Answered: If the goal of Bitcoin is to replace fiat money, but Bitcoin is expected to increase in value in the long term, wouldn't it be prohibitive to use Bitcoin for paying for things?

This question was posted in r/bitcoin by u/madferret96.

I'd like to answer the question here since this is a fairly common and important subject of discussion. How can a good store of value (SoV) also be a good medium of exchange (MoE) and unit of account (UoA)? Seems too perfect, right?

u/madferret96's perspective comes from measuring value in a depreciating asset, dollars. This is relative, not inherent, value, while Bitcoin is still in the process of discovering its true value to humanity as a means of democratically creating, distributing and exchanging money/wealth.

When you purchase goods and services now, the question you ask yourself is whether what you're purchasing is more valuable to you than the dollars you have in hand. Everything being denominated in dollars/fiat lends this the perspective of dollar just represents money which can buy me things I need in life.

When we get to a place where sats replace cents as UoA, it would be a question of whether the good/service you're purchasing is worth more to you than the sats you have in your wallet.

Further, the UoA on Lightning Network is not sats but millisats, 1/1000th of a sat. Mill is 1/1000th of a dollar and the unit-of-account in dollar-denominated accounting.

1 Bitcoin = 100 million sats

21 million Bitcoin = 2.1 quadrillion sats = 2.1 quintillion millisats

Infinite divisibility, but not infinite supply, is an important property of money. The best scarce money in history, gold, does not have this property. Bitcoin does.

What a Bitcoin Standard would do is immediately eliminate the moral hazards that inhere within a monetary paradigm predicated on arbitrary, whimsical, unscrupulous and flagrantly unmoderated expansionary policies founded upon nothing more than the existence of a lender of last resort with access to an infinite supply of money created without any effort out of thin air to bail out those at the top of the pyramid. It would restore rigor and sustainability to credit lines without frequent intervention at the cost of rampant inflation, and cultivate better spending habits.

The current system of credit constantly incentivizes, or even forces you to keep spending money from tomorrow's labor, but then the new injection of money from your tomorrow's labor ends up being concentrated at the top, with the ultimate consequence of inequitably destroying your own purchasing power and continually enriching those at the top of the pyramid.

In short, the money you borrow ends up destroying your purchasing power while the lender profits from your future labor.

This system is "sustainable" for a reasonably long period of time, until hyperinflation becomes untenable, only because it enables infinite, unmoderated expansion of the money supply. Fiat monetary systems have never in history survived beyond a few generations.

We've had 3800 fiat currencies in history. They've all failed

“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world. No longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.” - Woodrow Wilson in 1919, in reference to the Federal Reserve act of 1913, which he signed into law.

A system of credit based on infinite, but concentrated expansion of supply. Inflation benefits those close to the new money (top of the pyramid), while those at the bottom bear the brunt of it. This is Cantillon Effect

I view Bitcoin to be the culmination of humanity's 7000-year quest to perfect the representation of value by democratizing its creation, distribution and exchange. There has never been a money in history with all the necessary properties of money. All previous forms of money had compromises.

Scarce money has always been sound money but previous iterations of scarce money lacked the other properties required for a viable MoE and UoA - fungible, readily portable, infinitely divisible, incorruptible, indestructible, provably finite and objectively verifiable.

Bitcoin ticks all the boxes.

Sound money fulfills all three functions of money - SoV, MoE, UoA