Bitcoin as a Dollar Standard, the Solution for Future Finance

Author: Zhu Weisha

The emergence of blockchain has actually provided experimental data and evidence for us to rewrite the history of finance and fiat currency. It should be said that theory must conform to experiments. Under the condition of a Bitcoin standard, any financial theory that does not conform to blockchain experiments needs to be rewritten. However, the vast majority of financial experts lack basic knowledge of blockchain, let alone rewriting it; they have difficulty even understanding it. To understand blockchain, one must have the height of Satoshi Nakamoto, understand technology, products, the history of gold, the Song Dynasty's Jiaozi, modern fiat currency, and also possess a philosophical perspective. This is quite challenging for economists. Satoshi Nakamoto understood what he was doing, which is why he chose to remain anonymous.

His goal was to overthrow fiat currency and achieve a Bitcoin standard. I believe that as a feasible goal in the interim, we should first achieve a Bitcoin-dollar standard. In order to make it understandable for economic and financial experts, I sought out Satoshi Nakamoto, popularized Bitcoin knowledge, clarified the value of Bitcoin, and simplified the implementation plan of the Bitcoin standard into a financial problem. Many financial scholars agree with the Bitcoin standard; unfortunately, they do not understand blockchain and cannot propose solutions. My solution is based on blockchain experiments and is the first solution proposed by humanity.

Blockchain is a simulation of human society, containing various ecosystems linked by currency, akin to different countries, as countries are also ecosystems. The greatest feature of blockchain is natural evolution; in other words, Satoshi Nakamoto opened Pandora's box, releasing both demons and hopes, quickly replicating the entire financial process of humanity from primitive society to modernity, including the future, becoming the most cost-effective laboratory for social finance. Note that I used the term "future" here. The reason for using the word "future" refers to the direction of modern financial reform.

For example, blockchain confirms that stablecoins (equivalent to central bank-issued base currency) must be backed by reliable assets. If backed by the dollar, the most stable asset of our time, stablecoins will be recognized by various ecosystems. However, UST, backed by unreliable assets (like Luna equity), collapsed from a market value of $60 billion to $3 billion in just a week.

Credit currencies are generally unreliable backing, and fiat currency is such a credit currency. The least credible currency is called "air currency," while the most credible currency is called "asset currency." Currently, what blockchain refers to as asset currency is stablecoins backed by the dollar. This is also a last resort.

Furthermore, do stablecoins have the Federal Reserve's function of regulating the overall blockchain ecosystem? No. This means that in the asset currency ecosystem, there is no need for regulation like that of fiat currency. Fiat currency cannot go without regulation, while the regulation of fiat currency applies to the principle of uncertainty, meaning it cannot be regulated well and is often done arbitrarily.

Additionally, the Federal Reserve is not responsible for the price of the dollar; it influences the dollar's price by adjusting interest rates. The price of the dollar is determined by M2 pricing, which is less than $100 billion of M2 funds that price the entire global legal currency of over $300 trillion. The Chinese yuan is priced by M1, making it difficult for the market to speculate on the yuan.

This is similar to how each stablecoin on blockchain maintains its own price. In this regard, the Hong Kong dollar is also M1 priced. The Federal Reserve's pricing does not conform to blockchain experiments and does not align with the pricing principles of asset currencies.

It is a principle of fiat currency that highlights its backwardness. M2 pricing fosters speculation, and financial speculation exploits the real economy. M1 pricing is more stable than M2 pricing. The Hong Kong dollar being pegged to a volatile measure is a joke. In a Bitcoin-dollar standard, the Federal Reserve is responsible for the stability of the digital dollar UDAI. The appreciation of Bitcoin is akin to the "interest" that the Federal Reserve calculates annually for storing digital dollar UDAI.

In a Bitcoin-dollar standard, there is no need for the Federal Reserve to undertake economic regulation; the current regulation by the Federal Reserve is a superficial remedy, treating all economic ailments with a single prescription, which consists of only two ingredients: interest rates and currency volume. Addressing all economic ailments comes down to adding and subtracting these two factors. Its treatment level is slightly better than the ancient medical practice of "bloodletting," because bloodletting only has one remedy, while modern medicine's "universal remedy" is water. Both are jokes.

Back in the days when gold served as both a store of value and a measure, fiat currency was advanced. However, compared to a Bitcoin-dollar standard, it is much more backward because fiat currency has not applied modern technological means and achievements. When the train has come out, do we still need the horse-drawn carriage? The Bitcoin-dollar standard overcomes the shortcomings of gold and fiat currency, providing a new theoretical framework. This could be a financial revolution; the financial landscape will be restructured, and some large banks will need to transform. The financial revolution will lead humanity into a period of economic growth lasting 120 years, as it will produce a dual-driven effect of real economy and finance.

