In this article, you will learn the only real substantial difference between US banknotes and Bitcoin that matters.

Theres a term thats lightly floating around the cryptocurrency discussion like fresh snow. Gingerly peppered into one article, and then another, floating whimsically into one ear, or eye, and back out the other. And the truth is I think this term needs to fall on all of our heads like a bag of bleeding hammers.

That term is deflationary currency and its going to change your life.

When you think of the word grape, what do you imagine? That synthetic lollipop flavor, or an actual grape? When I hear grape flavored, I think purple flavored. Ah, yes. The flavor of purple.

Because humans are conditioned to forget the past over the course of a single generation and be reprogrammed to associate words and ideas to other words and ideas.

If you hand a child real fresh-pressed grape juice, it will taste foreign to him or her. Its healthier, but unknown. All they know of grape ispurple.

Now, take money for instance. Specifically, the US banknote. I could use just about any national currency today as an example, but I like picking on this one.

Money. In your mind, it means a positive value. When we have it, we dont think of it as a debt, we think of it as a plus 1. If you have $10 US dollars, you canaddsomething to your life. Like put a sandwich in your face or buy a bottle of beer.

But value the goods and services you can buy with that 10 bucks changes over time. And usually that change meansbuy less with the same 10 dollars.

No, it isnt. Why? Because humans have accepted inflationary currency as the norm in as little as a single full generation (maybe a few years more, but you get the idea). And thats terrible.

As Ivewritten before; Yesterday a five dollar US note could buy you a meal, today it struggles to buy you a head of lettuce. Its still $5 USD on paper, but its value is a moving target. According to theUS Inflation Calculator, $20 in 1913 would pass for $494.86 at the time of writing this (August 2017).

Over time, your money went from being tied to gold (deflationary, finite) and became an IOU from the Federal Reserve Bank (inflationary, ever-expanding). We were bamboozled. I wrote a little about thathere.

If I were to use a blockchain metaphor to explain Keynesian economics Id say its like we givesomeonethe right to edit the global financial ledger as they see fit. But it is more complicated than that Ill get to it in a moment.

The value of Bitcoin will only increase until it plateaus and the last Bitcoin is mined (issued). It might jerk up and down but its the oldest cryptocurrency and were seeing it stabilize today, right before our very eyes.

The value of Bitcoin will increase over time because there are only going to be a finite number of them. This is why we call it digital gold.

Like gold, Bitcoin is a finite (albeit digital) resource. Each is tracked uniquely in Bitcoins immutable blockchain to ensure no one cooks the books, like they did in the years that led up to the financial crisis. In other words, no derivatives, no IOUs, no meddling, no issuing new Bitcoins beyond a predefined number, and no inflation.

When the last Bitcoin is issued, there will be 21 million of them in circulation. Actually, there will be less some people havelost their passphrasesand their Bitcoin is lost forever. A finite number and scarcity: all the magical attributes of an investment that will steadily increase in value for the foreseeable future.

This is where it gets complicated. All of this inflation vs deflation talk arises from two schools of thought; Austrian Economics vs Keynesian Economics.

Oldest continuous school of financial thoughtDeflation is bad!

In all of US history, our best times were those under the Austrian school of economic thought. They were a time of prosperity.Until the Great Depression.

You see, neither system seems to be a perfect match for society. Banks keep moving around the furniture, and the government cant keep up. Bottlenecks and a lack of transparency, all over the place.

Austrian economic thought was challenged during the Great Depression, so we threw the baby out with the bathwater and later introduced Keynesian economics. (Penned in the 1930s by John Maynard Keynes).

As youll readhere, you will learn that Keynesian economics arent working very well, either.

Keynes rejected the idea that the economy would return to a natural state of equilibrium. Keynesian thinking dictates that a deflationary currency will drive prices so low that everyone will be poor and businesses wont invest in innovation.

And in many ways,both sideswere right on many points.

The economy needs tending to 24/7, in real-time, at a level of transparency that a body of people (banks, or the government) simply cant (be trusted to) manage alone.

Could blockchain technology change global economics for the better?

Its only a matter of time before the entire economy is run on a series ofsmart contracts. The future may not be Bitcoin, but it sure is likely its going to be saved by blockchain technology.

Russ Roberts, professor of economics at George Mason University,explainsthat a fixed supply of money is certainly different. However, the rate of deflation posed by Bitcoin will occur at such a controlled rate that markets will have time to adjust.

Elaborate controls to make sure that currency is not produced in greater numbers is not something any other currency, like the dollar or the euro, has.

That is considered very destructive in todays economies, mostly because when it occurs, it is unexpected, says Roberts. But he thinks that wont apply in an economy where deflation is expected. In a Bitcoin world, everyone would anticipate that, and they know what they got paid would buy more than it would now.

For those wondering if its too late to invest into Bitcoin, the short answer is no. Yeah, it might be worth $5,500 USD as I write this article today but look at it as a sliding scale. A percentage point on a return, notan expense.

The value of Bitcoin will likely continue to rise. Everyone has heard the guy at the water cooler say Ialmostinvested in Bitcoin when it was $5, $100, or even $1,000. If Bitcoin reaches $500,000, thats still two more zeroes than you started with if you jump in today. And if things keep going the way they are, it likely will reach $500k say forward-thinkersJohn McAfeeandJeremy Liew.

Both Austrian and Keynesian schools of economic thought have run their course. Today, inflation is firmly cemented into our lives. Both systems have run the globe into the ground.

But if we HODL on and start exploring a third popular economic system, perhaps we can do away with inflation once again and stabilize the global economy by choosing to use a hybrid economic system based on a deflationary currency and creating a more transparent, autonomous economic system.

What do you think? Can smart contracts on a blockchain save the world? Let us know in the comments.

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Michael is a cryptocurrency enthusiast who has difficulty being pinned down to one job title for very long, and has explored a range of vocations over the years. Once a professional ecommerce specialist; he sold, planned, and assisted with the implementation of projects totaling over $1 million in value. He is also an accomplished internet marketer, self-published author, online instructor, and full-time traveler. He leverages internet-based technologies to live anywhere in the world and teaches others how he does it over at Hobo with a Laptop.

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