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A short story on the evolution of money

Trade in ancient times

Different people in different locations and times have used different instruments – seashells, squirrel hides, large stones and metals to conduct trade. The first commodity money – coins – were minted in Mesopotamia about 5000 years ago.

The key thing here is that money is a human agreement – based on a narrative that recognizes its value. The narrative exists only in a network, and the larger the network the stronger the narrative.

Over time precious metals (mainly gold and silver) emerged as the best monetary instruments – freely chosen by the market because people agreed so, because the monetary metals had these main criteria:

  1. Recognizable
  2. Divisible
  3. Durable
  4. Incorruptible
  5. Scarce
  6. Fungible
  7. Units of account

The First point to understand about ‘money’ is that its value primarily exists due to its salability – to transfer Value over Time and Space.

In a free-market humans have over time selected gold and silver to be used as money, mainly due to the aforementioned criteria – and because you can’t easily find/create more of it compared to existing stock (ie Gold has a High ‘stock to flow’ ratio).

The Second point to understand about Money is that Money is a Network. The more nodes in the network, the more valuable the network becomes – this is often called ‘Metcalfe’s Law’. Only with money in a network can it be used as ‘currency’ or a medium of exchange.

With these two main points established:

  • Currency / money is a network between humans
  • Desirable qualities of money resemble those of gold.

..We can then contemplate how should we act should a better money emerge? In a rational, free market humans would choose the money which best fulfills the criteria of money (ie that Best transfer Value over Time and Space).

The case that Bitcoin is better than Gold at being the ‘base layer’ of money is elegantly argued by the Winklewoss Twins in their piece “The case for 500k Bitcoin“.

For example this table shows that in many aspects of being money – Bitcoin is better than gold:

Features of Bitcoin vs Gold

So why do we need a new money or alternatives to the fiat moneys – USDs, Euros and pesetas of the world? Because money is at the base of the financial system, and the current financial system is broken.

The rich are getting richer, the poor are getting left behind -and I will argue in the next post – that no amount ‘UBI’, ‘MMT” or ‘taxing the rich’ will resolve the fundamental issues.

El Salvador Chose the Hardest money – Bitcoin

Currencies are in constant competition between each other, and people choose to hold currencies for various reasons. In countries like Argentina, Venezuela and El Salvador people have long held US Dollars, as the US dollar has been a ‘harder’ currency than their own currencies.

So what does it mean that one currency is harder than the other? Easy money will be more easily inflated out of existence, it will not hold its value over time, and conversely the harder money/currency will hold its value better over time.

Before 1971 the world was on a Gold standard, mainly because gold historically has the highest stock to flow at about 71 /1, while silvers’ stock to flow can ramp up to 20/1 .

So how is this relevant to our situation today in 2021?

Saifedean tells eloquently the story of how India and China in the 1800s chose silver as their monetary standard, while Western nations chose gold. Over several decades the corroding effects of constantly slipping purchasing power in China/India meant that the big Asian nations languished.

Compared to the Western countries where the nations/companies/people were able to maintain and even increase their purchasing power, over time meant that the Western nations were able to dominate the world economical, political and military arenas.

To quote from the Bitcoin Standard by Saifedean Ammous:

The demonetization of silver had a significantly negative effect on the nations that were using it as a monetary standard at the time. India witnessed a continuous devaluation of its rupee compared to gold‐based European countries, which led the British colonial government to increase taxes to finance its operation, leading to growing unrest and resentment of British colonialism. By the time India shifted the backing of its rupee to the gold‐backed pound sterling in 1898, the silver backing its rupee had lost 56% of its value in the 27 years since the end of the Franco‐Prussian War.

For China, which stayed on the silver standard until 1935, its silver (in various names and forms) lost 78% of its value over the period. It is the author’s opinion that the history of China and India, and their failure to catch up to the West during the twentieth century, is inextricably linked to this massive destruction of wealth and capital brought about by the demonetization of the monetary metal these countries utilized. The demonetization of silver in effect left the Chinese and Indians in a situation similar to west Africans holding aggri beads as Europeans arrived: domestic hard money was easy money for foreigners, and was being driven out by foreign hard money, which allowed foreigners to control and own increasing quantities of the capital and resources of China and India during the period. This is a historical lesson of immense significance, and should be kept in mind by anyone who thinks his refusal of Bitcoin means he doesn’t have to deal with it.

Ammous, Saifedean. The Bitcoin Standard (pp. 49-50). Wiley. Kindle Edition.

