99 years ago Henry Ford, one of the greatest businessmen of all time, planned to develop an “Energy Currency” to replace gold. Ford’s goal was to end wars, which he claimed was the center of control of money:
“The main bad thing about gold in relation to war is that it can be controlled. If you break the control, you will stop the war. ”
Ford suggested that an energy-backed currency would stop wars because each country would be able to issue currency backed by the “indestructible natural wealth” of energy resources such as the US Muscle Shoals Dam.
Bitcoin Meets This Definition of Ford
“Have you set a value standard?” Ford said, “The standard in the energy currency system will be a certain amount of energy equal to $ 1 applied over an hour”.
In other words, Ford proposed a currency backed by energy spent in kilowatt hours (kWh) to be produced in specific quantities. This was equivalent to Bitcoin logic. More currencies are created only if more energy is expended. Ford later abandoned this project. But a century after Ford’s idea, an energy-based currency emerged: Bitcoin.
For the last 10 years, 80% of Bitcoin’s price history has been explained with a fixed value of 1 to 1 against energy input. Like all markets, the price fluctuates around value. But price and value are intrinsically linked and return on average. Bitcoin has a constant value over time, depending on the mining energy applied and the supply growth rate.
Ford’s Idea and Bitcoin
Ford suggested that this currency be issued only for a certain amount and for a specific purpose. In other words, the more energy you input, the more currency you can export, and that’s exactly what Bitcoin does. The more energy you spend as an individual miner in Bitcoin, the more newly minted Bitcoin you can get.
Ford’s argument on the energy currency was that, unlike gold, it cannot be controlled. Instead, each country can issue currency based on the natural wealth of energy resources. The standard of value for this system would be a certain amount of energy applied over an hour, equal to $ 1. This kilowatt hour (kWh) backed currency has some parallels with Bitcoin, which can be considered ‘backed’ by the energy input.
Using Ford’s standard, the current value of Bitcoin can be determined by multiplying its energy value (in kWh) by a factor of 0.00173 (to convert between Joules and kWh).
As the Bitcoin network currently consumes about X kWh of energy, it seems like a Bitcoin is ‘worth about X dollars’.
However, Bitcoin is unique because of its falling inflation rate. The effect of the halving event in May essentially means that the energy required to create each Bitcoin has doubled.
Of course, Ford eventually had to give up on his plans. After all, why would a government consider a system that would make its control over wealth redundant? This has become a simple business issue, a complex political issue that everyone has to decide within a week. More than 60 years later, Austrian economist Friedrick Hayek reiterated this disappointment that governments’ monetary policy only damaged the concept of ‘good money’:
“I don’t believe we can have better money without getting something out of the government. So, we cannot take it from the government, all we can do is prowlly offer something they cannot stand against. “