March 24, 2023

Bitcoin and time preference: how a stable currency contributes to the prosperity of society

Temporary preference is the tendency of a person to prefer his current well-being or current consumption for future welfare orconsumption. This means that a person with a high temporal preference cares more about meeting his current needs, rather than future needs. On the other hand, a person with a low temporal preference or ability to postpone pleasure prefers needs in the future.

What is time preference?

Due to the ambiguity of the future, inevitabilitydeath and the need for consumption for survival, rational people naturally take care of their current well-being. However, the degree of temporal preference is different for everyone. For example, compensation or discounts that convince a person to receive a product or service in the future, and not right now, determine the degree of temporary preference for a particular person.

Lower time preferences produce better results.

Famous Stanford Marshmallow Experiment,conducted by Walter Michelle and Abby B. Ebbisen in 1960, showed that children who have a tendency to put off satisfaction for the future are more successful in life decades later. In a subsequent 1988 study, children with low temporal preference showed higher academic results and had no problems with addiction or weight.

It is important to note the following fact: although more recent experiments have shown that economic living conditions are most closely associated with better life outcomes, this does not preclude the assertion that low temporal preference leads to a better life. This even confirms that the environment and society in which the postponement of satisfaction is encouraged show better progress.

A society in which people are able to put offreceiving and enjoying goods, in which people save money and produce more capital goods, in the long run there is usually a more rapid growth of technology. Such societies have more peace and wealth, since participants in such economies understand that conflicts impede the production of capital goods and economic activities.

Temporary Preference and Bitcoin

Before moving on to the relationship between temporarypreference and Bitcoin, you need to understand what is stable or solid money. According to the financial dictionary, sustainable money is a currency based on a real product (gold, silver, etc.). They are less prone to inflation than fiat currencies. Sustainable money has the purchasing power that the market determines and is not subject to government control.

As Seyfedin Ammus explains in his book TheBitcoin Standard: The Decentralized Alternative to Central Banking, institutions of any economy will create new money, if possible. Given the fact that the creation of new money often leads to a decrease in purchasing power, it is very important that this process be limited in any economy. In his book, Ammus states: "Theoretically, ideal money is money with a fixed mass that no one can increase."

Ammus explains how sustainable money generates a low temporal preference, motivating an increase in production, as follows:

The only legal way to get money insuch a society is to produce values ​​for others and exchange them for money. All people are looking for a way to get more money, which means that all people work more and produce more, which leads to an improvement in the material well-being of each person. This allows people to accumulate more money and increase their productivity.

The number of bitcoins is limited - 21 million. The very nature of this currency protects it from counterfeiting. This means Bitcoin is deflationary. Bitcoin is also not controlled by any government. Like gold, this digital currency is stable money and generates a low time preference.

How fiat currencies affect society

First, the control of state currenciesShort-term politicians in power means that money policies and decisions will also be short-term. The growing debt of various states is a prime example of this problem.

In addition, central banks arbitrarily printnew money, because of which, over time, currencies lose their purchasing power. Therefore, such currencies are not suitable for accumulation. Given the above, rational citizens tend to save less in fiat currencies, and debt increases even more. Less savings - less capital accumulation, which means that productivity is falling.

Short term that characterizesthe use of unsustainable money makes people and organizations conduct illegal activities for quick income. For example, bankers and rating agencies did this before the collapse of the US real estate market in 2008.

Sustainable Money (Bitcoin) Provides Economic Prosperity

In fact, time preference affects successindividual people. To the same extent, monetary systems, which contribute to the emergence of low time preferences, accumulation of funds, capital and production, contribute to the creation of advanced technologies that positively affect society as a whole.

However, the use of inflationary fiat currenciescontributes to increased consumption, reduces the amount of savings and capital accumulation. This leads to a decline in productivity and lower salaries.

We can say that the promotion of such sustainablemoney, like Bitcoin, can create a better world for everyone, and the current fiat-based currency system leads to regular economic crises. Sustainable money motivates people to a low temporary preference, which leads to a better life.