The stories we tell ourselves
A central concept in Yuval Noah Harari’s ‘Sapiens’ is that human beings differentiate ourselves from other life forms because of our ability to tell each other (and believe in) stories. These collective delusions — ethics, religion, rule of law, etc. — enable co-operation and progress. One such collective fiction, and a particularly successful one, is money.
This is not a new idea. Milton Friedman, writing in 1991 in ‘Money Mischief’:
“our whole monetary system owes its existence to the mutual acceptance of what, from one point of view, is no more than a fiction”.
Money, whether in the form of shells, beads, yapstones, coins, cigarettes or cryptocurrency, has value because we believe it has value and perhaps more important, because we believe that others will believe it has value.
Money is a particularly resilient fiction. We are willing to go to great lengths to preserve belief in it. And like many persistent collective delusions, it is hard to create a new money. It is a splendid example of emergent order, rather than something created in a lab or a corporation.
Which brings us to Robert Schiller’s comments on the bubblicious nature of Bitcoin that have hit the headlines this week:
“The best example [of a bubble]… right now is bitcoin. And I think that has to do with the motivating quality of the bitcoin story…Big things happen if someone invents the right story and promulgates it” (emphasis added).
I’d argue his analysis is exactly right. Big things can happen if a new collective delusion gains broad acceptance. Leave aside the fact that “bubble” is an undefined, squishy term, which renders statements such as “Bitcoin is currently a bubble” unprovable. The more interesting insight here is to examine the Bitcoin story. In the following, I make the case that the quality of the Bitcoin story, in particular, its founding mythology, is powerful. Perhaps it is even “the right story”.
Whether through design or luck, a number of hard decisions were made correctly in the early days of Bitcoin. These decisions differentiate the quality of the Bitcoin story vs. others.
In the remainder, we will consider just a few of them.
- Founding myth: A pseudonymous inventor who has never revealed their identity. Someone or a group of someones, that will likely never be revealed at this point. Satoshi focused on the project and declined to put a human face to their work. A creator that has not directly enriched themselves from the wealth they created (and per the Lindy effect, unlikely to do so in the future — Satoshi’s coins are unlikely to ever move at this point). These elements contribute to a powerful founding mythology — one that other cryptocurrencies and blockchain projects have failed to come even close to matching.
- Fairness: No pre-mining. No token sale featuring a giant countdown clock on a slick website. No pumping. No celebrity endorsement. Just the protocol released into the wild, followed by transactions. Bootstrapping the system into existence, with the fairest possible way to distribute coins into circulation and also introduce transaction fees.
- Clarity of purpose: Satoshi’s white paper is called “Bitcoin: A Peer-to-Peer Electronic Cash System.”. Pretty clear what the objective is here. The entire document is exemplary in its clarity of thought and purpose. Consider the following lines:
“To compensate for increasing hardware speed and varying interest in running nodes over time, the proof-of-work difficulty is determined by a moving average targeting an average number of blocks per hour. If they’re generated too fast, the difficulty increases.
“Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free.”
OK, got it.
Now compare this to the “code is law” hyperbole we have seen elsewhere in crypto-land (the first quote courtesy the SEC’s investigation report on the DAO and the second from the Tezos website):
“To blaze a new path in business for the betterment of its members, existing simultaneously nowhere and everywhere and operating solely with the steadfast iron will of unstoppable code.”
“Tezos is a new decentralized blockchain that governs itself by establishing a true digital commonwealth.”
🤔 🤔 🤔 🤔 🤔
No doubt, new wordsmiths and codeslingers will continue to tell crypto-tales that feature even more dazzling buzzwords and grand ambitions. But for now, the Bitcoin story seems to be going pretty well.
Money is perhaps the most fascinating, original and endlessly inventive fiction human beings have created. This story began over two millennia ago, and it is still going. To quote Milton Friedman again from Money Mischief:
“Money is much too serious a matter to be left to the central bankers”
In this third millennium of the money narrative, we can all look forward to the new tales that will be told. This time, perhaps, authored by the many, rather than the few.
