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Dear Citizens and Leaders of Kansas,
A Brief History of Bitcoin
Bitcoin, created in 2009 by an unknown person or group using the pseudonym Satoshi
Nakamoto, emerged in response to the financial crisis as a decentralized alternative to
traditional monetary systems. The first ever Bitcoin transaction took place in 2010 when 10,000 bitcoins were traded for two pizzas, marking the beginning of Bitcoin's journey from an obscure digital token to a recognized asset class.
Since then, Bitcoin has experienced significant fluctuations but has shown remarkable resilience, gaining acceptance from institutions, governments, and investors worldwide. Its growth has been paralleled by a community of developers, miners, and users committed to its vision of a financial system free from central control.
What is Bitcoin and
How Does it Work?
Bitcoin is a digital currency that operates on a blockchain technology, which is essentially a distributed ledger enforced by a network of computers (nodes). Every transaction is publicly recorded but anonymized, providing both transparency and privacy. Here’s how it works in simple terms:
• Transactions are broadcast to the network, verified by nodes, and collected into blocks
• Mining involves solving complex mathematical problems to add these blocks to the blockchain, which not only records transactions but also mints new bitcoins as a reward, controlling inflation. This process is secured by cryptography, making Bitcoin transactions secure and irreversible
The Benefits of Bitcoin as a Store of Value and Currency
• Scarcity: With only 21 million bitcoins ever to be created, it has a set limit for
distribution unlike other commodities (like gold) where more can be mined as
needed or as demand dictates.
• Decentralization: No single entity controls Bitcoin, limiting the risk of manipulation
or seizure.
• Global Accessibility: Anyone with internet access can use Bitcoin, promoting financial inclusion.
• Protection Against Inflation: Its fixed supply makes it an inflation hedge, as its value cannot be diluted by excessive printing like fiat currencies. The US Dollar has
declined in purchasing power by 96.4% since the inception of the Federal Reserve and the fiat banking system.
Bitcoin vs. Other Cryptocurrencies vs. Central Bank Digital Currencies (CBDCs)
• Bitcoin is decentralized, with no single entity controlling it, offering privacy and resistance to censorship. Its proof-of-work consensus mechanism requires
significant energy, providing network security.
• Other Cryptocurrencies can vary widely. Some offer faster transactions or adopt different consensus mechanisms like proof-of-stake, which might be less energy-intensive but can centralize control. They range from closely following Bitcoin's
model to introducing novel features, but many lack Bitcoin's security through hash power and widespread adoption.
• Central Bank Digital Currencies (CBDCs) are digital forms of a country's fiat currency issued by its central bank. Unlike Bitcoin, CBDCs are centralized, potentially allowing for direct control over transactions by governments or banks, including the ability to enforce negative interest rates or restrict spending, which raises privacy and freedom concerns.
The Growing Threat of National Debt
Our national debt will soon surpass $36 trillion, an amount that has seen exponential
growth, especially in the last decades. This isn't just a number; it's a ticking time bomb for
our economy and national security. Here's why:
• Interest Payments: The interest on this debt is projected to exceed the defense budget in the coming years. Imagine, our nation might soon spend more on servicing debt than on defending our nation. This financial load not only strains our budget but also weakens our strategic position on the global stage.
• Inflation's Role: As evidenced by the past 4 years, expansion of national debt often leads to inflation, as governments might print more money to cover deficits, devaluing the currency and increasing the cost of living for everyone.
• Economic Vulnerability: High debt levels can make the economy vulnerable to shocks, reducing our ability to respond to crises or invest in future growth.
Bitcoin: A Solution to the Debt Dilemma
Bitcoin, born out of the 2008 Financial Crisis with its inception in 2009, wasn't just created
to be another currency; it was designed to counteract the very economic vulnerabilities we
now face:
• Capped Supply: With only 21 million bitcoins to ever be mined, it offers a hedge against the inflationary pressures that come with increasing national debt.
• Value Preservation: As fiat currencies lose value due to inflation, Bitcoin has historically shown potential to increase in value, providing a mechanism to preserve wealth over time.
Bitcoin's Role in National and State Financial Strategy:
• Hedge Against Inflation: By holding Bitcoin, both state and federal treasuries could
protect against the erosion of purchasing power that inflation brings. For Kansas, this means safeguarding our state's financial reserves against the devaluation trend of the dollar.
• Paying Down Debt: If Bitcoin were adopted as a treasury reserve asset, its potential for appreciation could be leveraged to generate revenue without taxing citizens further. Here's how:
• Revenue Through Appreciation: As Bitcoin's value potentially rises, selling a portion could provide funds to pay down debt, reducing interest payments
and freeing up budget for essential services or defense.
