At the heart of it, Bitcoin was created to help realize a better economic system than world governments have pursued. However, economic education isn’t always strong amongst the public, so to help explain why he created Bitcoin to have a limited supply, Dr. Craig Wright used his latest blog post, “The Imbalance of Payments,” to explore some of the economic problems the world faces with current economic strategies.
First, Dr. Wright explores many of the fallacies associated with the “balance of trade.” A great real world example of how this has been a problem to the world has been the U.S.-China trade war, perpetrated by President Donald Trump due to his perception that China was winning from a favorable trade balance with America.
Dr. Wright explains the basics of trade balances by examining a hypothetical family, with each partner having sources of income (favorable trade balances), and expenses (negative balances of trade). To maximize their equations, Dr. Wright explores how each partner can seek out their most efficient sources of trade while minimizing deficiencies. He then compares it to how this affects businesses and global governments:
The scenario is the same if you substitute companies, states, or nations for the partners. We could also argue in our example that the children form an unfavourable trade balance, which could be removed by removing the children. Such is the nature of the anti-trade and protectionist argument.
The reason governments like America perpetrate lies about trade balances is due to inflation, Dr. Wright notes. The government has an interest in inflating the money supply, but in obscuring the reasons behind why they’re doing it. “Even in the event where government was independent of policy (which occurs in no existing context),” he writes, “the additional money manufactured through inflation goes to the government. It is in effect an indirect and hidden tax.”
The problem for the citizen is that inflation is harmful to the value of their productivity. “Without an increase in productivity, additional money has a negative effect,” he notes. “There is the same amount of goods and services in society, there simply is more money competing for the same goods and services.”
While workers might get pay raises to help match inflation, the price of goods and services also increase, destroying their new earnings and actually costing them more. “The effect is that price rises will occur, but value will be impacted upon the individual. There will be a lag in pay rises and other effects (which the government can later use to justify the next round of inflation),” he explains.
This keen understanding of economics is what lead Dr. Wright to create Bitcoin with a limited supply. As it gains global adoption, the supply will never increase, and eventually the value will level out to some degree. The value of one Bitcoin SV (BSV) will then be consistent over time, with the value of productivity never being reduced by a government or central bank decision to print more.
New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide to learn more about Bitcoin—as originally envisioned by Satoshi Nakamoto—and blockchain.