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Trust in Money, Store of Value, Part II: Bitcoin, Dollars and You

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Mt. Washington Hotel

On a recent outing to the Mt. Washington Hotel, I was concerned my car wouldn’t get us home. You can read that story here.

But I also had a chance to think about the Bretton Woods Agreement which was signed there in 1944 and another historic event, bitcoin, and what they mean to all of us.

The Bretton Woods Agreement, by pegging the U.S. dollar to gold, created a store of value. The system worked well until the 1960s where high demand for reserve currency dollars dwindled the gold supply. The gold window was closed in 1971. The dollar and other fiat currency values have been floating ever since in a system where government controls the supply. Anyone see a problem of trust here?

The government bailouts of 2008, where money was created out of thin air, could be the Bretton Woods Agreement for fiat currencies. It was the catalyst that gave Satoshi Nakamoto the platform to release the cryptocurrency, bitcoin.

The beauty of cryptos, such as bitcoin, is they eliminate the need for trust. Bretton Woods depended on the government, i.e., trust in a third party. Cryptos do not require a third party. In the case of bitcoin, supply is fixed at a maximum of 21 million coins. As of this morning 16.72 million bitcoins exist.

But, just like the Bretton Woods Agreement pegged the dollar to gold, one group of bitcoin users may have a different take than another group on how the future of bitcoin operates.

Will some users want to change the rules for bitcoin transaction costs? While others pine for larger blocks? I’m not a bitcoin user, but, still, I don’t see the store of value. I also don’t see the transactional acceptance scaling anytime soon. Sure bitcoin may go to $25,000 or higher. But that doesn’t mean much to me. We’re still in the wild, wild, west of cryptos. But the blockchain technology interests me.

Blockchain, or open ledger, will create value where trust is a most valuable commodity. Think about keeping track of real estate ownership for example. Do you know the family that owned your property 100-years ago? Not without a lot of digging through City Hall docs. But with blockchain, all records are set in stone and confirmed by a peer-to-peer network or open ledger. With the right user-friendly software, all you will need to do is look it up on your phone what your exact property lines are for example. That’s the future to me for blockchain, not necessarily currencies. At least not yet.

Michael Casey, a former writer for the WSJ, and expert on all things bitcoin/blockchain tells us to remember the early days of the internet where it was a military tool to pass nuclear codes. Then, years later, this thing called email was created and the internet was an invaluable tool. Soon, you could go to a website and have books delivered to your doorstep, and now your groceries. Today, with cryptocurrencies and blockchain we are either in the nuclear code age or the Bretton Woods Agreement—stay tuned.

Read Part I here.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.