How can a good store of value (SoV) also be a good medium of exchange (MoE) and unit of account (UoA)? Seems too perfect, right?

If the goal of Bitcoin is to replace fiat money, but Bitcoin is expected to increase in value in the long term, wouldn't it be prohibitive to use Bitcoin for paying for things?

This perspective comes from measuring Bitcoin's value in an inferior, depreciating form of money, and stems largely from a collective price illusion that the dollar is a stable representation of monetary value. The dollar price of Bitcoin is merely relative face value, rather than intrinsic value, while Bitcoin, as a nascent form of money, still very much remains in the process of discovering its true value to humanity.

You could argue that it's in fact humans who are in the process of learning to appreciate its value. Bitcoin is quite the monetary paradigm shift.

What is money?

Money is anything that's accepted as representing value by the parties to any transaction. It's really that simple. Three thousand years ago, cowrie shells were used to represent value. Humans have always sought money that can hold value over time until it was required to purchase other things that hold value to them - goods and services.

When you purchase goods and services now, the question you ask yourself is whether what you're purchasing is valuable enough to you that you're happy to part with a certain amount of dollars to acquire it. Everything being denominated in dollars/fiat money lends to this perspective that the dollar represents some value and can be exchanged to buy things you need in life.

When we get to a place where sats replace dollars as UoA, it would be a question of whether the good/service you're purchasing is necessary or valuable enough to you that you're happy to part with a certain amount of sats to acquire it.

But the supply is finite and limited to 21 million. Is this not a problem? It's finite but divisible. Maybe there aren't enough bitcoins to go around for everyone, but there are more than enough sats to go around for everyone - circa 2.1 quadrillion.

Let's try imagining that 1 Bitcoin represents a 100 million-dollar bill, which at the current rate of inflation may not be so far-fetched to imagine in the near future. Are there enough 100 million-dollar bills to go around for everyone? Probably not (yet). But there are enough one-dollar bills to go around for everyone.

Additionally, the smallest unit on Lightning Network is millisats, 1/1000th of a sat, named after mill, which is 1/1000th of a dollar, an abstract unit of account in dollar-denominated accounting.

1 Bitcoin = 100 million sats

21 million Bitcoin = 2.1 quadrillion sats = 2.1 quintillion millisats

Infinite divisibility, but not infinite supply, is an important property for money. The putative best scarce money in history, gold, does not have this property. Bitcoin does.

Bitcoin economy

In a Bitcoin economy, every good/service will be priced in sats, rather than dollars, and you can move your sats instantly from one corner of the world to another corner of the world at next to no cost peer-to-peer without middlemen. No money in history ever had this property, not dollar, not gold, and it's arguably what makes Bitcoin usurping the dollar as the world's reserve currency inevitable.

What a Bitcoin economy would do is immediately eliminate the moral hazards that inhere within the extant monetary paradigm predicated on arbitrary, whimsical, unscrupulous, flagrantly unmoderated expansionary policies founded upon nothing more than the existence of a lender of last resort with access to an infinite supply of money created without any effort out of thin air to continually bail out those at the top of the pyramid exploiting said moral hazards with impunity. It would restore rigor and sustainability to credit lines without frequent intervention at the cost of rampant inflation, and overall, cultivate better spending habits.

Fiat money is a pyramid scheme

The current system of credit constantly incentivizes or even forces you through a myriad of machinations to keep spending money from tomorrow's labor, but the new injection of money from your tomorrow's labor ends up being concentrated at the top, with the ultimate consequence of inequitably diminishing your purchasing power and continually enriching those at the top of the pyramid.

In short, money borrowed against your future labor ends up destroying your own purchasing power while the lender profits off your future labor, both in the form of interest and by being closer to the new money. It's a double whammy. Fiat money post hoc undercuts the value of your work and time.

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A system of credit based on infinite, but concentrated expansion of supply. Inflation benefits those close to the new money (top of the pyramid), while those at the bottom bear the brunt of it. This is Cantillon Effect

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This system is "sustainable" for a reasonably long period of time, until hyperinflation becomes untenable, only because it enables infinite, unmoderated expansion of the money supply. Fiat monetary systems have never in history survived beyond a few generations.

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We've had 3800 fiat currencies in history. They've all failed

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“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world. No longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.” - Woodrow Wilson in 1919, in reference to the Federal Reserve act of 1913, which he signed into law.

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Anatomy of a 100-year pyramid scheme

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Aftershocks of the Nixon Shock

In 1971, President Nixon canceled the convertibility of the US dollar to gold. The subsequent collapse of the Bretton Woods system gave central banks absolute monetary authority as the dollar was no longer required to be backed by gold reserves.

The Fed's newfound ability to continually manipulate supply, interest rates, and velocity of money has led to deleterious consequences. Perpetual expansion to spur economic growth has sent deficits spiraling out of control and resulted in, inter alia, a vicious cycle of high inflation, recession as a consequence of efforts to mitigate the effects thereof and ever-increasing, now extreme, economic inequality.

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Inflation makes goods more expensive but wages do not keep pace. Productivity must increase for companies to retain margins and be able to compete

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CPI has risen thirtyfold since the Fed was created, six times as much in the last 50 years as the preceding 200 years

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Free money for those at the top of the pyramid means cash-rich companies are incentivized to borrow money for stock repurchases, pumping the price of their stocks, rather than try to earn capital through entrepreneurship, which is how the world is supposed to work in a free market. Over time, this leads to regulatory capture of the government by unconscionably influential corporate monopolies

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Income of the top 0.01% parabolic divergence from per capita GDP since 1980

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We seldom speak of the climate consequences of a monetary system sustained through impelling compulsive consumerism

The Pinnacle of Monetary Evolution

I view Bitcoin to be the culmination of humanity's 7000-year quest to perfect the representation of value by truly democratizing its creation, distribution and exchange. Never before have we had a money with all the necessary properties of sound money. All previous forms of money had compromises.

Scarce money has always been sound money but previous iterations of scarce money lacked the other properties required to be viable as MoE and UoA - fungible, readily portable, infinitely divisible, incorruptible, indestructible, provably finite and objectively verifiable.

Bitcoin ticks all the boxes. What's more? It adds a whole new dimension to money hitherto unimaginable, obviating the need for trust, eliminating counterparty risk without the burden and attendant inefficiencies of involving trusted middlemen.

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Sound money fulfills all three functions of money - SoV, MoE, UoA

Triffin Paradox

The Triffin paradox explains why any sovereign currency serving as a global reserve currency is unworkable - the state issuing the reserve currency is required to continually run up a deficit to meet the world's demand for its currency. This creates a conflict of interest between domestic and international monetary policies, which becomes untenable in the long run, leading to the collapse of the system. The average lifespan for reserve currencies is 95 years.

Bitcoin is the only monetary system in history that has the properties to last forever, for it doesn't derive value from the authority/wealth of the issuer, which is fleeting, but a timeless universal constant - hard-coded mathematics.

Bitcoin is the reserve currency of the universe, should we ever need one.

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Reserve currency status does not last forever

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Hayek had a dream

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Satoshi made it a reality

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One man's momentary ingenuity. Humanity's timeless inheritance. Let's not somehow contrive to screw this up lest future generations look unkindly upon us.

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Also read - ELI5: What makes Bitcoin valuable to humanity? Lightning Network and Taproot