The crypto community — but especially the Bitcoin (CRYPTO: BTC) community — highlights the catastrophic consequences of the Richard Nixon administration’s decision to cut the dollar from the Golden standard in 1971, exactly 50 years ago.
What happened: The Bitcoin community caused the #wtfhappenedin1971 hashtag to go viral Twitter Inc.(NYSE:TWTR) to draw the public’s attention to the damage that fiat money has done to the global economy.
A website dedicated to sharing details from the event, created by United States cryptocurrency exchange River Financial, illustrates how the economy changed with the transition to fiat.
Fiat money is a government-issued currency that is not backed by any physical commodity – just as the dollar was backed by gold until 1971 – derived from the Latin word fiat, meaning “let it happen” – in the sense of a order, decree or resolution.
What it means: In monetary economics, it is an intrinsically worthless object or record that is widely accepted as a means of payment.
Facts The publication of the Economic Policy Institute clearly shows that net productivity growth in the United States has stopped since 1971, which has also led to an increase in hourly wages.
Until then, the lines representing the two metrics followed each other so closely that they overlapped almost perfectly.
After the dollar broke off the gold standard, productivity more than doubled, but this did not reflect wages.
Real gross domestic product, real wages and trade policy in the United States were also almost as closely intertwined until — you guessed it — Nixon decided to screw it all up in 1971.
Likewise, charts showing income concentration at the top show that income inequality has increased immeasurably since the dollar’s decoupling from gold.
Even the median black income versus the median white income shows that racial inequality was increasing and hurting African American communities in the United States.
Finally, a document illustrating the cost of living in 1971 shows that a new home cost $25,200, while the median income was $10,622 per year.
A new car used to cost $3,560, the average rent was $150, Harvard University tuition was $2,600 a year.
The astronomical price increase is largely due to the astronomical inflation of 2.327% — an increase of 306% in 1970 — which greatly reduced the purchasing power of the dollar.
Bitcoin solves this
Bitcoin was created as a solution to the fiat-based financial system.
Proponents of Bitcoin firmly believe that government control of money is harmful to both the economy and society.
Hardcoded in the very first Bitcoin network block was a headline from the January 2009 third edition of The London Times: “Chancellor on the brink of second bank bailout.”
This had the dual purpose of proving that the bloc did not exist before this paper came out, as well as bringing attention to Bitcoin’s value proposition: opting out of a financial system based on fractional reserve banking and fiat money.
There will never be more than 21 million Bitcoins, but we cannot know how many dollars will ever be printed.
Why it matters: You know exactly how much Bitcoin you have in your wallet, but we can’t know how much of the customer deposits that banks actually have in their reserves.
This last detail is why everyone is so afraid of bank runs: If everyone wanted to withdraw their money in one go, we’d find that most of it isn’t even there – the wonders of fractional reserve banking.
For those reasons, Bitcoin proponents are bringing to everyone’s attention that the current financial system is broken, exploitative and nothing more than an illusion.