Anti-Cryptoists = Flat Earthers
The anti-crypto policy reaching its peak in the US has led to a resurgence of statements such as “Bitcoin has no value” which we thought we had already overcome. Elizabeth Warren was a pioneer of this movement and we should not forget that she also described the entire crypto community as “anonymous super hackers” two years ago. Warren equates the industry with illegal darknet markets.
We can say that the cryptocurrency market was somewhat underestimated in the detailed economic outlook document published annually by the US Presidential report, which stated that cryptocurrencies lacked basic economic principles.
In response to these accusations, many statements were made, such as “actually, your money has no value”. In addition to these statements, I also want to provide examples through global population growth, comparing human labor and processing power, and NFT markets as examples of the invisible hand in action. Additionally, the article includes examples related to new internet principles beyond the foundation.
Our Population Is High, Our BTC Is Less
I assume that by now we have all read many articles about how the USD has become a hollow currency since the infrastructure based on the gold standard, where it was freely produced, has ended. The theory that the end of the petrodollar will lead to the downfall of the United States is also currently popular (perhaps the most important) topic.
Let’s take a look at this issue from a more global perspective, directly through the world’s population.
The graph above shows that since 1959, the world population has increased by almost 1 billion every 13–15 years. Before the technological era, such an increase took over 100 years. This increase, which was observed due to the peace and prosperity period after World War II, unfortunately led to problems such as global warming and our world being unable to bear this burden anymore. Unfortunately, the only thing that has reached its limits is not just our nature, but also our economic infrastructure.
The population increasing by 1 billion people every 15 years makes inflation an inevitable element. Just as we need more resources to feed, clothe, and heat the growing population, we also need more money. This is because the demand for money is increasing, and the resources being produced are also constantly increasing.
When resources are insufficient, we see and have seen that cheap and quickly produced goods take over the market instead of high-quality goods. Because factories and production lines have a limit to the raw materials they use, even if they are constantly increased by 1 billion people. Therefore, we are actually entering a process that will inevitably make our own lives poor in quality as we multiply.
Similarly, our money is also becoming poor in quality. The absence of a gold-backed currency was actually a mandatory consequence of population growth. At the same time, the value of the currencies we use, which represent our workforce, has also constantly decreased. This is because having 10 people apply for a job is not the same as having 100 people apply. An increase in the number of people who can do the job will reduce the wage for the job. I am talking about the very essence of the “if you don’t do it, someone else will” logic. This situation will inevitably lower the quality of the work being done, but that is already the topic of our article.
Therefore, as people’s workforce becomes increasingly low-quality or worthless, it is extremely normal for the purchasing power of money to decrease. Bitcoin, on the other hand, is dependent on a communication system created based on the consensus generated by the immense encryption of mining devices. There is no need to go into the details of the operation, but what is important here is that all the work is done automatically by these devices.
Until now, we have used products produced by robots and computers. However, we have never financially valued their labor. We have paid for the products they produce, but we have never created a parameter to define their workforce. Bitcoin actually represents the value of the effort of these processors. We can think of this as a combination of all factors such as encryption, consensus, and security.
Let’s not go too far back, but return to the recent past. I think we all remember the chip crisis. This crisis alone shows that we are not even close to reaching the necessary processing power. So, we are still far from saturation point. Technology is constantly improving and the number of people who will use these technologies is increasing. In such an environment, it is not even a question of the devaluation of processing power. Predicting the time when human labor will regain its value is very difficult.
Sometimes we hear Bitcoin critics talking about the concept of ‘intrinsic value’, which is a term used to calculate the future value of a product or service. It is often said that Bitcoin lacks this value, implying that it is unsustainable. For example, Elizabeth Warren has pointed out that Bitcoin is based only on the belief of its users. However, even the representation of the work done by the processors alone is enough evidence that Bitcoin may have the highest intrinsic value in financial markets. Indeed, the entire economy, social unity, decentralization, and open-source culture that has emerged around Bitcoin all support this intrinsic value in various ways.
Invisible Hand+
One of the basic theories of a free economy is the invisible hand, which summarizes that an imbalance in the market will correct itself. This means that if a product is expensive, there won’t be buyers and the price will drop, or if it’s cheap, there will be many buyers and the price will rise, ultimately leading to a balance in price. This is indeed true, but nowadays we see that stock markets use circuit breakers to stop sudden drops. The real estate market in our country is also a good example of intervention. Despite house prices being too expensive for citizens, the additional demand from foreigners prevents the invisible hand from balancing the market. If there were no external factors, finding a solution to this problem would have been a more urgent need and the invisible hand would have worked.
What I want to explain with the title “Invisible Hand+” is the contribution of competition between NFT markets to the invisible hand theory. As you know, this competition in the field has reached its peak with the Blur-Opensea rivalry. In general, there are some great lessons to be learned from this process.
Previously, we saw news about integration with Network X or Network Y in NFT markets as major developments. By integrating with multiple networks, they increased the number of NFTs and users on their platform. Once this integration was largely completed, inter-market competition for user acquisition began. In other words, once they completed their internal development, everyone started to focus on the users of their rival companies. Of course, Opensea became everyone’s primary rival. We see once again that this competition is heating up with Blur after Looksrare.
