The story continues: The new player in the village and the trust problem

Let's take our example from the article "What is Bitcoin?" again: Imagine a fictional village with six people: a farmer, a beverage manufacturer, a bricklayer, a cinema operator, a bar owner, and a chocolate maker.

Since they now have the opportunity to store and scale their work using the intermediary medium "money," they look for a medium that is ideally suited to function as such.

Yesterday's solution: The central bank

Now a seventh player joins our village community: the central bank.

The central bank itself doesn't produce any goods. It doesn't bake bread or build houses. Its sole function is to issue "money" in the form of paper. It lends this printed paper to our six villagers and requires them to repay it later, including a loan fee (interest).

The system is convenient. The bricklayer no longer needs to barter directly; he borrows paper money and pays for the movie. The paper money derives its value from the trust our six working people have that this paper will still be worth something tomorrow.

The catch: "Honey printing"

The system works as long as the amount of paper money remains stable and trust is maintained. But the central bank has a power no one else in the village possesses: It can create more paper money at the push of a button, without any additional work being done.

Imagine a "banker bee" in a beehive who decides: "Winter will be harsh. Instead of collecting real nectar, I'll simply distribute vouchers for honey."

At first, the bees are delighted with the many vouchers. But when they try to redeem them in winter, they realize there isn't nearly enough real honey to cover all the vouchers. The honey value of each voucher plummets. The summer's hard work has been devalued by the printing press. Promises have been broken.

This is exactly what's happening in our village: When the central bank prints too much paper money (to resolve crises or service debts), it dilutes the value of money, that is, the value of the work the bricklayer and the farmer have painstakingly saved. This is called inflation. It's a breach of trust.

The solution: Mathematics instead of promises

Bitcoin is the first system that solves trust in money differently:

  • You don't have to trust Satoshi Nakamoto.
  • You don't have to trust any government or central bank.
  • Trust through verifiability in mathematics and the code, i.e., fixed rules
  • Trust in direct democracy through the vote of every single Bitcoin node (verifier of transactions and rules of the Bitcoin protocol). Anyone using Bitcoin or not can set up their own Bitcoin node as a verifier and determine the rules by which Bitcoin is issued, and vote on new rules.

Following the motto "Don't trust - verify!".

Bitcoin is like a natural law. It's as if the rules of a beehive were carved in stone (or code): if the users agree, there will be no more than 21 million. No central authority can push the "button" or dilute your painstakingly collected "digital honey."

With a central money creator, like a central bank, you have to trust central bankers, who are often elected by the elected representatives of a people/community, and thus also trust the elected representatives (politicians).

Parliamentary vs. direct democracy

In a parliamentary democracy, our six villagers elect representatives who enact laws for a defined period and control the government. In a direct democracy, our six villagers make the decisions themselves through voting.

Now, the question arises: whom do you want to trust more – parliamentary democracy (such as a central bank/politicians) or direct democracy (such as Bitcoin)?

Those who wish to continue living independently and not relinquish their right to vote choose direct democracy and thus Bitcoin as their monetary system. Those who want to relinquish personal responsibility and their voting rights to a representative, which is easier for many, choose the fiat money system.

The foundation: Everything is based on trust

Money only works for one reason: trust.

  • We trust that we will still be able to buy just as much bread or honey with our banknote tomorrow as we can today.
  • We trust that the bank won't simply wipe out our savings.
  • And above all: We trust that the central bank won't expand the money supply so drastically that our purchasing power melts like ice in the sun.

The problem: In human history, this trust has been broken sooner or later by every central authority.

Conclusion: Back to the honesty of nature

We need Bitcoin to once again have an honest foundation for our society. A system that rewards hard work and doesn't penalize savers.

Bitcoin replaces the uncertain trust in central banks with the incorruptible rules of cryptography. It's a return to economic truth – just as a beehive survives only on real nectar, not printed paper.

Our six villagers have now turned to Bitcoin due to the trust issues with fiat money. But how do you prove your identity in a transaction and your ownership of Bitcoin? That's what the next article is about.

Best regards,

your beekeeper Patrick