The Failures of Fiat

Sound Money is Scarce Money

Imagine waking up to find your money worth less than the paper it’s printed on. History is filled with moments when once-mighty currencies, from Rome’s denarius to Zimbabwe’s trillion-dollar bills, became so worthless that people used them as wallpaper or kindling instead of as money. The story of fiat currency debasement and failure is one of trust, temptation, and eventual collapse that has repeated itself across centuries and continents.

Fiat currency – money not backed by physical commodities such as gold – derives value only from government decree and public confidence. But when governments abuse their power by printing money, confidence in fiat currencies can quickly erode. Over a long enough time horizon, every single fiat currency’s destiny is the same: failure.

The primary weakness of fiat currencies lies in the irresistible temptation for governments to create more of it. With no physical restraints like gold limiting issuance, governments print money to pay for wars, deficits, and stimulus during emergencies such as pandemics. No matter the excuse for it, money printing inevitably leads to inflation. A recent example is the 2020 – 2022 COVID crisis, when money printing caused a 40% increase in money supply, which led to the highest inflation rates in four decades.

One of the most common triggers for fiat currency failure is government spending funded by currency creation rather than taxation or legitimate borrowing. When governments face unsustainably high debt burdens, they often turn to their central banks to monetize the debt – printing money to pay the bills. This eventually leads to a big debt crisis, when governments default on their debt obligations and currencies fail, leaving citizens scrambling for assets that will retain purchasing power.

The most famous example is post-World War I Germany. Entering the war, Germany went off the gold standard and financed the war effort through borrowing rather than taxation. By 1918, Germany had accumulated debt of 156 billion German marks – the currency used at the time. After Germany’s defeat, the 1919 Treaty of Versailles imposed crushing reparations of 132 billion gold marks (today’s equivalent of $605 billion), payable in hard currency or commodities. Unable to make payments with its reduced industrial output, the German government resorted to printing money on a gargantuan scale. Money supply grew from 115 billion marks in 1922 to 497 quintillion marks in 1923. By the end of 1923, the money supply had grown by 7 billion times compared to prewar levels. At the peak of hyperinflation, prices doubled every 3 days. Not until new, hard currencies – backed by mortgages and gold – were introduced did the economy stabilize.

This historical episode illustrates a recurring pattern: when money lacks scarcity, as in 1920s Germany, inflation and currency failures eventually follow. When governments create new money at will, they dilute the purchasing power of money already in circulation, just as how watering down a cocktail will make each sip less potent and flavorful.

Since the problem is always an abundance of currency, the solution must be the opposite – a form of money defined by true scarcity: Bitcoin.

Scarcity is what has allowed Bitcoin to rise like a phoenix from the ashes of the 2008 financial crisis. Looking purely top down, Bitcoin should have been crushed under the sheer weight of the US dollar, which is accepted and desired all around the world. And yet somehow, in a mere 16 years since its invention, Bitcoin has evolved from an internet sensation to a global money with a market cap of $2 trillion. Why? Because of its desirable monetary characteristics – primarily scarcity.

Bitcoin’s total supply is limited to 21 million units, which is becoming a smaller and smaller number relative to the number of people who understand Bitcoin and the massive implications of its scarcity. If only one person values Bitcoin, then the 21 million total supply is irrelevant, and there would be nothing scarce about Bitcoin. But if 500 million people value Bitcoin, then 21 million total units becomes a much smaller number.

Bitcoin’s true scarcity comes not just from its fixed supply, but from the growing demand competing for a limited number of coins. As demand rises against a capped supply, scarcity intensifies, creating a powerful feedback loop that drives its value. Every new entrant into the Bitcoin ecosystem makes Bitcoin more and more scarce.

In a world where fiat currencies are doomed by abundance, Bitcoin’s engineered scarcity stands as a beacon of monetary reliability. The lesson from centuries of failed currencies is clear: only a system rooted in absolute, mathematical scarcity can preserve value across space and time. As more people recognize this truth and opt out of fiat’s inflationary cycle, Bitcoin’s fixed supply becomes not just a defining feature, but the foundation for a new era where sound money is available to all. The future of value will belong to the scarce.

The opinions and views expressed by the author are personal and based on economic or market conditions at the time of publication. Actual economic or market events may turn out differently than anticipated. Nothing in this material is intended to serve as personalized investment, tax, or insurance advice.