A trillion is a million of a million. There are 12 zeros in a trillion.

0(1) 0(2) 0(3) 0(4) 0(5) 0(6) 0(7) 0(8) 0(9) 0(10) 0(11) 0(12)

The human mind is limited to imagine large numbers due to the nature of evolution. Why would it be good for the caveman to look up at the sky and immediately have the notion that “this night, 12,583 stars are visible, 5 less than yesterday”? Much more useful would be for his brain to have an over-sized part dedicated to logic so that he could invent a spear to confront the lion.

However sometimes we are forced to look at very larger numbers in our daily lives. If we add  another two zeros to one trillion, we reach the total on the Zimbabwean 100 trillion dollar bill, the note with the most zeroes in all recorded history. The bills circulated for months in 2009 at the zenith of one of the most terrible instances of hyperinflation in history. When no one accepts the old currency any more, the old monetary regime simply collapses.

100 billion dollar bill

 

Unsound money, being controlled by central banks whose express mission is to keep inflation positive, will offer little incentive for holders to keep it – Saifedean Ammous ‘The Bitcoin Standard’

During hyperinflations, people try to store their wealth in goods or commodities which don’t lose value. It happens that people go back to trading in raw materials and bartering and this way, it was very common in the Weimar Republic and in recently in Zimbabwe that buyers and sellers used natural trade to avoid loosing the value of their money. On the other side, in a healthy economy, a farmer, let’s call him Frank, can sell goods for money and then exchange this money for petrol to run his tractor. But during hyperinflation, Frank will face the unfortunate situation that once he sold his goods for money, the price of petrol could have increased so much that he is no longer able to purchase the fuel for his machine. But Frank is clever and understands the nature of things instinctively. He sees how money is debased over time and chooses the “safer” option which is to barter or to use a different means of exchange and store of value. This way his business is antifragile, he can fuel his tractor which he loves to ride and most importantly he can continue to serve is customers, the core of his business. Furthermore once Frank stops accepting the weak currency he plays an important role of communication and transfer of information in the economy about which currency is preferable.

A store of value can be any commodity which is not subject to depreciation over time i.e. its supply is not easy to increase. Stores of value do not have to be homogeneous either — for instance, a Van Gogh painting. Essentially, stores of value are items where the value does not decay over time, but can in fact also increase.

For Bitcoin to become a trusted medium of exchange and store of value, it needs to be stable, and have low volatility. It can’t be possible to have a position where money is worth less (or even more) in a day or an hour. Volatility and unpredictability in currencies is harmful to businesses in particular, and if businesses cannot be assured that the Bitcoins they received the previous day will help them replenish their stock, they will be unwilling to accept it and risk their livelihoods. This equally applies to people who are willing to earn Bitcoin.

With the increasing demand of Bitcoin as well as improved accessibility, Bitcoin will acquire (slowly in the beginning, fast in the end) the privilege of being accepted and held by everyone as a trusted store of value and means of exchange. At that point, hyperinflation will have a hard time to exist in the market since a weak currency won’t be accepted anymore.