Traditional Money vs Bitcoin

The Future of Wealth

In today's world, we use traditional money like dollars, euros, and rupees for everyday purchases. However, many people don't realize that this money loses value over time, making it harder to build wealth. 

This blog will explore why this happens, how Bitcoin differs, and why it might be a better option for protecting your wealth.

Why Traditional Money Loses Value – Printing Money out of thin air

Traditional money, known as fiat money, is not backed by anything physical like gold. When a currency is "backed by gold," it means that the money can be exchanged for a specific amount of gold. 

This used to be the case with the U.S. dollar under the Gold Standard, which meant that the government could only print as much money as it had in gold reserves.

However, in 1971, the U.S. abandoned the Gold Standard, allowing the government to print more money without needing to have an equivalent amount of gold. This leads to currency depreciation, where the value of money decreases over time. 

The more money the government prints, the less each dollar is worth. This process causes inflation, where prices rise not because goods are more valuable, but because too much money chases too few goods.

Other Government actions causing currency depreciation

• Regulation and taxation: Increased regulation or higher taxes on businesses can lead to higher production costs. Businesses often pass these costs on to consumers in the form of higher prices.
  
  For example, higher taxes on fuel or raw materials can increase the cost of goods. Another example, in Sri Lanka the tax on newly imported cars is 200%, making vehicle prices in Sri Lanka extremely high and unaffordable for people.
  
  
• Trade Policies: Tariffs, trade restrictions, or sanctions can limit the availability of goods and increase their prices. For instance, if a government imposes tariffs on imported goods, the cost of these goods can rise, contributing to overall inflation.
  
  
• Monetary Policies: Although not directly related to printing money, monetary policy decisions such as lowering interest rates can also influence inflation. Lower rates can stimulate spending and borrowing, which may lead to higher prices if the economy overheats.
  
  
• Geopolitical Tensions and Sanctions: The U.S. has imposed sanctions on various BRICS countries, leading them to seek alternatives to the U.S. dollar. This shift aims to reduce reliance on the dollar and mitigate the impact of U.S. policies, potentially decreasing the dollar’s global demand and value.

Recent Examples of Fiat Money Losing Value

• Argentina (2023): Argentina is currently experiencing an inflation rate of over 100%, meaning prices of goods and services have more than doubled in a year.
  
  The Argentine peso has lost significant value, making it harder for people to afford basic necessities. For example, a loaf of bread that cost 50 pesos a few years ago now costs over 700 pesos in Argentina.
  
  
• Turkey (2023): Turkey's lira has seen drastic depreciation, losing nearly 50% of its value in just a few years. Ten years ago, a modest apartment in Istanbul could be purchased for around 200,000 lira. Today, that same apartment costs over 2 million lira, far outpacing the average wage increase.
  
  
• Zimbabwe (2024): The cost of a loaf of bread in Zimbabwe has surged from about 1.5 Zimbabwean dollars (ZWL) ten years ago to around 1,000 ZWL or more today. This dramatic increase highlights how inflation can erode the value of money and significantly impact the cost of living.

 

The Rat Race: Why It’s Hard to Get Ahead

Because fiat money loses value over time, many people find themselves trapped in the rat race, constantly working just to keep up with rising costs. 

Savings in fiat currency diminish in purchasing power, making it challenging to build financial stability. Despite working diligently and saving, the value of your money can erode significantly.

Consequently, you may need to work even harder to maintain your standard of living, which only deepens your attachment to your job. 

Essentially, while we rely on money for our daily needs, we end up struggling for something that continually loses its value, trapping us in a perpetual fight just to stay afloat.

Why Bitcoin Is Different

Bitcoin is a unique form of money that operates differently from traditional fiat currencies. Unlike fiat money, Bitcoin is scarce, with a maximum supply of only 21 million coins with over 8 billion people on Earth and around 3.5 billion in the middle class (according to Brookings Institution data), there's a substantial potential demand for Bitcoin.

If Bitcoin continues to gain acceptance and proves its staying power, the limited supply and growing interest could drive its price significantly higher in the future. So why not save in a digital asset like bitcoin that gains value overtime? 

From a value of $0.001 in 2009 to a value ranging between $50,000 - $60,000 in 2024, bitcoin is not a joke. If you still think it's a joke, you might want to reconsider—this crypto has earned some serious respect.

 

How Bitcoin Can Help

Bitcoin offers a way to escape the problems associated with fiat money. It’s decentralized and not subject to the same inflationary pressures as traditional currencies. For instance, El Salvador adopted Bitcoin as legal tender in 2021, making it the first country to do so. 

This move aimed to boost financial inclusion and attract investment. The adoption helped drive significant Bitcoin-related investments and tourism, contributing to the country's economic development. By using Bitcoin, El Salvador is exploring innovative ways to harness digital assets for economic growth and stability.

Final Thoughts

Traditional money loses value over time due to various government actions. When governments are incompetent or corrupt, it's the people who suffer most from currency depreciation. 

The abandonment of the Gold Standard has allowed governments to print money freely, worsening this issue. 

Bitcoin, with its limited supply and decentralized nature, offers a potential solution for protecting wealth and escaping the pitfalls of fiat money. Recent examples from Argentina, Turkey, and Zimbabwe highlight the risks of relying on fiat currencies, making Bitcoin a valuable alternative in the digital age.

Disclaimer: The contents of this article are for informational purposes only and are not financial advice. The views here are just the author’s opinions. The crypto market is volatile, so be sure to do your own research before investing.