Distribution Routes and Incentives

This is only an in-put that I would like to give the reader, I am not looking to posit my truth but only to question various issues. To study these ideas, we must make the premises clear:

1. Drug trade is considered illegal activity (does not please the state)
2. No matter how illegal it is, there will always be demand for these products
3. Bitcoin will replace the dollar as the global reserve and exchange currency

Those territories where cocaine or hashish is produced, for example, have incentives to send their merchandise (natural resources) to other territories in exchange for FIAT money (Dollar, Euro...). Since with that money they can acquire the goods, they demand in other markets. In each case, the product must reach the consumer and that is where distribution factors come into play. This will condition the price that consumers will pay, whether for transportation costs, risk, number of competitors... In the Latin American case, we see how Colombians are sending cocaine to the United States, where they can get more profit from the sale of this product. This has conditioned all of Central America and especially Mexico due to its land border with the United States. The Netflix series Narcos and Narcos Mexico explain the importance of distribution routes in this market. Mexico is the way it is because there are incentives for it to be that way; being the neighbor of the richest in the neighborhood can bring many problems. Incentives are created at both the micro and macro level; here are a couple of examples:

Micro: Crossing a bag of merchandise to the other side of the border to sell at American prices seems attractive to a young person without access to a first-world job. This brings murders, bribes, rejection of part of the American population to a migration that can bring conflicts.

Macro: The Mexican government must accept that Colombian merchandise will be entering the United States. It can charge a fee for allowing it to pass through its territory, it can take care of the distribution itself, or it can declare war on drug trafficking to turn it into a political discussion in its favor...

So far, nothing new. In the European case, with more state control, the drug trafficking profile is lower. But in the same way, North Africa is consuming hashish from Morocco that enters through Portugal and Spain to be distributed throughout the rest of the continent. We cannot say that it is a sector in decline, as the sector's profits are considered to have been increasing in nominal terms in recent decades, although it is true that other competing products have entered, we want to focus on the distribution channels of those drugs of natural origin, as here distribution plays a much more key role than in the case of some chemical drugs. Once we have made a brushstroke about how this market is, we must add the shock that we are experiencing: transition of the global economic model. It is a matter of time for FIAT currencies to disappear and for the entire world to function under a Bitcoin Standard. As long as there is a Bitcoin price expressed in Dollars, it means that the door is still open, we are in the peaceful part of the transition. We do not know how the path will be, but we know the end, if Bitcoin maintains its design, which keeps it limited, it will position itself as the preferred money for international trade.

As a result, in all markets, agents must change the form of money they are accepting if they want to survive. All those markets that are about consumer products have an advantage over those products or services that are promises. This market in particular, the anonymity that can be achieved in Bitcoin greatly facilitates trade by minimizing risks and facilitating logistics. Accepting this premise brings several more implications, here are the most relevant ones I see:

1. Disappearance of the monetary privilege of the Federal Reserve and other Central Banks of the other FIAT currencies.
2. Discovery of prices entering an economy with a fixed monetary base, known as Austrian Economics in the Bitcoin ecosystem.
3. Impossibility of tracking and confiscating Bitcoin from companies, which prevents money location.

Without the possibility of financing its deficits infinitely, the American economy will undergo a sharp transition. In the face of such a shock, it remains to be seen how long the American economy will take to recover. To know if distribution routes will remain the same, we must study whether demand will be the same. Cocaine consumers in the United States will continue to demand it but we do not know if they will be the most competitive to pay the prices that supply demands. This is where it may be more profitable for Colombians to sell to other countries that also demand it and do have Bitcoin to pay for it. But this leads us to ask how to know where Bitcoin will be in the future, because of its design, we cannot know how much money can be spent in a territory. The free movement of capital and the impossibility of confiscating it leads us to a scenario where the free market is inevitable in the long term. If Colombian cocaine starts to be sold to other territories that have managed to organize better, Mexico no longer plays such an important role in the distribution of this market. This could disincentivize so much violence in the territory, which is good for Mexican civilians in terms of coexistence.

Of course, nothing will happen overnight, I'm just trying to describe a trend I see. I do not doubt that the American giant will recover, I only doubt that it will do so quickly enough for producers not to seek to place their product in markets that are better equipped to demand it in the short term. In Europe, I foresee the same, if the countries that demand Moroccan hashish do not have Bitcoin or know how to generate it quickly, we may see the product distributed to other territories. This point has to do with the amount of Bitcoin in the countries that demand drugs, but if we talk about the loss of the monetary privilege that the West has had, other markets such as the energy market in Europe may change. If we start playing under clear rules and a board, the Nordic countries may not dominate the Southern countries so easily. The way each territory redesigns the concept of ownership also plays an essential role.

I would like to close this brief article with some in-puts that aim to make the reader think.

The first thing to say is how funny it is to me that the Narco continues to bury large amounts of cash today. The problems they have with anti-drug agencies using the traditional banking system. When they discover how to properly use Bitcoin, the rules of that game will change. I would also like to say that in a Bitcoin Standard scenario where the state disappears due to its financing problems, control of borders, prisons and courts becomes much more difficult. This could generate a true national crisis as without resources to finance this part of security, it is much more complicated to try to stop some businesses. Right now distribution is relatively cheap because states and officials are already used to corruption, but once the flows stop to these agents, we don't know if it will be more risky to trade this type of product. For me this is one of the nicest things about Bitcoin, no matter how much money and the whole structure changes, we may turn this world into a more insecure place and that can make trade difficult. It's not that this is bad, but it will mean a price discovery that shows us the reality of the economy. There cannot be free trade if there is no consensus, no bitcoiner will be safe if the world does not achieve peace.