Column
The Bitcoin dollar standard fixes the flaws of the gold standard
Summary: Author： Weisha Zhu ——Answers to the concepts in the article "Invite Satoshi Nakamoto to Welcome the New World" 7.1 People who design the gold standard as weights and measures do not understand the product 7.2 The gold standard versus a ruler 1. The scale of the ruler remains unchanged 2. Ruler is an independent third ...
Author： Weisha Zhu
——Answers to the concepts in the article "Invite Satoshi Nakamoto to Welcome the New World"
7.1 People who design the gold standard as weights and measures do not understand the product
7.2 The gold standard versus a ruler
1. The scale of the ruler remains unchanged
2. Ruler is an independent third party
3. The ruler only measures one variable
4. The gold standard cannot measure two factors at the same time
5. The purpose of central bank hoarding gold is asset allocation
6. Both fiat currency and the gold standard are defective product
7.3 Two factors require two rulers
1. The ruler for measuring circulation - stablecoin
2. The "ruler" to measure the economic aggregate - the anchor of Bitcoin
7.4 Let Bitcoin fall into Buffett's investment framework
7.5 Market competition is the competition of strength
7.6 The Bitcoin standard is not the enemy of the Federal Reserve
written in the back
The gold standard is based on gold. Many problems with gold have been compared with Bitcoin in the previous article. It should be said that in terms of Bitcoin design, Satoshi Nakamoto compared to gold and overcame all the defects of gold. However, no idea of how to implement the Bitcoin standard. People naturally made bitcoin standard trading pairs modeled after the gold standard, and it failed. My previous Q&A article, "2 The difference between the Bitcoin standard and the Bitcoin dollar standard,".
Propose the Bitcoin dollar standard because the U.S. dollar is the standard of legal tender. I also mentioned the Bitcoin Hong Kong dollar standard. It is a competing solution of other currencies to the Bitcoin dollar standard. In the following, they are collectively referred to as the Bitcoin standard, which is relatively simple.
In Q&A 4. I compared the difference between fiat currency and the bitcoin standard, and readers reported that it was still difficult to understand. The gold standard is very far away from us. It is more difficult to explain clearly, and the length is more extended. It is a challenge to write a question and short. To write shortly, we must grasp the critical points for discussion. Although some opinions have little to do with the topic, we still have to express them. Simple is not easy; let's see if it's written better this time.
7.1 People who design the gold standard as weights and measures do not understand the product
What is standard? It is the standard unit of measurement by which all items are measured. The gold standard means that all transactions of goods must be measured in gold, including legal tender. Gold has a unit of measurement, which is a unit of weight, and legal currency is linked to gold according to the weight of gold. Gold is equivalent to the calibration ruler of various fiat currencies. Legal currency is composed of various rulers with a corresponding relationship between them.
The gold standard is different from the ruler, we feel. Using gold as a ruler always feels a little weird and wrong, but We don't know what's wrong. Maybe the people who designed the gold standard didn't think carefully about this because this is how the barter from the ancestors has been passed down. What's wrong? The easiest way to find fault is to compare.
7.2 The gold standard vs. a ruler
1. The scale of the ruler remains unchanged
The ruler's scale does not change, the gold standard serves as a ruler, and its scale is also not modified. These two points are the same. The fiat currency is used as a ruler, and the scale is constantly shrinking. This year's one-foot, maybe next year's scale, is only equivalent to this year's nine-inch five. The ruler scale is reduced by 5%, and things get bigger. For example, last year's height was 1.7 meters, and this year it became 1.78 meters. It is monetary inflation, which is what we often call inflation. The invariance of the ruler is the primary condition for weights and measures. Therefore, fiat currency does not have the primary function of a ruler. I don't know how economists and officials combined to fool ordinary people. Those who don't want to be called liars express their opinions subtly. Greenspan agreed on the gold standard. He says this view in "Gold and Economic Freedom. " It also explains why when he was in charge of the Federal Reserve, he showed an ambiguous style and knew everything in his heart.
