What's so special about Bitcoin?
The capping of the amount of bitcoins to 21 million creates a positive-sum game.
The reason is that Bitcoin creates incentives for people to behave in a specific and positive way when they interact with others.
Many people will think of these incentives as quite unfamiliar or even strange.
But it's quite easy to understand.
So let me explain:
Because new bitcoins cannot be created out of nothingness, but is capped at 21 million, the value of each bitboin goes up when the world's wealth increases.
The reason is, that it's the same number of bitcoins that chases a growing number of goods and services.
Then the price of each of those goods and services must fall, when measured in bitcoin.
And this is the same as each unit of bitcoin becoming more valuable.
When people become owners of bitcoin, it will soon dawn upon them what the implication is .
They will realize that the easiest way to become wealthy is to let everybody else create wealth.
They will also soon realize that the easiest way to let everybody else create wealth is to respect their property rights and freedom to trade with others.
Furthermore, they will begin to favor lower taxes and smaller governments.
And people will realize that promoting freedom is less costly than working hard, investing and making risky decisions when planning for the future.
The consequence of a higher degree of economic freedom is that society's total wealth production goes up.
In this way Bitcoin also implies that the wealth is being distributed among the many instead of being concentrated in the hands of the few.
This means that Bitcoin is a positive-sum game.
It's not necessary to let some lose their wealth in order to let others increase their wealth.
Everybody benefits.
Those who become owners of bitcoin will quickly understand these incentives.
And the incentives will be the same for everybody, whether we talk about individuals, companies or governments.
This means that even big corporations and the political elite over time will understand the incentives.
The latter group will understand that the cost of using coercion and central planning outweighs the cost of letting people be free to create wealth.
Nobody escapes the incentives that Bitcoin creates.
Bitcoin's incentive structure is the opposite of the one that national currencies create.
The reason is that the national currencies are based on a system with constant creation of new money.
And the new money is created out of nothingness.
This creates a negative-sum game, where someone has to lose their wealth in order to let others increase their wealth.
In the game created by national currencies the dominant strategy is to accumulate as high a share of the newly created money as possible, while at the same time promoting a relatively rapid inflation of the money supply.
The faster the money creation is, the more wealth the newly created money extracts from the work and savings of others.
A typical expansion rate is 7% per year.
Such a rate is probably at the top end of what's possible without causing revolts and political turmoil.
The wealth ends up with those who accumulate the newly created money.
It works exactly in the same way as counterfeiting does.
When people aren't allowed to keep the fruits of their labor due to the system's wealth extraction, they won't be willing to do so much work.
This means that the total wealth production goes down.
The incentive structure created by national currencies, where someone grows their wealth faster, the faster the creation of new money is, also implies that the wealth rapidly becomes concentrated in the hands of fewer and fewer people.
In conclusion:
Bitcoin creates a positive-sum game, in which wealth increases and becomes widely distributed.
This is the opposite of the negative-sum game of national currencies, in which wealth decreases and becomes concentrated in the hands of few people.
