Bitcoin Gives You Wings
If lambs suddenly grew wings, lions would starve
- The Sovereign Individual
The dawn of the Information Age is ushering in a megapolitical shift that threatens to subvert the power of the nation-state. Major inflection points in megapolitics have usually been accompanied with technological advancements that increased or decreased the costs of inflicting violence.
Whether it be the rise of the mounted knight, or the emergence of The Gunpowder Revolution, these technological advancements have altered the way violence has been conducted.
Bitcoin, a consequence of the Information Age, is one such technological invention that will rebalance the costs and rewards associated with violence for the foreseeable future.
The Agricultural Age And The Rise Of Government
The Agricultural Age was a key inflection point in human history that reshaped the returns on violence and the organization of human societies. It birthed the emergence of private property that would result in the rise of the first government bodies that were put into power.
Prior to the Agricultural Revolution, human societies consisted primarily of small bands of foragers that ranged across very large areas. The technology of farming reshaped that dynamic. Farming launched a revolution in culture, organization, and economic prosperity that would take human societies on a journey from which they would never return. For the first time in history, human beings commanded large-scale capital assets.
However, these large-scale capital assets required constant attention. They needed to be tended to during the entirety of the planting, harvesting and growing season. This forced human societies to become stationary for the first time, and hence also made them increasingly vulnerable to violence from other groups.
Human societies were now faced with the need for protection they did not have during earlier days. They now had capital assets like crops and domesticated animals that were vital to their survival.
Previously, during the era of hunting and gathering, if a forager’s land was contested over by another forager (or small group of foragers), he could simply choose to walk away. The cost of defending himself might not be worth the resulting rewards. After all, land was in abundance, and he could simply forage elsewhere.
But the technology of farming organized human societies in a way that rebalanced the return on those costs and rewards. The forager had less incentive (reward) to engage in violence to hold his ground. The farmers, however, now had a strong incentive to pay the costs associated with defending their capital assets. Farming resulted in the emergence of private property, but more importantly, it gave rise to governments that were established to protect that private property.
The Specialization Of Violence
Caesar: “My friend, taxes are the chief business of a conqueror of the world”
George Bernard Shaw
The emergence of large-scale private property was a consequence of what was deemed fair. It would not be fair if, for example, a farmer put in the hard work all year to grow the crop, only for it to be harvested by someone else who did not similarly toil away all year.
However, for the person who did not invest in the production of farmland and raising domesticated animals, an opportunity arose to seize what they wanted through violence.
It was far cheaper for an individual to invest in weaponry and forcefully take what they wanted, instead of investing the time and effort into producing such assets. To put it simply, the proliferation of farming increased the returns on violence.
This was a pivotal shift from the era of hunting and gathering. In this new megapolitical landscape, each individual was no longer as “equal” as they once were. Capital assets had value, and hence were vulnerable to theft by violence.
Farming gave rise to large groups that would organize together to impose their will on smaller pieces of farmland. This was another stark contrast to the era of foraging, where small groups would band together on far larger pieces of land. Hence, the technology of farming indirectly paved the way for the specialization of violence.
Taxation: The Cost Of Protection
…And of all that thou shalt give me I will surely give the tenth unto thee
Jacob , Genesis 28:22
With the rising returns on protection, people were more willing to pay the costs for adequate defense. Consequently, this made investments in the specialization of violence more profitable. Larger and more powerful groups were able to band together and provide protection at a profitable price.
These larger groups were the first governments that commanded a local monopoly of force, but did so at a price. This price would usually be paid in the form of a portion of the harvest. Taxation thus emerged as a natural consequence in exchange for the protection from violence.
These practices date back more than 5,000 years ago in Mesopotamia and Egypt where taxes were collected in a form of “tithing” known as esretu. A tithe (old English for “a tenth”) was a payment to religious institutions or ruling governments in exchange for protection from invading armies, mob violence or even evil spiritual forces.
The Falling Cost Of Defense And The Rise Of Sovereigns
The ruling powers have the ability to command disproportionate prices for the protection they provide. This is primarily because their monopoly position allows them to keep their costs low, while raising the price of their protection by an amount they deem fit.
However, as mentioned, technological innovations constantly disrupt this balance of costs and rewards.
If people are provided with the means to defend themselves against extortionary groups at a cheaper cost, then the return on violence drops significantly. This indirectly or directly subverts the efficacy of the ruling power. This was seen in the Middle Ages, when the rise of the armored mounted knight allowed smaller groups to challenge the authority of the ruling kings.
