Bitcoin Marries Tesla: The World Just Changed
One statement my rich dad often repeated was that “money is not real.” As a young boy, I didn’t fully grasp what he meant. “The poor and middle-class work for money,” he would say. “The rich make money. The more real you think money is, the harder you will work for it. If you can grasp the idea that money is not real, you will grow richer faster.”
He would define money as “What we agree it is.”
In the Information Age, money is increasing exponentially. A few individuals are getting ridiculously rich from nothing — just ideas, and agreements. If you ask many people who trade stocks or other investments for a living, they see it done all the time.
Often, millions can be made instantaneously from nothing. And by nothing, I mean no money was exchanged. It is done via agreement: a hand signal in a trading pit, a blip on a trader’s screen in Lisbon from a trader’s screen in Toronto and back to Lisbon, a call to my broker to buy, and a moment later to sell. Money did not change hands. Agreements did.
Today, the modern forms of money are gold, paper, and the new kid on the block…Bitcoin, the hottest trend happening right now. I have always found money — in all of its forms and functions — fascinating, and today the more invisible it is, the more fascinating it is than ever before.
The following is a brief history of the evolution of money.
Before there was money, there was bartering. For example, if I grew tomatoes and wanted eggs, I could trade two tomatoes for two eggs with a chicken farmer. Bartering was eﬃcient as long as I could trade my tomatoes for the things I needed. But if no one wanted tomatoes, I starved.
As humans became more civilized, bartering was no longer an eﬃcient way of trading. Early forms of money were shells, beads, colored rocks, arrowheads, and whatever else people agreed upon as symbols of value.
For example, if I did not need two eggs, I could give the chicken farmer two tomatoes, and he would give me two shells, rather than two eggs, so I could trade the shells with someone who had what I wanted.
For thousands of years, people who had access to gold and silver valued these precious metals for use as money in this way. Gold and silver have intrinsic value, which means they can be used for something other than money, such as jewelry. So true money had intrinsic value. True money could be accurately measured. And true money could be stored for years. Gold and silver were compact enough to be carried long distances. Tomatoes or eggs did not last long enough to retain their intrinsic value. Other things like oil have intrinsic value and are measurable, but the problem is that they aren’t easily carried in your wallet.
For an individual who had gold or silver, it was often safer to place it with someone who would take care of it. The individual would turn the gold or silver over to the person with a safe, and that person would issue a receipt for the gold or silver. This was one of the earliest forms of paper money. It was receipt money.
Over the years, a person would carry the receipt, rather than gold or silver, and then buy something with the receipt. The person with the receipt could then go to the person who held the gold or silver and trade the receipt for possession of the precious metals.
As time progressed, these storage places for valuables became today’s modern banks. Soon people got used to the idea of trading bank receipts rather than gold or silver. As long as people trusted the banker, people were happy to trade paper receipts.
The bankers soon realized that very few people ever redeemed their receipts for gold or silver. It soon became obvious to the bankers that they could write more receipts for the gold and silver in storage.
It was not long before the bankers were issuing more and more receipts. As long as people thought their gold and silver were safe, things were ﬁne. However, if people ever lost conﬁdence in the banks or the banks’ notes, there would be a run on the bank in which people would rush to withdraw their gold and silver.
If the bank did not have enough reserves on hand to cover the withdrawals, it would collapse. This happened most dramatically during the Great Depression.
Today, it is estimated that for every dollar in savings, the bank will lend out twenty dollars. The system is thus called a fractional reserve system because the banks only need a fraction of the dollars they lend out to be in their possession, in this case, 1/20th. On top of that, the banker might pay you 5 percent interest on your dollar but can charge up to 20 percent interest to the person who borrows the twenty dollars. Over a year, the banks pay you ﬁve cents on your dollar, and they make four dollars (2096 X $20) on your one dollar.
The U.S. system of money is purely fiat. A fiat is simply a decree or arbitrary command. Thus, fiat money is money that a government creates by decree without anything backing it up, other than the reputation of the government itself. It is man-made money with no intrinsic value. The U.S. Bureau of Engraving, which prints our money, is working around the clock, using eighteen tons of ink each month, merely printing money. Yet the U.S. dollar has no intrinsic value and because it is based upon debt, it is worth less than nothing.
In actuality, it is a liability. The government creates laws that force you to accept this man-made money. If you do not accept it, you can be punished. Fiat money is technically counterfeit money that is backed by laws.
Bitcoin is cyber money. Bitcoin was created in 2009 and when it first broke onto the monetary landscape it sounded like science fiction. Something created by an anonymous person known as Satoshi Nakamoto operating outside the traditional banking system.
Today, as I write this, Bitcoins are selling for record highs, and the value of a single Bitcoin is around $60,000. Some people are predicting a single Bitcoin to be soon worth over $100,000. Others are calling for it to be $2 Million. No one knows how the story of Bitcoin will play out, which brings us to the 600-Million-dollar question.
Bitcoin Is Money
According to my rich dad’s definition, Bitcoin is money. Consumers and retailers have agreed to such. Bitcoin has a means of exchange, a store of wealth, and is a unit of account.
In March, Elon Musk announced that it is now possible to buy Tesla vehicles in the U.S. with Bitcoin. For the first time, a retailer is accepting large Bitcoin transactions and keeping them as Bitcoin. While other retailers are converting to cash, Tesla is taking Bitcoin directly and keeping it in its treasury.
Remember Tesla also spent $1.5 billion earlier this year buying up Bitcoin. By doing this, Tesla is giving credibility to cyber money which will likely lead other retailers to follow.
PayPal also started accepting crypto in March as a form of payment. For the first time, PayPal will accept Bitcoin, Litecoin, Ethereum, or Bitcoin Cash as a payment option for millions of businesses across the globe.
This Is the New Normal
Over the last year, we’ve learned that we can work from home just fine. We’ve grown even more comfortable with technology and services like Zoom. Masks – love them or hate them – won’t be going away. Acceptance in government medicine has gone through the roof. The dependence on the government to supply money to us whenever things get tough rather than plan for our future is not going to disappear.
While it is nice to imagine that the U.S. monetary system will go back to a gold standard where our money is backed by something tangible, the reality is that our money is not backed by anything other than faith and good credit.
Editor, Rich Dad Poor Dad Daily