From cash to crypto: The Cantillon effect vs. the Nakamoto effect

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The Cantillon effect is often cited as one of the causes of cash volatility. Will Bitcoin and the introduction of the Nakamoto effect solve it?

, emerged, with the system going online in January 2009.

The Biflation effect is a form of the Cantillon effect. It occurs when the central bank pumps money into the economy to reinflate asset prices during a period of debt deflation . Despite the central bank's efforts, beneficiaries of freshly produced money prefer to spend it on commodities and other associated assets rather than fighting the ongoing deflationary trend in debt markets. 

According to the Cantillon effect, the first recipient of a new money supply has an arbitrage chance to spend money before prices rise. This is partly because new fiat money is created at near-zero cost and distributed to particular parties, most commonly banks. These banks can use this money to buy products and assets whose prices have not yet risen due to the increase in the money supply.

Almost all of the fiat currency currently issued goes to banks and the government first. This is the case because central banks like the Federal Reserve back big commercial banks like JP Morgan and Citi. Central banks have “printing presses,” that allow them to “print” a limitless number of their own fiat currency into circulation. 

The Bitcoin system eliminates lobbyist influence and the benefits of knowing the right banker, putting everyone on an equal footing. Every 10 minutes, every miner on the Bitcoin network has an equal chance of winning a reward of newly produced BTC.

 

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The Nakamoto effect revolutionizes value creation in a Bitcoin world, rewarding truth and merit instead of privilege or geography.

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The Cantillon effect is why most people that the old monetary system favoured don't like Bitcoin. Cantillon effect gives them the advantages that Bitcoin will be taking away. The future of money is here, it's either one finds ways to align with cryptocurency or be left behind

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This actually ties somewhat with Gresham's Law of 'bad money drives out good money'. Basically if you have two circulating forms of money, people will store value in the good money and spend only the bad money. The problem is that drives inflation for bad money even higher.

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