“Patience is bitter, but its fruit is sweet.”– Aristotle
Time Preference
Since the future is uncertain, the presence is considered to be more valuable. The present satisfaction has a premium. Time preference describes this valuation of the present over the future. Nevertheless, it is important to plan for the future and make investments.
“In light of the importance of long-term orientation for human and physical capital formation, technological advancement, and economic growth, time preference has been widely considered as a fundamental element in the formation of the wealth of nations.” — Oded Galor and Ömer Özak
In modern society, focusing on the long term is key to prosperity. A long-term approach must be implemented, which can be described by low-time preferences. Time preferences are the discipline to focus on the future by frugal living in the now. A high time preference would mean you want to have everything right now. Low-time Preference will lead to delayed Gratification.
A good example of the time preference is the marshmallow test.
“The Stanford marshmallow experiment was a study on delayed gratification in 1972 led by psychologist Walter Mischel, a professor at Stanford University. In this study, a child was offered a choice between one small but immediate reward, or two small rewards if they waited for a period of time. During this time, the researcher left the room for about 15 minutes and then returned. The reward was either a marshmallow or pretzel stick, depending on the child’s preference. In follow-up studies, the researchers found that children who were able to wait longer for the preferred rewards tended to have better life outcomes, as measured by SAT scores, educational attainment, body mass index (BMI), and other life measures.” — https://en.wikipedia.org/wiki/Stanford_marshmallow_experiment#Stanford_marshmallow_experiment“Those 4-year-old children who delayed gratification longer in certain laboratory situations developed into more cognitively and socially competent adolescents, achieving higher scholastic performance and coping better with frustration and stress. Experiments in the same research program also identified specific cognitive and attentional processes that allow effective self-regulation early in the course of development.” — W Mischel, Y Shoda, MI Rodriguez in Delay of gratification in children (1989)“It is not that easy to conjure up a hypothetical future reality that has the same tangible significance as something real right in front of you and so it is an amazing thing that people can do that.” — Jordan Peterson
High time preference = Give me everything now
Low time preference = I will save and invest to have more in the future
Low vs. High Time Preference
You will find many examples where a low-time preference has led to new technologies, valuable companies, or cultural heritage. Progress requires capital accumulation, long-term goals, and future-oriented planning. The construction of the Tunnel of Eupalinos, probably the oldest aqueduct in the world, took 10 years. The Sistine Chapel Ceiling took 4 years. Let’s just go through a few wonders of the world:
· Taj Mahal — 17 years
· Petra — developed over centuries
· Machu Piccu — about 100 years
· Colosseum — 8 years
· Cristo Redentor — 9 years
· Great Wall of China — 2000 years
· Giza pyramid complex — 120 years (One pyramid approx. 20 years)
“As you might recognize Civilizations requires low time preferences. They need to save capital and plan for the future. The successful among us bargain with the future. A great Idea begins to emerge, in ever-more articulated form. The idea is the point of a long and profound story. It´s the moral of the story. The successful sacrifice.” — Jordan Peterson
Things get better over time as the time horizon improves.
What is the problem with modern Fiat money?
Fiat money fails the delayed gratification test. Everything is focused on present immediately consumption. Why is this so? The reason lies in the design of paper money, the unlimited printing of it, and the resulting inflation.
Today’s fiat money is backed by nothing. The currency exists only because the state controls it and the population trusts it. However, every citizen is now feeling the consequences of money printing. The purchasing power of the USD is falling continuously. Maybe you think the dollar is better than bitcoin because it is stable and less volatile. But what the statistics show you is that the dollar seems stable only for a short time. In the long run, fiat currencies are very unstable, with a continuing downward trend.
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The market is flooded with new money because it is easy to create and can be expanded at will. There is no upper limit to the money supply. Inflation then damages the purchasing power of the population. It takes more and more money to buy the same goods because they have increased in price.
Consumer Price Index (CPI)
Thus, there are disincentives for the population. If you want to save $1000 and next year the $1000 is only worth $960 in real terms because of inflation, what kind of culture does this encourage?
This encourages spending and prioritizing consumption now over long-term financial goals. Money gets eaten up by inflation, and you will get an incentive to spend it. Consequently, the Fiat system manipulates people with consumerism, addiction, and debt. In the picture, you see the debt of the Americans.