So how does this relate to current events and Bitcoin? I believe the following:

  1. Storing wealth (= saved labor) in a superior currency (Bitcoin) can
    have long-lasting positive effects, with increasing returns as more
    individuals, companies and ultimately nations converge on it.
    This means returns in excess of investment returns to be found in
    traditional markets.
  2. Why is that?
    Because Bitcoin introduces a stable system that people can trust, that can not be manipulated or inflated away by any actors, and Bitcoin is programmed to have a high stock to flow ratio. In 2025 Bitcoin will have a higher stock to flow ratio than gold, and the flow is programmed to be halved every four years after that.
  3. Why is this good?
    Bc as more people learn about Bitcoin, learn WHY they can trust Bitcoin as the
    hardest, best money in existence, they will want to keep their money (savings)
    in Bitcoin.Currently only about 5% of people in the industrialized nations have tried cryptocurrency, so the penetration level among individuals is low, and it is almost non-existent among companies and countries.
  4. Why is the current state bad? Because storing wealth in a currency that is depreciating, being inflated away at about 15%-20% per year due to money printing, will have long-lasting deleterious effects in inflating away the stored value that we/you have worked hard to accumulate.
  5. In particular for El Salvador- Bitcoin and the Lightning network allows El Salvadoreans massive efficiency gains by removing the money transfer middle-men that deduct about 4-5% of their GDP.

On Sep 7th 2021 El Salvador became the first country in the world to adopt Bitcoin as Legal tender, and I believe / hope that El Salvador will blaze a path for many other countries to come.

Happy Bitcoin day!

Our solar installation

Hi there,

This is a note on our experiences and lessons learned from doing a home solar installation, with the ‘GoLive’ date in March 2020.

Lesson #1 – long time-line

We decided to go ahead with the installation in Sep 2019, and the system was finally productive -meaning turned on and grid connected on March 3rd 2020, about six months later. The timeline roughly went like this:

Sep 2019 : We signed up with Energy Sage as they had good educational resources and they had several providers available in our area.

We receive three proposals and we end up selecting Unicity Solar. The main factors we liked about Unicity were their price was quite competitive (more about that later), they offer good warranties for everything (panels, system output, workmanship etc). We signed contracts by mid-Sep, and Unicity submits the permit application to Oldsmar city building department.

October 2019: Permit application stalls. I initially check in with Unicity, get responses that essentially are saying “yes we are checking”, but nothing progresses. I contact the building department directly.

November 2019: Permit application winds itself through the bureaucracy, physical paper applications (!! 2020 !!) and back and forth emails.

December 2019: Finally Dec 4th the application is approved, it is sent by snail mail to Unicity so they receive it on Dec 12th. This is un-fn believable in this day and age.

December 24th – Installation day.

The Unicity team arrive, install the panels and are done by the end of the day. Yay! (you would think..)

January 2020: Unicity has provided the information to our utility company Teco, Teco needs to come inspect the installation so that they can confirm the interconnection to the electrical grid. Inspection happens on January 13th, and we sign the interconnection agreement.

February 2020: Waiting for final paperwork to arrive.. This is getting frustrating..

March 4th 2020: We get the final go-ahead to turn-on the system… We are just more relieved than happy at this point.

Lesson #2 – good economics

One of the keys for us to go with the Unicity Solar offering was that their offer made sense from a financial perspective. Here’s how the numbers worked out:

We bought a 8.1 kw system, made up of 27 Silfab 300 watt panels, 27 Enphase inverters and these associated warranties. It included also an Intelliflo pool pump that reduces our electricity consumption.

  • The total cost of the system was $19,158, which after the 30% tax credit works out to be $13,410.
  • The cost per watt is $1.66 ($13410 / 8100 watt). This is really good considering this is cheap even for Florida (source).
  • Our electricity bill used to be around $150 / month ($1700 / year) and that has now been cut to $17 / month.
  • Assuming savings of $133 per month the payback period is 8 years.
  • Knowing that after 8 years we will have ‘free’ energy for at least another 17 years, and that we are not producing carbon emissions from the house is feeling pretty good.

Lesson # 3- Solid production numbers

The overview of the production per year (the initial grey zone in Feb was as we were not connected to the grid yet) :

The system has been producing over 1000 kwh per month and around 37 kwh per day, here a 6 month sample that I have full data for:

From a carbon footprint reduction perspective this looks good as we’ve cut our carbon emissions from about 17000 lbs / year to effectively zero (source).

Previous emissions:

Revised emissions:

That vehicle number could be cut, hmm… Anyway this looks great right? Not so fast 🙁

Lesson #4 – Production numbers ≠ what the utility company receives

Note that for Sep 2020 our system produced 988 kwh according to our inverter (Enphase):

Now this is the Sep 2020 electricity bill:

So apparently what’s going on here (according to Unicity) is that the system also funnels electricity to the house, so whatever the utility company received is after our consumption has been removed.

Summary

Overall we’re happy with the results as we’ve replaced almost 100% of our consumption, the system is performing well, it’s fun to monitor it, and there’s a small positive feeling of doing something for the environment.

As usual when doing more long-lasting changes – if it’s worth it it will take you three times longer to get there than you initially imagined, but the positive effects can carry for a long time – when you remind yourself of them.