2. Ruler is an independent third party
The ruler is the medium of the transaction; it is an independent third party and does not participate in the transaction. The gold standard is also a medium of exchange; the gold standard is not an independent third party. Gold can be the party to the direct transaction, that is, the party to barter; it can also be the party to the indirect transaction, that is, the transaction linked to fiat currency. The gold standard is a medium for participating in transactions, which is entirely different from the characteristics of the ruler. All the problems with the gold standard arise from this.
3. The ruler only measures one variable
The ruler only measures one factor, which is divided into time unit, length unit, weight unit, etc. It is impossible to use one unit to measure length and weight at the same time. The scale cannot be changed, and the function must be single. In addition to the gold standard as a measure of transactions, the total amount of gold is constantly changing. So the gold standard needs a whole to measure. There are two variables for the gold standard; it does not meet the requirements for the ruler. There is an axiom about the total amount of money: the total supply must equal the total demand. When the supply is large, it is monetary inflation, that is, inflation; when the demand is large, there will be deflation. The increase in the amount of gold corresponds to mining. When the economy grows faster, the demand is greater, and the insufficient money supply causes deflation to lower goods prices.
In order to justify fiat currency, some scholars, for example, Stephen G. Cecchetti, director of the International Finance Department of Brandeis University's International Business School, said in the article "Why the Gold Standard Is a Bad Idea": "The evidence shows that under the gold standard , both inflation and economic growth are highly volatile. The chart below (note: omitted here) plots annual consumer price inflation in the United States from 1880 (the start of the post-Civil War gold standard) to 2018. The vertical blue line marks the 1933 , the end of the U.S. gold standard. The standard deviation of inflation over the 53 years of the gold standard was almost twice as high as it had been since the collapse of the Bretton Woods system in 1973 (marked by the vertical red line in the graph). That is, even if we took the 1970s Including the Great Inflation, inflation has also been more stable over the past 45 years than it was on the gold standard. Just look at the last quarter century, the period when central banks were most focused on price stability, and the standard deviation of inflation is not even to one-fifth of the time of the gold standard".
I prefer to believe the following data: Song Hongbing quoted in "Currency War" that on July 13, 1974, the "Economist" magazine published a shocking statistical report on the price statistics of the entire industrial revolution era in the U.K. "In the 250 years from 1664 to 1914, under the operation of the gold standard, British prices maintained a steady and slightly downward trend for 250 years."
How to explain the difference between the two? Since gold is the standard, keep it the same. The change of gold depends on mining. The annual mining increment is about 2%-3% (currently less than 2%); the yearly expansion of gold is between 2%-3%. When the economy maintains a growth rate of 2%-3%, prices remain unchanged. If the inflation rate of fiat currency remains at 2%, that is, the price rises by 2%, Can it be considered that the supply of fiat currency exceeds 2% of the total economic demand of the society? I have no idea.
The market criticizes the gold standard, which causes economic austerity when gold production does not grow as fast as the economy. This criticism is correct and conforms to the axioms mentioned above. Well, how did Stephen G. Cecchetti's doctrine come about? It doesn't fit with the axioms and doesn't fit with the reasons for the abolition of the gold standard. It is the point of view of a school of economists, I can list a long list, and I believe that most of them are sincere, and their theory needs to be rewritten in the Bitcoin standard. The theory of plane throws money can win the Nobel Prize, so the Federal Reserve will become more unscrupulous in issuing money in the future.
4. The gold standard cannot measure two factors at the same time
The gold standard has two elements, a store of value and a unit of measure. The function of gold as a ruler and transaction has withdrawn from that stage of history, and its role has been replaced by fiat currency. The U.S. dollar became the de facto standard currency. The value-storage function of gold has been preserved, and the central bank is still hoarding it in large quantities. The value of gold is now also measured in dollars. But the function of the total amount of gold corresponding to the scale of economic development is gone. That is, there is no anchor. Fiat currency solves the limited problem of issuance by unpegging to gold, thus opening the door to inflation.
Note that the fiat currency at this time only measures one factor: the ruler of the transaction. The reform of fiat currency replacing the gold standard is flawed, and the economy's demand for aggregates is not being met. What is the alternative?
Non-U.S. dollar countries have to hoard the standard currency represented by the U.S. dollar for transactions. At this time, collecting fiat currency is a reserve behavior, not the meaning of storing value, but just paying a deposit. So why are central banks still hoarding gold? First, there is no anchor for fiat currency, and the central bank is not at ease. People always want gold, so it is convenient to hedge risks.
