An expedition into cryptospace
Anything that can move a dollar figure by $100 billion in a few months is worth paying attention to, and this year, that’s been Bitcoin. There’s a heck of a lot going on right now, and over the last few weeks I’ve been trying to absorb as much of it as I can.
This is what I’ve learned so far. Consider it a multi-faceted dummies-guide intro into what could be the most important technical, financial, social, economic and possibly religious development this year.
Everything below are just my collected thoughts, spawned from this hasty tweet. No judgements or pronouncements, just observations.
There’s a lot to break down in that tweet!
A Paradigm
For about as long as society’s been around, we’ve developed networks based on trust. We develop individual bonds of trust, we trust authorities and institutions, and we trust in good faith and rule of law (mostly!) when conducting our day to day lives.
This is especially true in the first generation of internet protocols — SMTP being my go-to nitpick, but BGP and DNS are among those that basically assume that actors on the network all have good intentions, and can be trusted.
Bitcoin is a fascinating subversion to that. It’s a zero-trust network, where facts are established by global consensus. Beyond the implications for technology, communication and finance (coming later), the core concept of zero-trust networking, and the successful implementation of the concept as a functioning currency, should not be overlooked.
The keyword here is “consensus”. Bitcoin doesn’t need a central authority, it doesn’t even need to trust its own actors — things are true because the entire network reaches consensus on it being true, and that consensus is reached via strong cryptographic proof.
It’s a powerful idea, and it bleeds into just about everything else that has to do with Bitcoin.
A technology
Bitcoin exists as a functional technology — it can be installed, executed, and used. It’s not vaporware, or a whitepaper, or a concept. This, too, is important. It’s been around in open-source form since 2008, and has evolved every year since then. If there’s an applicable technology adoption curve, Bitcoin is on it.
A store of value
Value is a funny thing.
Human beings are not rational. We like to think we are, but mostly we make emotional decisions and rationalize it afterwards. There are plenty of studies diving into that, but the simplest example is the notion of sentimental value.
Right now, Bitcoin’s value is almost entirely sentimental. It has utility value as a currency, in and of itself — it can issue immutable, divisible tokens that cannot be copied, stolen or forged. Beyond that, Bitcoin has no intrinsic value — absent a network to be traded on, it can’t be used for anything else.
More than that (and what’s really been in the headlines lately) is the fiat value. Bitcoin is “worth” around $160bn right now, a dollar figure driven entirely by speculation. Some might say, recklessly so.
Is that a true store of value? Some say yes, since value is determined on open markets. Some say no, because if you pull a handful of plugs, all that value stops existing. It’s far from a settled question.
A medium of exchange
This is what Bitcoin was originally designed to do — allow individuals to conduct transactions without the need for an intermediary (like a bank). The original whitepaper envisions a peer-to-peer digital cash system, bypassing the need for trusted intermediaries to handle our stores of value.
Today, it’s very much that. If you set up a wallet, and mine (or more realistically, buy) some Bitcoin, you can send it to anyone else on the network without going via a bank.
More practically though, most of the exchanges happening right now are back-and-forth between fiat currencies, on a small handful of trading platforms. That, and I’m sure, a decent amount of dark-web transactions. Bitcoin is perfect for hiding value from governments, after all.
An open-source project
With all the drama that entails!
It almost goes without saying that a network designed to operate on consensus would be open-source. And with that, have come the upsides (massive innovation) and some of the downsides (huge arguments about the future of the technology).
If nothing else, being open-source has allowed these projects to evolve at a rapid clip, and have certainly eclipsed the traditional banking sector on innovation.
A quasi-religion
For about as long as I can remember, there have been financial prophets of doom. Usually, their dire warnings about the imminent collapse of the global banking system were paired with urgent sales pitches for gold.
That phenomenon hasn’t gone away with Bitcoin. If anything, it’s gotten stronger. It’s not uncommon for rises in the BTC/USD spot price to be interpreted as a victory for the “believers”, and for people asking hard questions about the details to be dismissed as doubters.
(I fall into that latter category on basically everything I do.)
So, among the blossoming Bitcoin forums, groups, subreddits and chatrooms, are the faithful. Those that believe the USD marketcap will breach $1 trillion, that Bitcoin will go on to be a global value store equivalent to gold, and even that someday, Bitcoin will ascend to its rightful place as the only accepted global store of value, dethroning the wicked, sinful, greedy and corrupt malaise that is the current global banking system.
There are even differing interpretations of the words and intentions of Satoshi, the anonymous hero (or miscreant) that published the Bitcoin whitepaper and accompanying source code.
An anti-establishment left-leaning social impulse
Which brings us to this. Ultimately, Bitcoin represents something of a miracle to everyone who ever had a problem with a bank (and let’s be honest, that’s all of us).
Being peer-to-peer, circumventing authority, dodging governments ability to tax or censor it, these are all facets that play right into the left-leaning spheres of ideology. So it’s no surprise at all that Bitcoin conversations lie replete with the endorsements of socialists, communists, anarchists, and the like.
Especially when any figurehead in the financial world is critical of Bitcoin. That’s almost always interpreted as “fear”, that the “current order” is “afraid” of losing their total grip on society.
And those calls are slowly amplifying. The world is heading into a period of uncertainty: between Trump waving his Twitter account around, the Brexit train about to pull out of the station, and the ever-present threat of everyone’s jobs being automated out of existence, there’s a lot of anxiety out there about “the system”, and how it might collapse.
Or, more accurately, how it should collapse, in the opinions of a lot of these folks.
Can’t pay for stuff
Despite everything else though, the basic utility of Bitcoin — the simple transfer of value from one individual to another with no intermediaries — hasn’t yet been realized. It’s not even close.
Every now and then a project will pop up that promises to let you use Bitcoin to pay for something, except it turns out to just use Bitcoin as a very inefficient settlement token, and the pricing is all denominated in fiat currency anyway.
But?
I think it stands a good chance of getting there, though. Not because of the massive “growth” in the USD value of Bitcoin this year, and not because of the frenzied proclamations of the faithful that the fall of the banking world is nigh.
Rather, because I believe this is the next step in the internet’s history. Everything above — the paradigm, the technology, the teams, the projects, the faith, the impulse — will inevitably rally around building a better digital world.
