Bitcoin Is About Convention
Money is valuable because other people use it. In other words, you could also say currency is a convention — currency is valuable because large numbers of people tacitly agree to exchange it, for a variety of goods they hold.
What is less obvious is that the value of other goods in our lives is also a matter of convention. Our diplomas and job titles are only valuable because they meaningfully inform our peers and managers about our skills. Our hobbies and interests are also conventional. Few of us would learn to play a guitar or shoot a free throw, if it didn’t let us interact with the people we spend time with in a way that we like.
Even though there is intrinsic value in being able to throw a ball with coordination, or produce melodious sounds using a musical instrument, we don’t choose our activities based on those attributes. Instead, we follow the guidance of friends and influencers, who tell us about activities and characterize them as either appropriate or inappropriate (tennis, basketball, or lacrosse? planking, owling, or vadering?).
Even capitalism, like other value systems, is a convention. It’s a tacit and often unconscious agreement among most people in the world, that our lives should be dedicated towards creating goods and services which we can exchange with others on the free market. If the vast majority of the world’s population operated under a value system incompatible with economic exchange, you and I would find an economic worldview a lot less appealing.
As humans, we are fundamentally memetic beings. We are only relevant to the world insofar as we can influence those around us, so we make the choices that allow us to best relate to others. Yet we often underestimate the power of convention. We don’t realize how much it determines our tastes and activities, because for most of us it’s more efficient to think of conventions as absolutes.
As a convention, Bitcoin has a lot going for it. It’s orders of magnitude more widely used than anything else which could do its job of facilitating anonymous transactions. It has received widespread publicity, none of which has been damningly negative. Another cryptocurrency would be very unlikely to emerge unscathed as BTC has today. A few other reasons: by now, the currency has a relatively diverse base of both users and speculators, it’s a solid piece of engineering, and at least today, it’s still very similar to cash, so government regulators like the FinCEN do not threaten its legitimacy.
Many people have been writing about Bitcoin from an economic perspective, looking at characteristics like deflation and volatility. The economic thinkers have generally disregarded these social forces. They usually recognize that Bitcoin is not just about economics, but their perspective disregards the very social forces that enabled Bitcoin’s rise. For the foreseeable future, they are far stronger than any theoretical economic concerns.
If Bitcoin is viable as a convention, remember that conventions don’t have to be global to work. Because of limited supply, the price of BTC will never go lower than the amount of money some subset of the world wants to put into it. If the rest of the world considered Bitcoin to be worthless, barring volatility, its users could still rely on it as an exchange medium.
There are still a few reasons the currency could go away.Governments could still pursue regulation or coordinated legal action against the ecosystem. The community could come up with a currency that doesn’t have the deflationary properties of BTC. But doing so in a concerted manner is extremely difficult. Most Bitcoin opponents I’ve heard from have disregarded the fundamental forces making this cryptocurrency successful — and so, my guess is that it will be around for awhile.