• Encouraging Innovation: By embracing Bitcoin, Kansas could follow the lead of other states like Texas, Wyoming and Tennessee by fostering a tech-savvy
environment and attracting blockchain businesses, which could contribute to the economy, indirectly helping with debt reduction through increased tax
revenues from new industries.
Corporate Success Stories:
• MicroStrategy's Bitcoin Bet: Since adopting Bitcoin as a primary treasury reserve
asset in 2020, MicroStrategy, led by Michael Saylor, has seen its stock price surge over 900%. This bold strategy has not only protected the company's cash reserves from inflation but also significantly enhanced shareholder value, proving the viability of Bitcoin as a hedge and as a proof of concept for mass adoption by countries, states, companies and financial institutions.
Bitcoin ETFs: A Testament to Mainstream Adoption
The growth of Bitcoin Exchange-Traded Funds (ETFs) has been remarkable:
• Unprecedented Growth: Bitcoin ETFs have seen inflows that surpass many traditional ETFs, indicating a strong institutional and retail investor interest in Bitcoin as a legitimate investment asset. In just 11 months, Bitcoin ETF’s have accumulated
$80+ Billion whereas Gold ETF’s have $126+ Billion and have been around since November of 2004.
• Institutional Endorsement: Major financial institutions are now offering Bitcoin-related financial products, reflecting a broader acceptance in the financial sector of Bitcoin's role in modern portfolios.
Pension Funds Allocating to Bitcoin
• Michigan's Initiative: The State of Michigan Pension Fund's decision to invest in Bitcoin ETFs is a pioneering move, suggesting that other pensions might follow suit, recognizing Bitcoin not only for its risk but also for its potential rewards.
• Future Trends: This action could set a precedent, encouraging other pension funds to allocate a portion of their portfolios to cryptocurrencies for diversification and as an inflation hedge.
International and Domestic Precedents:
• El Salvador's Experiment: By adopting Bitcoin as legal tender, El Salvador not only aimed at financial inclusion but also at generating revenue through Bitcoin's potential growth, showcasing a real-world example of using cryptocurrency for
national economic benefits. El Salvador also uses geothermal energy from its volcanoes to mine Bitcoin which monetizes their natural resources.
• State Initiatives: Pennsylvania's House recently proposed to allocate 10% of its treasury to Bitcoin reflects a growing acknowledgment of its utility in financial strategy (FoxBusiness).
Bitcoin, Energy, and Grid Stability:
• Monetizing Excess Energy: Bitcoin mining can use excess renewable energy, providing an economic incentive and actual practical application for green energy development that isn’t reliant on state and federal subsidies to survive. This not only supports environmental goals but also stabilizes energy grids by providing a flexible
load that can be adjusted based on energy availability.
• Texas's Example: During recent winter storms, Bitcoin miners in Texas demonstrated how they could act as a buffer for the grid, preventing blackouts by
scaling down operations when power was needed elsewhere, showcasing how Bitcoin mining can be integrated into energy management strategies (Satoshi Action Fund).
Bitcoin as a Tool for National Security
• Economic Independence: As suggested by Jason Lowrey in "SoftWar", Bitcoin could be seen as a 21st-century tool for financial sovereignty, reducing reliance on
potentially adversarial foreign holders of U.S. debt.
• Cybersecurity: The network's security through mining's energy consumption makes Bitcoin an asset in digital warfare, protecting against cyber threats that could
otherwise destabilize our economic infrastructure.
Support from Political Figures
• Tennessee Senator Cynthia Lummis has been a vocal advocate for Bitcoin,
recognizing its potential in both state and federal financial strategies. Senator Cynthia Lummis introduced her bill regarding Bitcoin as a strategic reserve asset on July 31, 2024.
• President Donald Trump has embraced Senator Lummis’s idea and made a campaign promise to acquire 1,000,000 Bitcoin to address national debt, which,
while not fully detailed, signals a shift in political perception towards Bitcoin.
Conclusion: Why Kansas Should Lead
The adoption of Bitcoin as a treasury reserve asset isn't just about following a trend; it's
about strategic foresight. For Kansas, this means:
• Economic Resilience: Protecting against inflation and potentially paying down state debt through Bitcoin's value appreciation.
• Innovation Hub: Becoming a beacon for blockchain technology and renewable energy integration, drawing in investment and talent.
• National Security: Contributing to a broader strategy of financial independence and cybersecurity at both state and national levels.
The Satoshi Action Fund has already written legislation that it has open-sourced that Kansas legislators can use as a template for drafting a legal framework for Bitcoin adoption. Ignoring Bitcoin's potential could mean missing out on a significant tool for economic stabilization and growth. By embracing Bitcoin, Kansas could not only safeguard
its own financial future but also play a pivotal role in addressing one of the most pressing
issues of our time: the national debt. Kansas should be on the forefront of this financial
revolution and not just watch from the sidelines; let's lead in the new digital economy.
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