There is a meme in the cryptocurrency community which I see pop up every couple of weeks which goes like this: “The greatest risk in life is not taking any. Buy Bitcoin.” But is not buying Bitcoin actually a risk?
I’m going to answer this question by going back to a point in time when the world used two main currencies: gold and silver.
First, lets understand why we used gold and silver alongside each other, instead of just gold or vice-versa.
A good medium of exchange solves the lack of coincidence of wants problem, which can be broken down into three sub-problems.
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Lack of coincidence of scales: I make shoes worth $60 and I want to buy a gum-ball for $0.25. I don’t have a way to give the gum-ball seller $0.25 worth of one of my shoes, so I have to either trade a pair of shoes for 240 gum-balls or live without the gum-ball.
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Lack of coincidence of time: I’m a fisherman trying to buy a car. It is impossible for me to save up enough fish to buy a car before the fish rot.
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Lack of coincidence of location: I’m a farmer looking to buy a house in a new city. I have enough cattle to pay for the house, but the city is very far away, so it would be impossible to move my cattle there to pay for the house.
Gold solves the lack of coincidence of time and lack of coincidence of location problems, as its chemical properties make it resistant to deteriorating and its high price per ounce makes it easy to transport large amounts of value. Gold’s high price make it great for expensive transactions like buying a house, but for inexpensive transactions, it is unable to solve the lack of coincidence of scales. It is nearly impossible to get a piece of gold small enough to pay for a $0.25 gum-ball.
This is where silver comes in. When it was being used alongside gold as a medium of exchange, its price was always ~15.5 ounces of silver per ounce of gold, so it could easily be used to purchase inexpensive items. It also solved the lack of coincidence of time and lack of coincidence of location problems for the same reasons as gold.
Silver held its position as a secondary medium of exchange until technological advancements, namely the telegraph and expanding network of trains, made it possible for banks to denote values of gold using paper bills. Now, people payed for inexpensive items using paper notes representing amounts of gold too small to be physically real.
As a result of this development, silver became useless as a medium of exchange and European countries switched to a gold standard. This switch happened over the course of ~150 years. Starting with Britain in 1717 and ending with Germany after the Franco-Prussian War, France, Holland, Switzerland, Belgium, and other countries switched to the gold standard.
The price of silver plummeted as the gold standard was increasingly adopted. India, China, and other countries on the silver standard were heavily impacted. In the time between the end of the Franco-Prussian War and the time when they switched to the gold standard (India 27 years after, China 64 years after), the Indian rupee lost 56% of its value and Chinese silver coins lost 78% of their value. The wealth of these countries was essentially transferred to countries on the gold standard. This put China and India behind in the 20th century and made it impossible for them to catch up.
By not buying Bitcoin, you are actually taking a risk. You can’t just ignore Bitcoin and keep holding your money. As more and more people start believing in Bitcoin’s ability to replace Fiat currency, the price of Fiat currency goes down. Whether you actively believe Bitcoin will fail or don’t care either way, you are risking your wealth by betting against the adoption of Bitcoin.
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