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More On Protecting Financial Health In The Years Ahead

In early June, El Salvador became the first country to adopt Bitcoin as legal tender. On Wednesday July 14, Paraguay is set to do the same. Other South and Central American countries will soon follow with governments in Guatemala, Panama, and Brazil moving toward the Bitcoin standard.

Why is this important for people living comfortably in the States, Canada, Australia, the UK, Singapore, Korea, and elsewhere?

Over the next 10 years, most governments will have little choice but to raise taxes on just about everything including personal and business income, residential and commercial properties, and even traditional assets like equities, bonds, ETFs, and mutual funds in investment accounts - governments will need this extra income to meet their obligations.

Right now, federal governments are meeting much of their obligations through money printing that is backed by nothing. The problem with rampant money printing is that it causes all existing savings to lose purchasing power. If you have $1000 in savings and the government prints many billions or trillions to freely hand out to people and businesses, your $1000 in savings is automatically worth less - this is the essence of inflation, and why inflation through money printing is simply another form of taxation.

Put another way, when governments print money based on nothing, they steal time that you have put into making a living.

Governments cannot continue to excessively print money forever, as this will lead to a level of inflation that will ruin their currencies. If you don't understand what inflation looks like, consider the cost of a single family home in your area, tuition at a reputable school, or even a week's worth of minimally processed and nutrient-dense food and look up how much these goods and services cost 10-20 years ago.

Why is this relevant to our future? If we wish to have the same or better quality of life than we do now, we need to increase our income or savings by at least the same rate at which our governments are increasing the money supply through inflationary printing. In the U.S. and Canada, the current annual rate of increase of the money supply is somewhere around 20% give or take a few points. This is what we can call our hurdle rate - if we cannot increase our income or savings by at least 20% annually, we are losing our purchasing power for all goods and services that we need and want.

All of the above is what led me to begin studying Bitcoin and blockchain technology over the last few years. Bitcoin has a fixed maximum supply of 21 million coins that can each be divided into 100 million Satoshis or Sats for short. Its finite supply is what makes it a store of value that preserves and increases purchasing power over the long term. Since its inception in 2009, Bitcoin has a compounded annual growth rate of close to 200%, meaning that it more than meets our need to surpass the current hurdle rate of 20% caused by excessive money printing.

At its core, Bitcoin is a database that keeps track of all coins (Satoshis) in circulation. This database exists as a chain of blocks of data, with each new block of data being added to the chain about every 10 minutes. Every one of us with a decent computer can run the software that keeps track of this always-growing blockchain - this is what makes the Bitcoin blockchain decentralized. To be decentralized means that there is no central entity that can make changes to the Bitcoin protocol. Bitcoin is therefore immune to the corruption of a central entity, and is the most secure store of value that allows savings to grow ahead of the rate of inflation over the long term.

For much of the last 12 years, it was somewhat complicated for someone not used to working with computer technology to buy and take custody of Bitcoin. Today, everyone can gain exposure via proxies that are available through most brokerage accounts - I shared some in my initial summary of Bitcoin and blockchain technology here:

Please always keep in mind that investing is best done after doing as much research as one needs to develop the conviction that is necessary to hold onto investments over the long term. My opinion is that Bitcoin is an investment that will offer life-changing returns over the next decade. For those who have a timeframe of less than 5 years, my feeling is that it is best to avoid digital assets like Bitcoin and Ethereum, as they are necessarily volatile to be growing exponentially as they are.

I've not shared much about Ethereum, the second leading blockchain by market capitalization because the Ethereum network's protocol is in a multi-year transition from "proof of work" to "proof of stake," concepts that I won't go into here. To briefly share my thoughts on Ethereum, I believe it is here to stay, and is well positioned to be the leading platform for decentralized applications that will largely re-make the lending, yield-generating, and insurance industries. But in my view, Ethereum should be viewed as a venture-type investment, one that could generate spectacular returns that surpass that of Bitcoin's over the next few years, but also comes with more risk surrounding the transition to proof of stake.

To summarize, this is what I expect personal banking to look like within 10 years:

The vast majority of us will store our savings, investments, and cash for everyday purposes on an application on our phone. Those who are able to accumulate a healthy amount of Bitcoin (Satoshis) will keep it as our primary store of value. For everyday purchases, we will use our local currency digitally (USD, CAD, EUR, AUD, YEN, etc.), and whenever we need more than what we have, we will convert a small amount of Satoshis to our local currency. The value of our Bitcoin (Satoshis) in terms of our local currency will continue to rise over time because of Bitcoin's verifiably limited supply. Put another way, those of us who have savings in Bitcoin will find that goods and services we need will continually become less expensive in our local currency since over the long term, Bitcoin will appreciate against our local currency by a large margin.

For those who wish to continue to receive pertinent updates on Bitcoin, Ethereum, and how blockchain technology will change banking and investing in the years ahead, please feel free to connect with me at Twitter:

If I see there is growing interest at my twitter feed on the blockchain-related posts that I share, I will increase my efforts to share on this topic. So if you find value in these posts, please tap the like button and re-tweet as you feel called to do so, as these are the 2 metrics I will go by to gauge interest and to decide if sharing on this topic is a good use of time or not.


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