5. The purpose of central bank hoarding gold is asset allocation
There is nothing wrong with hoarding gold, but its use has been deprived, so there is no reason to rise, and it is actually undervalued. It differs from the idea of gold as a hedge against inflation. Fibonacci wrote in the tiger community: "Why is it said that gold will rise to an unbelievable level?" (www.laohu8.com/post/980923195?page=2) said: "In 1900, the price of gold was 20.67 US dollars / Ounce, as of February 2020, it has just exceeded $1,600 per Ounce, and the price is 80 times that of 1900. At the same time, the currency circulation of the U.S. dollar in 1900 was 7 billion U.S. dollars, and the currency at the end of 2019 was about $15 trillion, about 2,150 times what it was in 1900."
The multiple of economic growth has not been calculated here, and the direct comparison is not accurate enough. Fibonacci gave another example of RMB:
"Compared with the price of gold denominated in RMB and other asset prices, our feelings are more obvious. In the 1990s, the price of gold in China was 2,300 yuan/tael (31.25 grams), or 73.6 yuan/gram. As of today, February 2020 30 years later, the transaction price of gold 9999 on the Shanghai Gold Exchange is about 360 yuan/g, which is 4.89 times that of 30 years ago. In the past 30 years, let alone the currency circulation, even the price of rice has increased dozens of times .In China, the price increase of gold lags far behind daily consumer goods such as food, and also lags far behind assets such as real estate." It must be stated that Chinese commodities have always been undervalued, and the article does not rule out this factor. And gold has always been that the market price is not underestimated. The two statements of Fibonacci are only for reference.
The reason why gold underperforms inflation is that it has not use enough, and it is no banker. Only the Fed has the conditions to be the banker. Who dares to be the banker when Fed has 8,000 tons of gold? It is enough to suppress gold to defend fiat currencies. In fact, for the monopoly of the U.S. dollar standard, the Federal Reserve has a tight grip on gold and Bitcoin. Even other central banks can't afford to turn the tide. A gold-standard international union would pose a fundamental threat to the Federal Reserve if it were to form. However, Germany, the second largest gold reserve, and the International Monetary Fund, the third oldest, plus China's gold, is not as much as the United States, and the conditions for allying do not exist.
China's central bank's gold reserves account for less than 2% of its total foreign exchange reserves. It is a concept of diversification of investment and asset allocation. Waiting for others to carry the sedan chair.
If it becomes the Bitcoin standard, Bitcoin is not just a stored value; its application value will be brought into play. If bitcoin as electronic gold becomes a tool for storing value, it is not as good as gold at this stage because not ready yet as a tool for central bank asset allocation. The condition for the central bank to allocate Bitcoin is that Bitcoin does not have large fluctuations and has the potential to continue to rise. Both requirements must are met at the same time. If these two conditions are not met, a mature central bank will not do it. Central banks in the third world may deploy Bitcoin. But the volatility of Bitcoin has these countries warned by the IMF.
China has lost a historic opportunity in terms of monetary policy. If the renminbi had been pegged to the Chinese national debt at the beginning of the reform and opening up to form a central bank independent of the government, the renminbi might have flowed freely long ago. As a result, China's housing prices will not be so high, and China will be much stronger than it is now. Instead, the central bank uses the house as a reservoir for excess funds, the economy is stable, but the Chinese people pay the price. Huang Qifan is also a scholar-type official who views RMB linking to the national debt. China needs more entrepreneurial officials because China's operating mode is the operating mode of large enterprises.
