I’m pretty sure it was 1971, but it could have been 1972. Anyway, it was in kindergarten and I was five years old. Our teachers had set up a system to motivate us children to behave well. They had hung a big board on the wall with all our names on the list. If you were particularly well-mannered, friendly, helpful or polite, they drew a black dot next to your name. Misbehave and they gave you a red. It was about following the Kindergarten rules, and the absolute transparency motivated most of us to do our best.
At one point, an extra prize was introduced for exceptionally good behavior: a small piece of cloth. From the group’s point of view, it was worth much more than the top spot in a series of black dots. And it was tangible. You could prove your elite status, even in the sandbox.
Eventually a trading system developed between us children. For a piece of cloth you could get a bucket of sifted sand. For two you could get a piece of candy. Suddenly we could trade labor (sand) for status symbols or sweets.
Then one day a new teacher came. For some reason, she distributed these scraps much more generously. She simply changed the rules for their distribution. Suddenly everyone had them and you had to use four for a piece of candy instead of two. Some of the children began to complain. Their hard-earned scraps were now worth less, and they demanded more of them.
As you might expect, fabric scraps were given out more and more freely. Before long anyone could take as many as they wanted. In the end, they were lying all over the place. They were worthless. Nobody wanted them anymore. You couldn’t trade them for anything. And then, at only five years old, I experienced true hyperinflation.
What does this have to do with Bitcoin?
In kindergarten, the rules were simply changed. The new teacher wanted to be nice, we children whined, and suddenly more and more fabric scraps were handed out.
The rules of Bitcoin simply cannot be changed.
It is a completely different story with our fiat currencies. They also have rules. The problem is that no one can ensure that these rules are actually followed. Here’s an example: the European Central Bank is not allowed to permanently finance governments through bond purchases, but it does it anyway, brazenly and without anyone doing—or even being able to do—something about it. And who would intervene?
Here is another example. The Stability and Growth Pact of the Maastricht Treaty stipulated that EU member states’ budget deficits could not exceed 3% of their GDP, although permissible exceptions were built in. But between 2000 and 2010, the stability criteria were repeatedly violated without sanctions – not only by Greece, but also (11 times) times, France, but also (11 times) times, France. and Germany (five times). According to the Maastricht Treaty, there are clear sanctions for countries that wrongfully fail to comply with the deficit limit. But not once has such a sanction been imposed. No attempt was even made.
It may have been politically expedient and justified for whatever reason, but it shows how difficult it is for us to comply with the rules. It’s like the New Year’s resolutions we make with the greatest conviction, but which usually don’t last very long. The result is what matters. Currencies inflate and sooner or later become worthless. The US dollar has lost 97% of its value over the last hundred years. The British pound, which originally represented one pound of silver, suffered the same fate. All because more and more new dollars, euros or pounds have been created, or to put it differently, printed.
The result is the same: when fabric scraps become worthless, everyone who holds them loses their wealth.
This cannot happen with Bitcoin. Its rules are fixed and nobody controls the system, nor can they simply change those rules.
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