I want to reiterate that the financial framework based on fiat currency is outdated and cannot solve future financial and social problems. We need a new theoretical framework based on blockchain practices.

In the early 1980s, David Chaum began the era of cryptocurrencies, and Bitcoin emerged in 2009. After the advent of Bitcoin, many financial experts proposed the idea of a Bitcoin standard. Unfortunately, due to their lack of technical skills, they could not delve deeper into understanding blockchain, and thus had no solutions.

This year, I proposed the Bitcoin-dollar standard, which IS NOT 1 BTC = 1 BTC. This is a financial reform plan with minimal disturbance; because reaching a consensus is not easy, it will take a long time to achieve. I simplified the requirements for readers regarding the difficulty of blockchain knowledge, hoping to make it easier to reach a consensus, allowing the Bitcoin standard to become a major financial issue and enabling financial experts to play a role.

Warren Buffett represents mainstream investment views, and Bitcoin and gold cannot fit into their investment framework. My design allows Bitcoin to fall into Buffett's favorite model: deterministic investment. The method I designed is also applied to the financial platform I developed, "Chainless P2P Financial System." The deterministic growth of Bitcoin will stimulate the mainstream market, and the financial world will change. At this point, Bitcoin will form a deterministic upward trend through two funds.

This is described in Chapters 12 and 13. Therefore, Bitcoin becomes a better source of deterministic income than fixed income. This is a new category of investment. It needs to meet the conditions of the Bitcoin-dollar standard.

Satoshi Nakamoto proposed at the launch of his Bitcoin system that Bitcoin is a solution to three major problems: central bank devaluation, insufficient reserves of commercial banks, and small payments. Unfortunately, he only perfectly solved the first problem of currency issuance. The last two problems are not complex but require new thinking. Current blockchains are not perfect solutions.

Chapter 8 of the article asks, "Was Satoshi Nakamoto's original intention to store value or to apply it?" Chapter 12 discusses "The Solution of the Bitcoin-Dollar Standard," and Chapter 13 describes "The Natural Growth Curve of Bitcoin." Chapters 8, 12, and 13 are excellent, but they are not easy to understand without effort. Chapter 13 describes a 132-year growth curve, with rapid growth in the first 48 years, predicting that Bitcoin will reach $500,000 by 2030.

In my article, I emphasized the perspective of a financial laboratory. For economics to become a science, mere formulaic descriptions are not enough. There must be a laboratory like that of physics. A discipline without a laboratory is purely speculative. Mathematics does not have a laboratory but can be verified. The cost of using society as a laboratory in finance has been excessively high.

We are all guinea pigs. Long-term impacts are completely different from short-term impacts; methods that are effective in the short term may not be effective in the long term. The most typical example is the cycle of interest rate cuts and hikes, which is purely the work of quacks. When our body needs something, it only sends out hunger signals; it cannot determine what the body lacks. Is it protein, fat, sugar, or trace elements? As a result, we just eat more. The Federal Reserve's interest rate hikes and cuts are akin to a person's response to hunger, which cannot reflect the deeper issues of the body.

Fiat currency has no means other than the two regulatory factors of quantity and interest rates to respond to the rapidly changing market issues. After Bitcoin emerged, issuing fiat currency and then making economic adjustments is the most ridiculous thing in the world. Blockchain has already proven its infeasibility. Practice is the sole criterion for testing truth. The future fate of fiat currency is akin to the Jiaozi of the Song Dynasty. A failed fate is destined.

Understanding blockchain and then looking back at the operation of fiat currency and finance reveals the irrationalities within. I finally understood why I couldn't comprehend Greenspan's statements back then; it turns out the old gentleman was like a street magician, creating mystery while pretending to be confused. If he explained clearly, the bottom would leak out. Henry Ford said that if the people understood the truth of finance, there would be a revolution the next day. Revolution is not as good as reform; it should be gradual, and the current conditions are ripe. Acknowledge history, rectify historical mistakes, and repay the debts created by our ancestors and ourselves, reaching a broad financial consensus.

Only when the dollar becomes the anchor of the world currency, and the dollar transitions from a credit currency to an asset currency, will the world economy stabilize. This is a process that will take decades. We are fortunate to be part of creating and witnessing history. Achieving a Bitcoin-dollar standard is the responsibility and fortune of our generation. Of course, the United States has unique advantages, China has its advantages, and Europe has its advantages. Whoever wins in finance will become the anchor of the world. According to my article, this anchor is neutral, and only then will the whole world recognize it.