6. Both fiat currency and the gold standard are defective
The gold standard consists of two variables, a value anchor and a scale, which correspond to aggregate supply and aggregate demand, respectively. The gold standard requires aggregate demand to equal aggregate supply. The total supply is determined by mining, and the total demand is determined by economic development. The gold standard aggregate supply and aggregate demand are two unrelated factors. Only when there is a functional relationship between total supply and total demand, Y=f(x), when the total demand increases, mining will increase to balance with demand, and the gold standard will be effective. The gold standard is clearly out of the question. When a product has a fundamentally illogical place, it is not a minor problem but a structural error, which means that the designer has no experience in product design. The gold standard is a plan made by "Zhao Kuo" who has no actual combat experience, and it is very normal for it to be abolished. However, the fiat currency alternative to gold is also a defective product, which is not bad in the short term, but I dare not look at it in the long run. To borrow the words of Yu Yongding, a member of the Chinese Academy of Social Sciences, a well-known financial expert, "If the previous economic theories still have value, we must be deeply aware of the possible impact of the U.S.'s extremely expansionary fiscal policy and unlimited monetary easing policy on the international monetary system. It's very worrying." The RMB is a project on the dollar-based ecological platform. When the platform's foundation has a problem, it is impossible for ecological projects not to worry. Those in power in China did not expect the platform to be so bad, and now they can only adjust the central bank's balance sheet to the same ratio as the U.S. dollar. So as not to call the United States sheared. For a detailed explanation, please refer to the question and answer "4.5 Why RMB is a coupon".
There is no medicine for regret; if the opportunity is missed, let it pass. The key is what to do in the future. That's the most important thing. Mr. Yu Yongding's worrying problem is a huge problem, but it is just a drizzle. The core problem is that the renminbi is attached to a centralized platform. If the platform moves its mind, it will kill you in minutes because it issues credit currency anchored in credit. Credit can disappear instantly and is far less reliable than the gold deposited by the central bank. The central bank protects the wealth of the Chinese people, and it is their responsibility to guard the soil! Significant risks lie ahead, and how to gain the initiative requires entrepreneurial thinking.
The gold standard made the mistake of being difficult to print currency, but the gold standard still has an anchor that is not controlled by one party; the fiat currency is a credit currency owned by one party and has no asset anchor, so it is easy to make the mistake of printing money casually. Therefore, Fiat currency does not solve the gold standard problem; they are not as reasonable as the Bitcoin standard. For this, please refer to the Q&A "4.4 Difficulties and solutions faced by the Federal Reserve in regulating the economy" and Chapter 12 of the original text.
The most significant business opportunity is that the U.S. dollar standard has been shaken. It is impossible to go back to the gold standard, but there may be opportunities for the Bitcoin standard. The best show to watch is the struggle between the People's Bank of China and the U.S. Federal Reserve. I cheer for both sides! Also gave both sides different bitcoin standard schemes. See Chapter 12 of the original text and Q&A "4.6 Using Hong Kong Dollars to Realize the Bitcoin Standard".
Bitcoin production is computing power competition, while Bitcoin standard is market competition, which is thousands of times more complicated than computing power competition.
Note that competition means no pie in the sky.T he realization of the Bitcoin standard requires the tenacious efforts of members of the Bitcoin community.
7.3 Two factors require two rulers
The problem we face is economic growth without inflation. In the fiat currency environment, humans cannot solve this proposition. Only God can. Therefore, it is unlikely that the Federal Reserve can solve these two problems simultaneously with one fiat currency. So it is perfect that it can manage the currency well. We need new solutions.
1. The ruler for measuring circulation - stablecoin
This ruler is needed. The ruler should remain the same. The blockchain stablecoin tells us that it is stable when it is anchored to the US dollar. The stablecoin issuer is responsible for its coin stability, just as the Hong Kong dollar issuer is responsible for the stability of the Hong Kong dollar. The price has a stable range and is unchanged. The gold standard is a change within 1%, and the Hong Kong dollar is also designed this way. The range of blockchain stablecoins is a little wider, and I guess that the profits are a little bit bigger. In order to be stable, a stablecoin must have an anchor, and the stability of the US dollar as the anchor is not the responsibility of the stablecoin. Anchor problems have nothing to do with the stablecoin. If the anchor is broken, the anchor can be replaced, but stablecoin must be an anchor. Stablecoins only solve one problem of payment.
