Gael Sánchez Smith, author of the book Bitcoin Changes Everything in which he states the social and economic implications of the most important invention of the 21st century, is an Engineer from the University of Exeter, a master's degree in Moral and Political Philosophy from the University of Salamanca and a master's degree in Economics by OMMA and the Francisco Marroquín University. In addition to having a multidisciplinary background, he is an independent thinker and has worked as a fixed income trader in London, as a commercial executive for a major British software company on business application modernization projects, and currently works as a trader and investment manager focused on bitcoin and in innovative companies around sustainability and climate change.
In the Expert Session he began by explaining that something that he had always perceived since his youth was that there were problems with the economic system in which we live, experiencing closely the brick crisis in Spain, the great recession and the bankruptcy of Leman Brothers and realizing that, in his opinion, this entire situation was resolved unfairly since the same financial entities that caused the crisis were rescued, highlighting the moral problems of the current economic system.
In this way, he stated that as a basis, when explaining to someone who is starting or who wants to delve deeper into Bitcoin, as Javier Pastor asked him, what it consists of, it is key to know that there is a problem with the current system. This is fundamental to understanding Bitcoin, since it is intended to be an alternative to what currently exists.
Gael explained how there are problems with the economic and monetary system and how many of the economic problems derive from the monetary system. In this way, bitcoin can solve many of the problems that exist, but for that it is key to understand them.
Different types of money have existed throughout history: commodity-based money, gold and silver, debt, and the fiat standard. Fiat money is easy to digitize and provides benefits, but it has clear problems, according to Gael: the issuer is the state, so the arbitrariness is absolute and has a large element of censorship. The state can freeze it, the bank can close our account. Fiat money is easy to produce and censor, which translates into high inflation, as we are currently seeing, and people's search for alternatives.
This inequality has its origin in the monetary system. It is not meritocratic but rather obeys a series of incentives that the monetary system introduces and that are given by that arbitrariness.
When central banks issue fiat money they do so by issuing debt and controlling the economy. If more economic activity is sought, interest rates are lowered and commercial banks create more money. If they seek to stop economic activity, interest rates rise and money is sucked out of the economy. Since the 70s, fifty years have passed in which debt and money have not stopped, creating an asset bubble.
In this way, the boomer generation, for example, has been able to obtain many more assets, but for later generations it is almost impossible because the assets are inflated by this bubble. Fiat money encourages this intergenerational inequality and social inequality between classes. It makes it easy for someone with wealth to become richer by collateralizing the assets she has and getting more debt at a lower price than the rest of us pay. Interest rates are low and inflation reduces the value of debt and pushes up the price of real estate.
On the other side of the scale, a salaried person without assets who wants to save and does not have wealth cannot go to the bank and ask for a mortgage unless he pays a very high down payment. If you do not have assets or money for entry, you do not have access. Wealth is systematically channeled to those who have the most.
Gael also explained that the current crisis is inflationary, with very high levels of public debt. In the 70s, high inflation was controlled by raising interest rates. They were able to do it because the debt was not so high, but currently if rates were raised excessively, companies would begin to go bankrupt and families would too. To solve this, Gael estimates that they will try to find a balance between raising interest rates, letting inflation run to higher points, trying to lower debt-to-GDP levels by artificially raising GDP with inflation and seeking to have the ratio debt/GDP is reduced.
And here Bitcoin is the alternative because its supply cannot be altered, it is predefined from its creation and there is no other asset with this inelastic monetary supply. «When the market looks for alternatives, Bitcoin will shine as an attribute due to its inelastic supply., explained.
Regarding the blockchain, these experts explain how more than a technology it is an architecture with which to build applications in a specific way. The best way to understand this is to think of Bitcoin: universal (everyone can create an account and transact) and that no one can change the rules, no one can create new currencies. The idea is to apply these principles to other areas: DeFi, social networks or all the applications we can think of.
Gael Sánchez explained how in PoS instead of miners there are validators. Validators cannot censor if they do not control more than half of the stake. In the case of Ethereum, he considers that the stake is becoming hypercentralized in entities such as Coinbase, Lido, Kraken or Binance that control more than half, being able to decide who transacts and who does not.
PoW requires an initial investment in machines and energy consumption to be able to carry out proof of work while in PoS entities have no operating costs. If governments decide to censor Bitcoin transactions, there would be associated costs that are not in Ethereum. This expert also explained that it is most likely that Ethereum will end up being captured by the American government.
Regarding the environmental impact of Bitcoin, Gael was very aware of this point and explained that he assumes that Bitcoin consumes a lot of energy, but considers that PoW is the only way to have a decentralized system. In his own words: “decentralization costs energy” and has enormous social benefits.
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They also pointed out that the FIAT system or gold mining also consume energy and that if the consumption of Bitcoin is studied, it is clear that a large percentage is clean energy because Bitcoin consumes energy with the lowest marginal cost. Abandoned hydraulic power plants, surplus solar or wind energy, oil production fields with methane produced as waste... Energy sources that do not have a very high greenhouse gas component.
Furthermore, as it has very particular demand costs, Bitcoin can help balance the network, absorbing excesses or adapting to existing energy defects in the world.
For Gael, money is an abstraction, a symbol. If we print more money we will not have more wealth because this is given by the factors of production and how we use it to produce goods and services. Money is a tool to coordinate ourselves and for the market price system to tell us what we need to produce.
Then, regarding the criticism that defends that the inelastic supply of Bitcoin would cause consumption to paralyze, Gael explained that the important thing is that the amount of money is not arbitrarily modified, because this uncoordinates the economy. There is no problem with the money supply being rigid. What will change is who will receive the wealth. If we have money with a fixed supply, we change how wealth is distributed, preventing those who have the most wealth from being able to collateralize that wealth, request debt and hoard more wealth.
The debt would be more limited to the short term. When it comes to housing, for example, he explains that with the implementation of the Bitcoin system we would see a great drop in housing prices. As for financing, instead of being done through debt it would be done through equity, which means that it would not be those with the greatest assets who would have access to capital but rather whoever has the best ideas, the best projects.
