Bitcoin & the Emperor’s New Clothes

“But he has no clothes on!”

Most people believe the breakthrough of Bitcoin was to solve the problem of double-spending that enabled peer to peer transactions without a trusted third party. Can I suggest we take a moment to look deeper?

What if Bitcoin reveals a fundamental part of what it means to be human — a part so critical to our success, prosperity and well-being that in a few years we will wonder how we ever lived before we woke up?

Bitcoin is a piece of cryptographic code that produces “coins”. Each of these “coins” is now worth around $7,000. How is this possible? How did a Bitcoin come to be worth anything at all?

A sample of Bitcoin code. What gives this code value?

We have grown up accepting currencies store value we can use to buy a coffee and pay the mortgage. We have maybe never questioned why the pieces of paper or the numbers in our bank accounts have this value. We just accept it and leave it at that.

What if this acceptance is what gives the currency we use value? What if value exists because we believe it has value?

Nonsense you say. The US dollar, Yen and Pound have value because they are issued by government and the central bank or Federal Reserve. Government and central banks are the cause of a currency’s value.

But then along comes Bitcoin trading at $7,000 a coin. It has no government mandate. No laws are compelling its use. Neither does it have an underlying asset like gold or oil supporting its price.

To my mind Bitcoin is like the child in the story of the Emperor’s New Clothes. Everyone else in the crowd is lavishing praise on the Emperor’s clothes as he parades down the street. Only the child calls out “But he is naked”. As soon as this simple and blindingly obvious truth is blurted out the illusion vanishes and even the king becomes embarrassed by his nakedness.

The Bank of England. The building supports the belief that something external to us creates value.

Without the trappings of government, its buildings, laws, police, policy makers, Bitcoin has laid bare the simple yet blindingly obvious truth that price and value are functions of belief. The Emperor has no clothes. We are the creators of price and value. Take that believe away and, like the big stone coins on the Polynesian paradise of Yap, their value disappears.

A dead currency — the giant stones of Yap. Photo credit: https://www.flickr.com/photos/zinnie/5320514744

Bitcoin, and every other currency, has value because we believe it has value. That says something pretty profound about the power we have to create our own reality. To make this point a little clearer here is a famous example of the power of belief to heal:

In 1957 psychologist Bruno Klopfer reported in the Journal of Prospective Techniques his now famous experience with a patient named Wright.[1]

Wright had advanced cancer of the lymph nodes. “All standard treatments had been exhausted, and Wright appeared to have little time left. His neck, armpits, chest, abdomen, and groin were filled with tumours the size of oranges, and his spleen and liver were so enlarged that two quarts of milky fluid had to be drained out of his chest every day.”[2]

But Wright did not want to die. He had heard of a new drug called Krebiozen and he begged his doctor to let him try it. Reluctantly the doctor gave him an injection on a Friday, not expecting Wright to survive the weekend.

“To his surprise, on the following Monday he found Wright out of bed and walking around. Klopher reported that his tumours had ‘melted like snowballs on a hot stove’ and were half their original size. This was a far more rapid decrease in size than even the strongest X-ray treatments could have accomplished. Ten days after Wright’s first Krebiozen treatment, he left the hospital and was, as far as his doctors could tell, cancer free. …

“Wright remained well for about two months but then articles began to appear asserting that Krebiozen actually had no effect on cancer of the lymph nodes. Wright, who was rigidly logical and scientific in his thinking, became very depressed, suffered a relapse, and was readmitted to the hospital. This time his physician decided to try an experiment. He told Wright that Krebiozen was every bit as effective as it had seemed, but that some of the initial supplies had deteriorated during shipping. He explained, however, that he had a new highly concentrated version of the drug and could treat Wright with this. Of course the physician did not have a new version of the drug and injected Wright with plain water. …

“Again the results were dramatic. Tumour masses melted, chest fluid vanished, and Wright was quickly back on his feet and feeling great. He remained symptom-free for another two months, but then the American Medical Association announced that a nationwide study of Krebiozen had found the drug worthless in the treatment of cancer. This time Wright’s faith was completely shattered. His cancer blossomed anew and he died two days later.”[3]

Wright was unable to come to terms with the ability of his own belief to heal him. He externalised the power of his belief into the drug Krebiozen, his doctor and medical science. When a trusted authority, the American Medical Association finally denounced the drug as worthless, Krebiozen, because of his need to externalise what he was in fact doing to himself, succumbed to his illness and died.

Wright’s demonstration of the power of belief, while dramatic, is by no means an isolated occurrence. The Institute of Noetic Sciences collected over 3,500 references from the medical literature of so called “Spontaneous Remission” where people, after being diagnosed with incurable disease by the medical profession were able to heal themselves. [4] The report summarised eight characteristics that defined people who were able to heal themselves. Each characteristic had to do with a change of the person’s beliefs, and in particular the shift towards greater autonomy and self-responsibility.[5]

Is Bitcoin showing us how belief creates money?

Like the child in the crowd Bitcoin is not going away. I have to take that as a sign that we are ready to wake up to the fact that we are the creators of price and value. Institutions like government and central banks will change as we start rubbing the sleep from our eyes

[1] Bruno Klopfer, “Psychological Variables in Human Cancer,” Journal of Prospective Techniques 31 (1957) pp. 331–40.

[2] Michael Talbot The Holographic Universe, 1991 p.93

[3] Ibid pp. 93–94

[4] https://noetic.org/research/projects/spontaneous-remission

[5] https://noetic.org/research/projects/spontaneous-remission/faqs#question7

Bitcoin and Bitcoin Enhanced showing how value is created

It is this wake up process that makes Bitcoin Enhanced so exciting. Bitcoin is the clearest possible demonstration that belief, not external factors, creates value. Bitcoin Enhanced takes the next logical step and asks, can we consciously create value from our belief?

The token tracks the returns of shorting Bitcoin when the price is likely to fall. But unlike traditional investment strategies the token does not hold underlying assets. There are no Bitcoins, or Bitcoin futures contracts to support the price. Instead the token relies on the shared commitment (belief) of token holders to trade at the price as if those assets were present.

The advantage of this approach is that it enables the token to avoid the risks associated with the fiat financial system. If the token succeeds collective desire to invest outside the fiat system will have produced the result. People will have woken up and created the value they want for themselves.

Bitcoin has revealed where the ability to create value lies. Bitcoin Enhanced is showing that we can create that value without the risks of the fiat system.