2. The "ruler" to measure the economic aggregate - the anchor of Bitcoin
Bitcoin anchors increase in "weight" as the economy aggregate grows. It is itself measured by stablecoins. The price of gold on the gold standard cannot be changed. Once gold becomes the gauge, it cannot rise. Bitcoin standard, Bitcoin is not a ruler but an anchor; Bitcoin price can rise. It overcomes the defect that the price of gold cannot be changed. Through market regulation based on the two factors of Bitcoin and UDAI, it corresponds to the balance of total demand and total supply. It is the idea that separates the function of the golden anchor from the ruler. It is described in detail in chapters 12-13 of the original text. Chapter 13 draws the bitcoin rising curve under the bitcoin standard. Changing anchors is not simple and requires a smooth transition, which will take about 38 years. That is, at the end of Bitcoin's 12th cycle. At this time, the market value was about 140 trillion US dollars. The price rise of Bitcoin naturally increases the supply of the stable currency UDAI, which is equivalent to USD. The price rise of Bitcoin is a market regulation, that is, a natural regulation, which completely corresponds to the natural development of the economy. The market regulation of the economy is a "god" regulation, which is more accurate than the Federal Reserve. Of course, the Federal Reserve also plays a role in the Bitcoin standard, which is the unique design of this plan.
Solving the problem that gold is both an anchor and a ruler is not the whole problem, but it also solves the problem of Bitcoin's stable rise. Only in this way can the central banks of various countries allocate Bitcoin.
7.4 Let Bitcoin fall into Buffett's investment framework
The mainstream funds represented by Buffett do not invest in Bitcoin and gold; they think it is price speculation, not productive investment. If mainstream funding doesn't agree, all designs will fail. In the original work "12.4 The Role of Bitcoin Stability Fund", I designed two stability funds and three funds for the Bitcoin Hong Kong dollar standard. Using stability funds keeps Bitcoin on an upward trend, thus making the return predictable. The predictable returns are consistent with Buffett's investment philosophy. If we see that Buffett invests, the Bitcoin standard has succeeded.
It is the behavior of being a banker, but it is an open banker with rules and a combination of market and dealership. Just like RMB, the central bank is the banker; how can you beat it? The People's Bank of China does not have rules for being a banker. For example, is the RMB price adjusted under what circumstances compared with a basket of indexes? The market doesn't know. The PBOC still doesn't understand the importance of transparency. The Hong Kong dollar has rules, and We plan to draw on the practice of Hong Kong.
There are two stages to measure the Banker level of Bitcoin Standard: growth and maturity. The standard in the growth period is not to have sharp rises and falls; there are about 38 years left in this cycle. In the maturity stage, the standard is zero inflation. In other words, the currency issued is synchronized with economic growth. From the practice of the gold standard, it should fluctuate by 1%.
We thank Satoshi Nakamoto for making such an ingenious anchor, so I say he is Prometheus who stole the Skyfire. The design of the Bitcoin standard must use mature technologies and methods, and innovation is not allowed. All materials are well-tested, including Bitcoin. Whose practice are we learning from? It is described in chapters 12-13 of the original text. Of course, the overall plan is the first.
7.5 Market competition is the competition of strength
Why did gold lose to fiat currency? Gold has downsides, but the gold standard is much stronger than fiat currencies. Fiat money is lousy money that eliminates good money. The reason for the victory of fiat currency is that there are entrepreneurs who make plans, and he has obtained exclusive power； the politician has solved the crisis; the economist has become a master. They constitute an interest group with great force. Who is defending gold? What benefits do defenders get? Some people understand why they want to stand out. If I use gold to design a gold standard scheme, although it is not as good as the Bitcoin standard, it is also better than the US dollar standard. Why should I design?
I said earlier that the Federal Reserve's handling of Bitcoin is based on reasoning from the perspective that it is the beneficiary of fiat currency. I have no basis for how to do it. Only because the Bitcoin standard is his opponent, if the bitcoin is as scattered as gold, bitcoin still cannot beat the fiat currency. A point of view has been circulating without knowing who released it, and Bitcoin will naturally develop to become the currency boss. The possibility of an unowned Bitcoin becoming the leader cannot be said to be impossible, and Maybe our sons will be dead by the time it's realized because you touched other people's cheese. The best project does not necessarily win, but the one with strength wins. Do you have the power of the United States? They can mobilize a lot of resources for their use. If you don't unite interest groups, you won't even be able to enter the mainstream. If Bitcoin is as ownerless as gold, at most, it is the current value store. Valuable but not what pioneers like Satoshi Nakamoto and Hal Finney developed Bitcoin in the first place.
