Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.

I came across a discussion on Hacker News: Bitcoin still makes no sense. I see it as an honest assessment from someone open-minded about Bitcoin. The article’s author, Evan Kozliner, made some interesting observations. Bitcoin supporters claim that they understand money better. Bitcoin is THE money. Bitcoin supporters mostly agree that Bitcoin has no intrinsic value. It’ll be the mother of all assets. In the future, values will be based on Bitcoin. But this future has a problem. If Bitcoin’s price continues to rise, we’d be spending more and more energy to mine it. Since Bitcoin has no intrinsic value, its price cannot be determined. We can spend an infinite amount of energy. We don’t have infinite energy.

A lot of confusion about Bitcoin originates from a fundamental problem. I call this problem the Bitcoin Price Paradox. It works like this:

Bitcoin Price = Demand / Supply

When supply reaches zero and demand is a positive number, Bitcoin’s price is infinite. If Bitcoin is not grounded in some physical reality, we have no way to price it. Bitcoin is a narrative-driven asset. People compare Bitcoin to gold. In this narrative, its market cap should be something around 10 trillion dollars as of 2021. But after that, we’d have the real estate market, the bond market, the equity market. If Bitcoin’s price is infinite, we’d be spending an infinite amount of energy to mine it.

The Bitcoin Standard and Hyperbitcoinization

Some Bitcoin supporters advocate for the Bitcoin Standard or Hyperbitcoinization. In this future world, everything would be denominated in Bitcoin. When this happens, Bitcoin’s price would become stable. This logic seems to make sense if we assume the world is stable. But what if the world is unstable? We see the world as unstable. We want to base it on Bitcoin for its stability. For Hyperbitcoinization to happen, the world needs to become stable on itself. Bitcoin is a reflection of the world’s value and vice versa. There are two possibilities:

  1. The world is unstable and Bitcoin is unstable. This is where we are.
  2. The world is stable and Bitcoin is stable. This is Hyperbitcoinization.

The question is which stability happens first. We really can’t know. Bitcoin depends on the world. The world depends on Bitcoin. We have a circular dependency. Hyperbitcoinization is also a paradox. Hyperbitcoinization does not solve the Bitcoin Price Paradox. It is another paradox sitting on top.

Turtle All The Way Down

The Bitcoin Price Paradox is the origin of confusion in Bitcoin. We attempt to solve it by reasoning on top of it. These efforts lead to more paradoxes. They are circular. We just go around in a loop. Bitcoin’s price cannot be infinite. We don’t have an infinite amount of energy. Physical reality is bounded. Humans are finite. Energy is finite. The Fed only prints so much money, not infinite. Bitcoin cannot be priced if it exists only in the virtual world and has no connection to physical reality. Basing money on Bitcoin is like putting reality on top of ungrounded reality. We’ll keep making ungrounded reality. Bitcoin cannot lift itself from gravity.

The Bitcoin Price Paradox is the mother of all paradoxes in Bitcoin. It is a version of Turtle All The Way Down.

Solving The Paradox

I believe the solution to the Bitcoin Price Paradox is inflation. Let’s say we have a hybrid crypto that has inflated supply. The price equation becomes:

Hybrid Crypto Price = Demand / Supply

In this case, the supply is never zero. So the price is never infinite. It is the way to get out of the Bitcoin Price Paradox. This is where an inflationary crypto is useful. Bitflate is an experiment in this direction. It has a moderately high inflation of 7%. It is the opposite of Bitcoin. Another way to think about this solution is through the philosophy of Yi Ching. Money Yin and Yang are Deflation and Inflation. They’re complementary to each other.

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.