In this competition, besides issuing tokens, I believe the most important development was platforms adopting the ‘Aggregator’ feature. This means that it became possible to purchase a product sold on Opensea through the Blur market, for example. When markets prefer to grow the pie rather than burn and destroy each other to attract users, the dynamics here change. If Blur or Looksrare had banned Opensea on their own markets, they might not have achieved such a marketing success.
These types of aggregative moves were actually cleverly planned to bring Opensea into Blur’s playing field. The requirement for many bids to earn tokens increased the depth of the market. It enabled demand to be created for NFTs that did not have any. As a result, the dynamics that determined the equilibrium point in the market changed. Additionally, if a user liked Blur’s interface, they continued to stay because they could still access Opensea here. Therefore, the interface, colors, and designs were made part of the competition to attempt to break Opensea’s unbreakable image.
Returning to our main topic, enriching NFTs for buyers and sellers, introducing new incentives with tokens, without directly interfering with the invisible hand theory of the market, is a beautiful proof of how this theory is being developed. These types of aggregator-style moves make it easier to compare a product’s price on one market to that on another if it is expensive.
Collective Investment
Thanks to the community-focused approach created by cryptocurrencies, investments that we could have never even dreamed of have become possible. I’d like to explain this topic with two recent examples.
LinkDAO, which was established to purchase a golf course, recently won the bid for a course in Scotland. The members of this DAO have now become a sort of partner in the course. Many of the requirements that regulators put in place to create standards can become obstacles for individual investors. This can be especially difficult for small investors. In the case of golf, for example, a community and fund are formed for this specific purpose. There are people working toward a common goal. This makes it possible for many people’s dreams to come true.
Recently, four paintings by the famous artist Andy Warhol were tokenized, with each painting being split into 1,000 tokens. There are many similar works that have been tokenized in this way. Expensive paintings are usually only used by the wealthy for creating collections or making investments, as we see in the news. Thanks to crypto, we can now also make these investments.
Just as the participation of women and disabled individuals in the economy affects many dynamics in the country, here too, even the smallest investor can access all types of investments, allowing for various dynamics to work similarly. Ultimately, these things have become possible thanks to the libertarian approach provided by the crypto market. Although there isn’t a direct fundamental teaching here, we are exemplifying an important contribution made to the foundation of the economy.
Modern Monetization
Every product we see in financial markets is essentially the monetization of a physical or financial product. For example, real estate or a mortgage loan can be used as separate investment vehicles in market transactions. This part is already heavily processed in traditional economics. But with the introduction of the internet into our lives, have these products only become digital? No, our interests and values have also changed.
Those who manage the huge balance sheets of central banks or commercial banks, or politicians, may see the crypto market as a madness of Generation Z and refuse to take it seriously. However, the market shows us that traditional products may not appeal to everyone. For example, in this market, we have seen Twitter profiles being sold in NFT form, a token for a person’s dog like DOGE reaching billions of dollars in value, and even sock NFTs representing a single sock. Some of these may seem reasonable and some may be considered funny (I personally find the sock one quite amusing). All of this is actually part of an important experiment.
There is a similar difference of opinion in the egg-chicken problem in economics, which creates supply or demand. Undoubtedly, there are areas where demand creates supply, such as water and bread, but there are also areas where supply creates demand. For example, we did not have such a demand before the iPhone, but the supply was based on such a good product that demand was created.
The NFT-ization of Twitter profiles or sock NFTs shows that we have created a trial platform for what Generation Z demands. Free shots, free trials, and free codes. You cannot present these trials to a bank. However, we see that experiments like DOGE can be successful. Some experiments also do not result in rug-pulls. That’s why we’re talking about an experimental area.
In conclusion, the crypto market sheds light on the supply or demand problem as an area where a fundamental economic lesson is tested with practical experiments, where the perception of Generation Z is modeled, and where products that may not even come to mind emerge.
Competition Dynamics
In the early 2000s, there was fierce competition between Microsoft and Sun. This struggle over who would dominate the internet, a new technology trend, sheds light on the open-source growth infrastructure of cryptocurrencies.
In the competition between these two companies, we saw constant lawsuits being filed by one against the other. In one of these, Sun won the case and prevented Microsoft from using the Java programming language because Sun had developed it. Therefore, they did not want to create a competition against Sun with their own products.
Later on, both companies realized that an open-source-based growth was more beneficial for themselves, but by that time, years had passed. The competition dynamic on which the foundations of open-source code are based actually shows that the cryptocurrency market has learned from the past.
Especially DeFi platforms are copying each other’s codes. If the one who copies makes better improvements and takes this version to a higher level, it is again the natural right of the one who published the original code to copy the improved version. No one in the community sees this as a move that undermines credibility. Because we know that if we grow the pie, everyone wins. Therefore, Uniswap does not go down the path of buying Pancake. If it is going to compete, it starts operating on the BNB network. It is a completely free market and everyone is free. Because if one’s code or interface is better than the other’s, the winner is already clear.
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The article may be a bit lengthy, but it shows with various examples that the cryptocurrency market is not devoid of fundamental principles like those in the US Presidential report, not just a market used by a group of hackers as claimed by politicians like E. Warren, nor is it a market lacking “intrinsic value” as claimed by central bank executives. It is simply a battle between those who embrace innovation, are unbiased, and can see the future, versus those who are stuck in traditional methods. Fortunately, as the younger generation takes over, time is on our side.
