Is Bitcoin the Esperanto of money?
I was listening to an episode of one of my favourite podcasts this afternoon, Freakonomics Radio, and they were exploring the idea of a universal language. One of the interesting things about this idea is that it’s not a new one at all: Esperanto, the “second language for everybody”, was a deliberate attempt in 1887 by Ludwik L. Zamenhof to create a universal language… and it failed. Even though it still has a loyal and evangelical fanbase, it would be very hard to argue that Esperanto caught on. It struck me that several elements of the origin and persistence of Esperanto as an idea were very similar to the origins of Bitcoin and our optimistic hopes for its future; namely, that it can become a universal money. Will it fail too?
It’s all French to me…
There are, and always have been, a lot of conflicting views about whether bitcoin will succeed. We talk about this a lot in our office, with our customers and with our clients. One of the reasons I ignore so much of the news about whether bitcoin is the best/worst/scam/fraud/future of money/anarchist thought experiment, is because there are so many differing definitions what success and failure mean for a universal money.
Let’s go back to Esperanto to explore one type of failure: lack of cultural adoption. It seems that Esperanto failed because there was no cultural impetus to embrace it (why would you teach it to your children?) and, importantly, to maintain it. Language requires constant upkeep because it is in a constant state of flux. What does this have to do with bitcoin and money?
Firstly, language is very similar to money: it is geographic, cultural, state endorsed/mandated. Now it’s worth noting that money doesn’t have to be issued by the state, but it generally needs some form of endorsement; look at loyalty points/redemption / Mpesa mobile minutes / WeChat / Alipay etc. On this front bitcoin is at an advantage; the distributed network allows anyone to participate, is totally open source and is very resilient (there is now a copy of the bitcoin ledger in space!), it can cross borders and change hands and is much easier than learning a new language. But Bitcoin does suffer from some tricky conceptual and user experience issues, not to mention a lack of consistent regulation (see recent events in China) and is a genuine threat to certain business models which means there will be resistance from existing stakeholders, the comments of JP Morgan chief come to mind.
Secondly, the inverse of my previous statement is also true: money is very similar to language, or even further, money is a language: a language for pricing. As such we see all sorts of interesting monies, but if the money isn’t part of cultural practices then it is unlikely to achieve adoption. If we want to prevent bitcoin from failing the adoption test, then it needs to be part of a cultural fabric — and I mean this in more than a news cycle sense. It needs to be present in the way we transact such that it becomes part of the way we value things.
Intermediary == universal
Why do I say “part” of the way we value things? I think it’s important to not confuse universality with uniformity. During the podcast, Freakonomics creator and host Stephen Dubner speaks with economist Shlomo Weber about some of Weber’s work in attempting to price language barriers. Weber does this by measuring trade between groups/countries with different languages and noting variance. For example, Weber documents that a 10% increase in the probability that people share languages (across borders) increases their trading by 10%. That’s a pretty interesting finding and there are many other costs he identifies that you can read in his work. But despite identifying this cost he doesn’t argue that we should migrate to one single language; rather he thinks that we should have one single intermediary language. A language that we all speak in addition to these to reduce the costs of language barriers.
In a way, we already have something like this. It’s called English (reluctantly agreed to by Weber!). This whole idea reminded me of a similar argument put forward by Wences Casares, founder/ceo of Xapo. He is well known for presenting well articulated rationally optimistic arguments for bitcoin. One of them I heard him deliver when addressing a cross at the Coin Centre gala dinner earlier this year in NYC. He posed the a rhetorical question that went something like this: why when we get quotes for goods from China do we get a quote in US dollars? Now we all know why this is, leaving any geopolitical arguments to the side, it’s just easier to trade that way. There are a lot of US dollars (there’s enough liquidity to do large transactions), the currency is relatively stable, we trust this currency, it’s used widely, and it makes it easy to measure things when we speak the same language of value.
For those countries outside of the US that have un-corrupt local currencies, the US dollar does not replace the local currency, it’s just an international medium of exchange. It’s the money version of Weber’s reluctant admission: a value language that we can use to intermediate between other local value languages, and settle with. US dollars are kind of like the English to the many languages of the world. Casares also agrees that this is important factor; namely, that having a good method for valuing goods is important, but crucially, he thinks that we have a fundamental flaw in our universal money: it is dependent on the political economic stability of one country. Well, two countries if you consider the economic relationship between the US and China. Regardless, Casares’ point is really powerful: imagine using a universal money that isn’t dependent on a third party political-economic system.
A lot of people I talk to say something like “isn’t that Gold”? And the answer is both yes and no, there are lots of arguments out there about how bitcoin could be a new Gold standard so I won’t dig into them here; I would rather pursue the following logical extension: does such a vision mean that all other currencies would be replaced by bitcoin? That bitcoin will be universal and uniform?
In my opinion, the answer is no. National currencies have and will continue to be a useful localisation; in fact, I think that we are already on a road to even more currency localisation inside the nation state; this is a subject I’ll return to at a later date. Crucially, I think bitcoin has already found a version of success: a place in our imagination and as such has the basic requirements for a new value language we can all adopt. Now… where did I put that Esperanto dictionary.
Thanks for the inspiration Freakonomics Radio. If you want to listen to that episode they have it up on their archive it spans two episodes part 1 here and part 2 here, including a transcript (amazing, reading is faster than listening!) and another bunch of other links.
If you want to learn more about Shlomo Weber and his work you can visit his website here (you might want to use google translate as it is in Russian…) and a link to his specific work on “linguistic distance” can be found here.
World bank and remittance averages report here.