the world, all working on a complex math problem. This math problem is designed to use electricity, and all the miners who want the block reward must participate. In the process of spending electricity to solve the math problem, the network of computers ensures the sender of Bitcoin has enough bitcoin to send, and ensures the receiver gets the Bitcoin.

As a reward for using computing power to secure the network, miners receive brand new Bitcoin, adding new Bitcoin to the overall supply. Once 21,000,000 coins are mined, there will be no more Bitcoin produced, but the current Bitcoin will still be available to purchase on the market.

The number of new Bitcoin that miners receive follows a schedule. The number of new Bitcoin rewarded to miners gets cut in half every 4 years until the total supply of Bitcoin reaches 21,000,000, as shown in the Bitcoin subsidy chart below. The chart doesn't show it, but the last Bitcoin will be mined in the year 2140, about 120 years from now.

But what makes Bitcoin borderless & permissionless? The computers that verify transactions care about one thing. Does the sender actually have the amount of Bitcoin they wish to send? The computers don't care where you live, who you are, your credit score, or what you recently said about your government. You don't have to do an identity check to send Bitcoin. If you have Bitcoin, the transaction will go through. This allows anyone or any business to plug into the global payments infrastructure.

Bitcoin is also great because anyone can build new improvements. Bitcoin is an Open Source technology, meaning there's no single person or entity who's in control. Everyone is in control, and the best features rise to the top. If you identify a feature that makes Bitcoin a better payments network and store of value, you can create it, and the community votes to add it to the network.

This is how the internet started. The internet connects information across the world, and allows anyone to build anything on top of it. Bitcoin does the same thing, but instead of connecting information, it connects worldwide, decentralized, deflationary money and this is just the beginning of web3

Ok, so that's the primer on what makes Bitcoin a revolutionary technology. If you don't understand it at first, don't worry. It took me a lot of time to ‘get it’. Don't be afraid to ask questions and talk with others in the space you trust to ask questions.

If you’ve enjoyed this, feel free check out my website Prince of Cavan Creations or to follow me on the social medias, where I can be found under @princeofcavan. As always, let me know your thoughts!

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