One of the most commonly heard criticisms of bitcoin is that it is not backed by anything. What investors and enthusiasts must understand, is that bitcoin is not only a financial asset with considerable valuable, but it is regulated by a universal constant unlike any man-made money system which has come before it: time itself.
Algorithmic Regulation
If the USD is backed by the authority of its government and the largest force of military might on the planet – then what is backing bitcoin? Even if programmable, digital money brings intrinsically valuable capabilities, how can we have faith in it if there is no core party which oversees its acceptance and adoption?
This regulatory construct of bitcoin allows us to plot the supply schedule in a manner which is highly predictable while being uncheatable through manipulation found in traditional monetary policies. At the very root of what makes the bitcoin network tick, is a regulatory algorithm which determines that new blocks of bitcoin will be mined on average every 10 minutes. These ‘uncheatable’ maths which are intelligently constructed by system design, ensure that nothing can alter the predetermined issuance rate, nor the block reward halving rate, of bitcoin.
Every 10 minutes, more bitcoin become available at a disinflationary rate. That mathematical guarantee formulated by a crude form of artificial intelligence is the backing of a system which boasts remarkable intrinsic value.
Friedman’s k-percent Rule
American economist, statistician and writer Milton Friedman once posed the idea of replacing central banking institutions with a computer capable of mechanically managing the supply of money. He proposed a fixed monetary rule, called Friedman’s k-percent rule, where the money supply would be calculated by known macroeconomic factors, targeting a specific level of inflation. Under this rule, there would be no leeway for the central reserve bank as money supply increases could be determined “by a computer” and the market could anticipate all monetary policy decisions.
Will we ever see Friedman’s computerized banking institution put into action?
Considering the mining network of cryptocurrencies are the closest thing to an authority, and mining will only get more specialized and thus centralized in the future, we may well already have arrived. Friedman predicted the rise of a computer capable of automatically adjusting the inflation rate of money, and this is precisely what we see in the case of bitcoin.
As a regulatory algorithm intelligently adjusts the mining difficulty to make the issuance of blocks more or less difficult, bitcoin well resembles a working prototype of Friedman’s k-percent rule.
Bitcoin boasts the economic backing of a force magnitudes more intelligent and pervasive than the promise of men & military might: an uncheatable, highly predictable, chronologically enforced supply schedule.
The computerized function of the bitcoin system boasts remarkable intrinsic value. The cumulative value of this network will continue to grow as more users join the fold and payment in bitcoin becomes more accessible for every participant.
No money system we have seen to date can claim it is regulated chronologically. Bitcoin is backed by time itself.