Bitcoin needs a re-evangelism. Many original theories cannot withstand theoretical scrutiny and have long been proven wrong. For example, after 14 years, with only 50 million users, how to compare with the growth of YouTube users? How does it compare with Facebook? How does it compare with WeChat? Not even Little Red Book. Bitcoin is a product that must conform to the fundamental laws of product production and marketing, and there are no exceptions.
Saying that the problem with bitcoin is wanting it to be better, if you see that your views differ from mine, first check what is wrong with you. Because someone like me, who has put so much energy into understanding Bitcoin, has, but very few. I very much welcome the debate. To borrow a sentence from Satoshi Nakamoto: "Fortunately, the problems raised are within my expectations." He has anticipated most of the problems of Bitcoin. But there are still exceptions.
Opinions are not mathematics; there is no exact solution, and there is no absolute correctness, only the size of the consensus.
7.6 The Bitcoin standard is not the enemy of the Federal Reserve
At first glance, the Bitcoin standard is the enemy of the Federal Reserve because it wants to replace the fiat currency standard. For a plan to succeed, there must be no errors in its logic. It must be beneficial to all parties involved. Readers who have read chapters 12-13 of the original text know that the Bitcoin dollar standard plan is advantageous to the Federal Reserve, Satoshi Nakamoto, Bitcoin holders, and the stability of the world economy. The Fed has the best position, but not without competition.
The difficulty now lies in the popularization of new ideas and consensus formation. But, as long as it is correct, it will eventually be recognized.
The Bitcoin standard point of view is easier to understand than Bitcoin. The concept of Bitcoin is known to people through the appeal of rising coins. The Bitcoin standard will not bring obvious appeal to people, and it is good to have people with Influence come forward. The most powerful and reliable foundation is Bitcoin holders. But the formation of opinions in the early years of the Bitcoin community is the biggest obstacle.
In the next section, we discuss why mathematically predicting the price of Bitcoin is always wrong.
written in the back
To understand this article, you need to read Chapters 10-13 of the article "Invite Satoshi Nakamoto to Welcome the New World" and the Q&A articles in Sections 1-6 of this series.
1. Full-text links
This article was published in Bitui Serial.
Chinese link:
https://www.bitpush.news/articles/tag/%E8%AF%B7%E5%87%BA%E4%B8%AD%E6%9C%AC%E8%81%AA
English link: https://en.bitpush.news/?s=Weisha+Zhu
2. Supplementary video explanation (over the wall in China)
This series of articles will be explained on Sun TV, and the articles and TV explanations are complementary. 10 episodes of the program have been made. The following is the program catalog:
Episode 1 Starting from the Bitcoin White Paper
Episode 2: Does Bitcoin Have Value?
Episode 3 The Reason for Satoshi Nakamoto's Anonymity
Episode 4 The Root of All Evils in Fiat Currency
Episode 5: Past, Present, and Future of Bitcoin
Episode 6 Blockchain Opens Pandora's Box; Satoshi Nakamoto Comes Out
Episode 7 Four conditions for the rapid growth of Bitcoin
Episode Eight Satoshi Nakamoto's Age, Gender, and Nationality
Episode 9 Cypherpunk - the birthplace of Satoshi Nakamoto's thought
Episode 10 None of the dead pioneers is Satoshi Nakamoto; he is still alive
It can be seen that TV corresponds to the 6 episodes of our article; that is, the program is the explanation of the focus of the article. Broadcast schedule: The broadcast schedule is as follows:
Episode 1 January 22 at 12:00 noon
Episode 2 January 25 at 12:00 noon
Episode 3 January 27 at 12:00 noon
Sun TV's link is as follows:
https://www.youtube.com/watch?v=5dTend6oJ-8
The whole program is divided into two parts. The first part proves who Satoshi Nakamoto is, and the second part is about the Bitcoin standard. The program will continue, followed by discussions and Q&A, hoping to form a Bitcoin-based theoretical system. Users are welcome to leave messages in the TV comment area, and viewers will be selected to participate in the conversation.
Tags: Bitcoin,Dollar
Link: The Bitcoin dollar standard fixes the flaws of the gold standard [Copy]
