An Open Letter to the Owners of U.S. Dollars: Bitcoin Is a Threat to Your Savings
Dear Fellow U.S. Dollar Owners,
The value of our money is in danger. Bitcoin could make traditional currencies like the U.S. Dollar obsolete. If that happens, your savings could be destroyed, since the money you own will lose its purchasing power.
This brief letter will explain why the threat is real, why governments can't stop it, and how you can protect yourself without buying Bitcoin.
1. If Bitcoin wins, you lose
Bitcoin is the symptom of a much deeper problem in our monetary system. All U.S. Dollars used to be backed by gold, which guaranteed that the government could not print an unlimited amount of money.
In 1971, Richard Nixon killed the Gold Standard, so that now there is no limit to how many new dollars can be created. The problem should be clear to anyone familiar with the law of supply and demand: the more of something there is, the less it is worth. The Federal Reserve has the power to create an unlimited number of Dollars, so it could reduce the value of your money to zero.
Bitcoin has been marketed as a solution to this problem. It uses blockchain technology to limit the quantity of new crypto-money that can be created. There's no Central Bank that can issue more Bitcoin, so crypto-money has the same guaranteed scarcity as gold.
Sounds great, right? Well... There's a catch. A giant one.
Yes, Bitcoin is a superior form of money. But it's also designed to work like a pyramid scheme. Most of the Bitcoin that will ever exist is already in the hands of a small group of early adopters. If Bitcoin replaces U.S. Dollars as money, then that small group of people at the top of the Bitcoin pyramid will become some of the richest people in history – and everyone who owns U.S. Dollars will become poorer.
2. The government can't stop Bitcoin
When people recognize a threat of this magnitude, they turn to the government for protection. Unfortunately, this time that won't work.
Why not? Because the government is the source of the problem. It's the government that broke its promise to back your Dollars with gold, and it's the government that could destroy the value of your savings by letting the Federal Reserve create unlimited quantities of new money.
Banning Bitcoin would temporarily eliminate the Dollar's biggest potential competitor, but it won't do anything to fix what's wrong with our money supply. The power to print unlimited quantities of money is like a "Doomsday" button. Eventually, it will get pressed – and when it does, your savings will be wiped out.
Going back to the Gold Standard also won't work: the government has already broken its promise to back money with gold, so making the promise again is meaningless. As soon as another President like Nixon comes along, the gold backing will disappear, and we'll be right back to where we started.
3. How to protect the value of your U.S. Dollars
What we really need is a way to use blockchain technology to protect the value of the money everyone already owns. That would deliver the core benefit of Bitcoin – the guaranteed scarcity of "digital gold" – but without the parts of Bitcoin that are like a pyramid scheme.
In other words, instead of distributing digital gold to a small group of early adopters, we need a way to assign digital gold to everyone who already owns U.S. Dollars. That would allow a new version of the Gold Standard to be created – one where every existing U.S. Dollar could be backed with digital gold to guarantee its scarcity.
This blockchain version of the Gold Standard would eliminate the flaws that killed the original. It wouldn't rely on the government to keep enough physical gold locked in vaults. Instead, when an electronic payment is made using dollars (like with a debit card), the digital gold can be transferred alongside it – maintaining a 1-to-1 relationship, and ensuring that everyone's money holds its value.
If that sounds good to you, I've got great news: It's not just an idea, it's a real blockchain protocol that I've spent the last two years of my life building. I call it KRNC, and it's almost ready to change the world.
Founder & Chief Computer Scientist