Private debt in the U.S.“In a 2011 study (“The New Science Behind Your Spending Addiction”), researchers tested to see if people would willingly choose between instant and delayed gratification by offering them a set amount of (hypothetical) money that they could receive presently, or telling them they could wait a month for more money. Results suggested that willingness to delay gratification depended on the amount of money being offered.” — https://en.wikipedia.org/wiki/Delayed_gratification
The USD offers you no return at all in the future. Saving USD is a sure loss and offers no incentive to focus on saving for the future.
Monetary Base, Total
The total monetary base increased from $3.4 trillion in January 2021 to $6 trillion in 2021, with 22% of the current U.S. dollar printed in 2020 alone. Also known as M0, the monetary base of an economy includes all of the physical paper and coin currency in circulation, plus bank reserves held by the central bank. In the FIAT System, the reward to save is zero because the money supply is getting bigger and bigger. Low-interest rates and inflation are forcing savers into (short-term) risk in order to earn returns. This could lead to malinvestment and speculative exuberance on financial markets (f.e. Meme-stocks), which can impair long-term growth.
“The higher is the reward to investment, the more gratifying is the experience with delayed gratification (reflected by higher income and reproductive success), and thus, the higher is the degree of long-term orientation that they transmit to their offspring. Moreover, the higher is the inherited time preference, the higher is the degree of long-term orientation transmitted to the offspring. Indeed, evidence suggests that larger rewards to delayed gratification reinforce the ability to delay gratification even further.” — Oded Galor and Ömer Özak
Why Bitcoin helps?
Bitcoin will help to defer gratification today in order to improve the future now. This delayed gratification describes the process that the subject undergoes when the subject resists the temptation of an immediate reward in preference for a later reward. Generally, delayed gratification is associated with resisting a smaller but more immediate reward in order to receive a larger or more enduring reward later.
You need to be future-oriented for bitcoin. A Bitcoin Standard encourages low-time preference behaviors like investing in education, family, and civilization.
Let’s briefly discuss a few important points:
21 million Bitcoins: Fixed supply that is not dependent on demand. Bitcoin is the first scarce digital asset. The Bitcoin money supply is perfectly inelastic. The price of Bitcoin does not affect the mining (This would be the case with other commodities or assets. You can produce more oil or issue more stocks.). The Inflation rate is very low at 1.75% (Gold has inflation of 1.8%.). But unlike Gold or Fiat, we know the maximum supply of Bitcoin.Bitcoin increases on average 142% annually. It took Bitcoin only 12 years to reach a market capitalization of $1 trillion (Google and Amazon took about twice as long). Bitcoin retains its value in the long term, which improves planning for the future. Until now, Bitcoin has moved in cycles. Anyone who has held Bitcoin for more than 4 years has made a good return. Bitcoin is programmed to go up.Bitcoin is optimized for security. The Blockchain is small enough so that anyone can run a full node. Currently, there are more than 10,000 nodes. Moreover, Bitcoin mining is diversified across many countries, and the hashrate is sufficiently large. Bitcoin is a decentralized network because there is no central identity in charge of the network.
As you can see, Bitcoin is extremely secure and growing very fast. Thus, the conditions of safety and return (see the quote above) to encourage a low-time preference are fulfilled. It is, therefore, important that you understand the life-changing technology behind Bitcoin.
Bitcoin helps, but it is important to understand Bitcoin and the technology behind it. If you buy Bitcoin because you just want to get rich with it, nothing will change in your time preference. You will keep hoping that the price will go up. Therefore, it is important not to buy the asset Bitcoin but the technology Bitcoin. If you understand Bitcoin as modern long-term technology, you will no longer be influenced by volatility. Bitcoin is the perfect digital gold and a secure store of value.
A simple life is a decent way to live. It is time to let go and to sacrifice who you are for who you could become. You have to decide for yourself whether you want to invest in a better version of yourself in the future. Bitcoin is just a tool to help you achieve this goal. The Bitcoin standard rewires your brain to prefer low-time preference behavior.
Further information:
The Bitcoin Standard (chapter 5) by Dr. Saifedean Ammous
Trader University by Matthew Kratter
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How Bitcoin rewires your Brain: Bitcoin and Time Preference was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.