Yield on a Bitcoin Standard
Everyone wants to talk about "yield" on a Bitcoin standard.
Let's walk through it.
First, let's assume BTC is global money. The monetary singularity. The global unit of account and medium of exchange. The Bitcoin standard.
What is *critical* to remember is that Bitcoin's supply is capped at 21 million. There can NEVER be more than 21 million bitcoins in circulation.
Next, remember that Bitcoin's value goes up in proportion to the increase in global productivity.
This is because Bitcoin, as global money, is the price denominator for *everything* in the world. While Bitcoin's supply is fixed at 21 million, global productivity increases year after year.
Productivity is the numerator, BTC is the denominator.
With Bitcoin as global money, all the BTC in the world would be worth all of the productivity in the world. As productivity goes up, BTC's supply stays at 21 million, which means now all the BTC in the world is worth more.
For simplicity...
If productivity was 100 units, and all BTC was 21 units, that would be 100/21.
Productivity goes up to 110, BTC stays at 21, all the BTC is worth more.
Productivity goes up to 200, BTC stays at 21, all the BTC is worth more.
As productivity goes up, the value of BTC goes up.
(There is no limit on productivity, its best estimate is infinity. Infinity/21 million. That's how much BTC is truly worth)
On a Bitcoin standard, where Bitcoin is global money, as long as you are holding some amount of BTC and global productivity is increasing, the value of your BTC is increasing.
Contrast this with the U.S. Dollar, where there is no fixed supply limit, and instead they print more and more dollars every year, which would look like this with the dollar as the denominator:
100/21
110/50
200/100
And you wonder why the dollar goes down in purchasing power every year while Bitcoin goes up in purchasing power?
The dollar is broken money. Opt out, choose Bitcoin.
Anyways...
Your BTC goes up in value as productivity increases, giving you an increase in purchasing power.
Let's say Joe has 10 BTC but is not satisfied with the growth in purchasing power, so he wants some "yield" from a bank.
Key point: on a Bitcoin standard, the "yield" would come back to Joe in the form of more BTC.
So, if Joe gave the bank his 10 BTC for 10% yield, the bank would have to pay him back 11 BTC to satisfy the agreement.
If Joe gave the bank 10 U.S. Dollars for 10% yield, the bank would have to pay him back 11 U.S. Dollars to satisfy the agreement.
If the bank can't pay Joe back his dollars, there can just be more dollars printed and Joe can get his 11 U.S. Dollars.
You can't print more Bitcoin.
In the dollar system, if someone gives their money to a bank but the bank collapses, no worries, the government can bail the bank out with printed money.
In the Bitcoin system, if someone gives their money to a bank but the bank collapses, big problem, because nobody can bail the bank out with printed BTC.
This makes lending in the Bitcoin world MUCH riskier.
If Joe gives his bank his 10 BTC, where does the bank come up with the 10% yield?
They can't print it. They have a few options:
1) Take BTC from somebody else's deposit, but that would make the other depositor not whole, which would require the bank taking BTC from another depositor, which would eventually snowball until people woke up and realized the bank didn't have their BTC, causing a run on the bank and the bank would collapse. So, not a real option.
2) The bank's only real option is to take Joe's 10 BTC and invest it somewhere else in hopes that the investment returns 11 BTC, at which point they can give Joe his 10 BTC + his 10% yield. But investments are inherently no sure thing.
This is why lending on a Bitcoin standard is incredibly risky.
Which is a good thing. Giving someone money that they would otherwise not have and expecting MORE money back in return is incredibly risky.
Joe would have to risk giving up ALL of his 10 BTC *and the purchasing power increase that is inherent to holding it* just to get 10% yield...
See, here's the thing. The purchasing power increase inherent to holding the Bitcoin IS THE YIELD. The global productivity increase IS THE YIELD. By holding Bitcoin, YOU ARE INVESTING IN ALL OF HUMANITY TO INCREASE PRODUCTIVITY BY ANY AMOUNT. The odds of that are extremely likely.
"Yield" is a fiat concept born out of the NEED for market participants to earn some type of return *just to maintain* the purchasing power of their money as more dollars are printed.
Lending and borrowing won't go away on a Bitcoin standard. Someone is going to have excess capital and someone is going to desire capital that they don’t have. However, market participants will be especially careful about who they choose to lend to.
It's amazing what happens when you can't just print money to cover your mistakes.
While the transition to the Bitcoin standard takes place, i.e. while fiat money still exists, Bitcoin "yield" will probably be offered, but the yield will come in the form of fiat currency, not BTC. That is the key distinction between the fiat vs Bitcoin standard.
What really happens on the Bitcoin standard is that practically everybody is so satisfied with how much and how fast global productivity is increasing (because uniting all of humanity on one unchangeable, instantly sendable, infinitely divisible monetary standard is the greatest way to bring about global cooperation, which leads to unimaginable levels of technological advancement and prosperity) that they have little to no interest in getting "yield" from a bank.
The global productivity increase is the yield.
Infinity/21 million.
Peace✌
