web3dom #38 - To understand Bitcoin, start with Cabbage

At the start of the month, as spring began, I visited the home of T, a seasoned Bitcoin investor. Although I'm not well-versed in social niceties, I wanted to show my appreciation for T, who has always looked out for me. After much thought, I ended up buying a large cabbage, typically hung up during the New Year, and carried it to T's place just like the protagonist in the movie Léon: The Professional. Arriving at T's, I joked with a somewhat surprised T that it was a "BitCabbage", meant to be a store of value.

There are many types of cabbage, and different regions have different names for them. For example, in Guangdong, it's often called "黃芽白” (wong4 ngaa4 baak6)", Teochew people usually call it "紹菜" (siu6 coi3), and some refer to it as "旺財" (wong6 coi4). The Tianjin area produces a lot of cabbages, so Shanghai-style restaurants in Hong Kong often call them "津白" (jeun1 baak9).

Buying one or two cabbages to hang up for the New Year, apart from the pun on "招財" (zui1 coi4) sounding like "inviting wealth", also serves a practical purpose. Compared to other vegetables, cabbage is cold-resistant and keeps well. Even without cling film, it can be stored for a while without any issues, making it especially suitable for the northeastern regions of China. Even in the warmer south, storing a couple of cabbages before the New Year means you can still pluck leaves to cook throughout the Spring Festival holiday, eating your way right through to the Lantern Festival with a sentiment of continuous prosperity.

Recently, blockchain sociology has seen a dip in viewership, with the open rate of an earlier article on Bitcoin ETFs suddenly plummeting to less than 30%. The above is my grand pivot to operating a food channel... just kidding. What I actually mean is that cabbage serves as an excellent "store of value".

People often comment on my articles like this: "I understand every single word, but when put together, I'm lost." It's a heartbreaking sentiment, but as long as someone has truly read the article, I'm still grateful. I take negative feedback seriously and ponder how I can combine simple words to explain complex concepts.

To address this, I've tried to identify terms in my past articles that are simple on the surface but conceptually counterintuitive. One common term, often used to describe Bitcoin, is "store of value". If you understand "value" and"store" but can't grasp the significance of Bitcoin, then you might be a victim of this terminology.

Traditional wisdom teaches us to "store grain to prevent famine", because of unforeseeable natural disasters, and the inevitabilities of illness and aging. When the sun shines bright and our bodies are strong, we must save our surplus labor to be prepared for future needs.

In today's world, where most people no longer rely on farming for their livelihood, the principle of storing grain can be simply translated to one word: savings, or in other words, saving money. Whether it's cabbages, grains or money, despite their different forms, they all serve the same purpose in this context: they are carriers of stored value, safeguarding our surplus labor until it's needed in the future.

For an item X to be considered a store of value, the most basic requirement is that it must not spoil easily and be easy to store; as much as I love tofu pudding, it's clear we cannot use tofu to store value.

Beyond that, X must also have the ability to be exchanged for other necessities of life. The essence of currency is that in ancient times, "currency" was first and foremost "goods." A store of value must first possess intrinsic value. Grains and cabbages, being edible, meet this criterion. However, in modern times, intrinsic value has become irrelevant. The focus is on whether the carrier can be exchanged for other goods. After all, if society widely accepts X in exchange for other items, who cares if X has intrinsic value?

Be careful not to narrowly interpret the ability to exchange for necessities as the ability to make purchases, or you might fall into the trap of thinking, "X can't buy wonton noodles, so X is useless." If you try to use a gold bar or a diamond to buy wonton noodles, I bet you'd be promptly kicked out of the shop. Using the inability to buy wonton noodles as an argument for an item's lack of value is a weak logic. Exchanging for necessities doesn't have to be direct; it can also be indirect through the mediation of commonly used currency. As long as gold and diamonds can be easily converted into flat currency, they still meet the second criterion of a store of value.

The third criterion is more advanced: X should be issued at a predictable rate, ideally in limited quantity or even decreasing over time. Put simply, "rarity brings value." Hence, natural and limited-quantity gold, compared to the ever-devaluing and quantitatively eased US dollar, is a more ideal store of value. I've repeated this point many times, so I won't elaborate further.

What's often overlooked, however, is that "saving money" is, in a sense, an unwise action, as it means storing surplus productivity in a medium that continuously depreciates. From a young age, we're indoctrinated to believe that saving money is a virtue, but teachers never discuss the nature of money, misleading the youth. It's a system that's happy to see its citizens support the "value of currency," sacrificing for the country (mistakenly).

To break free from the mental constraints of saving money, we need to master two essential lessons.

The first lesson is to broaden our understanding of money. We use flat currency for daily necessities, and while it's useful, money comes in many forms and can be realized in various ways; it shouldn't be equated directly with flat currency. "Saving money" is just a phrase; what it really means is to properly store our surplus productivity. A macro understanding of money is the first step to avoiding the futile effort of trying to hold water in a sieve and choosing the right store of value.

The second lesson is to dissect the three main functions of money, treating the functions of unit of account and medium of exchange as one, but considering the store of value separately. For the first set of functions, it's fine to stick with the most effective form of flat currency. However, for storing value, we should opt for a different kind of "money" that serves as a better carrier, such as gold or Bitcoin, which is often referred to as "digital gold". Even if we ultimately choose flat currency, whether for its high fixed deposit rates or sheer convenience, it should be a deliberate decision, not taken for granted.

The logic laid out above is quite simple, but putting it into practice goes against intuition. After all, we've always been taught a singular view of money, believing that using one currency simultaneously satisfies the three main functions of money: unit of account, medium of exchange and store of value. Saving money is assumed to involve flat currency, and any other option is considered "investment". Adjusting this mindset is like a left-handed person learning to write with their right hand; it requires time to adapt. It's less about acquiring knowledge and more about undergoing a discipline.

Deeply understanding these two essential lessons and adapting to them, once fully realized, allows us to appreciate that buying a hundred dollars' worth of Bitcoin every day is simply channeling our surplus productivity into an excellent store of value, which is, in essence, saving money. After all this explanation, my repeated advocacy for buying a hundred dollars' worth of Bitcoin daily might seem trendy on the surface but is fundamentally traditional. It appears speculative but is actually conservative, merely a heartfelt advice to everyone to work hard and save a little every day, to "store grain against famine", and that's all there is to it.

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