In the 13th century during the First Barons’ War, landowners in England declared themselves the Army of God, and marched against King John. Ironically, we then had the “Poor Barons Rebellion” in the 16th century, famously known as the Knights’ Revolt, where the Barons marched against the Roman Catholic Church.
“Overlords” (Landlords or Barons) who would lead these smaller groups were now able to defend themselves against the extortionary forces of the ruling powers. Consequently, the ruling powers were now faced with increasing costs and decreasing rewards associated with imposing their will. This allowed the overlords to be in a position of strength when negotiating terms of taxation and duty.
The Magna Carta was one such example of a successful negotiation between the Barons and King John in the 13th century.
The Information Age And The Rise Of Bitcoin
Similar to the Middle Ages, the Information Age is witnessing falling costs of defense, but on a much grander scale than ever before. The technology of farming reshaped how human societies organized themselves while also influencing drastic cultural changes. Human beings went from being foragers, who shared vast areas of land amongst a few, to being farmers who were densely concentrated in small areas.
Similarly, we are now seeing the Information Age reshape our societal organization and culture, as we witness an increasing number of people organize themselves in the borderless digital realm.
The Information Age has birthed technology that allows people to organize themselves in communities and societies that exist in a virtual realm. Consequently, this virtual realm now serves as a medium to create and store assets that are now outside the reach of traditional forms of violence and coercion.
Notably, however, is the contrasting returns on violence brought forth between the Agricultural age and the Information Age. While the Agricultural Age increased the returns on violence, the Information Age has been doing just the opposite. Facilitated by microprocessor technology and cryptography, the cost of defense has now been essentially reduced to almost zero. This brings us to what will likely be the most pivotal invention of the Information Age: Bitcoin.
Taxation by Inflation
Governments, be it monarchs or republics, retain their power via their ability to extract tax from the people. This is primarily due to both, their monopoly on the services they provide, and their monopoly on their ability to conduct violence. However, over extended periods of time, governments grow to become increasingly bloated and inefficient.
This often leads to public frustration and revolution. During the French Revolution, Napoleon Bonaparte marched through the streets of Paris proclaiming “No more taxes, down with the rich, down with the republic..” But while Napoleon did indeed introduce tax reform to win the favor of the French people, he extracted what he needed by increasing the tax burden on the conquered Italians. But even conquest can go only so far. When direct taxation does not suffice, they typically tend to resort to their next option: money printing
The monopoly on the right to mint money is an insidious form of taxation used by governments to fund their operations. By simply printing more money, governments can access the funds they require without directly increasing taxes on people. But by printing more money, and thereby inflating the money supply, governments are essentially attacking the buying power of the people who choose to “save” in that form of money.
As such, people are then incentivized to use investment vehicles as “saving devices.” This naturally causes value to flow into assets like real estate and equities, put there by those who can afford to do so. But those who cannot afford to do so find themselves in a situation where they get taxed twice over: once directly, and then again insidiously via inflation.
This dynamic has essentially allowed governments to extract value from their subjects like they are cattle on a farm:
For most of the twentieth century, the productive have been treated as assets by the state, in much the way that the dairy farmer treats milk cows. They have been squeezed ever more vigorously. Now the cows will sprout wings
- The Sovereign Individual
Bitcoin: The Wings To Escape
The creation of Bitcoin has tilted the balance between the cost to protect and the cost to extort. Using microprocessor technology and cryptography, ushered in by the Information Age, Bitcoin provides people with a means to defend against the inflation that comes with expanding the money supply at a near-zero cost.
Furthermore, the costs of attacking the Bitcoin Network are unfeasibly high, while the reward would be nearly trivial. This dramatic shift in asymmetry between protection and extortion will drastically reshape how societies organize themselves.
Much like the mounted knight that increased the defenses of the overlords in the Middle Ages, Bitcoin will increase the sovereignty of individuals and entities by providing defense against extortionary actions by the ruling powers.
We are already seeing the early stages of entities arming themselves with the defense Bitcoin provides. Corporations like Tesla, MassMutual, MicroStrategy and many more have converted a portion of their treasury into bitcoin as a means to defend against the inflation caused by the expansion of the money supply. Paul Tudor Jones, a legend amongst hedge fund investors, has publicly declared that he has allocated funds toward bitcoin as a means of defense for himself and his family.
This will give rise to increased sovereignty and negotiating power against extortionary forces. Why? History has shown, time and time again, that when the weak are provided with the means to defend themselves, they eventually use their tools to rise against extortion. We will explore the likely consequences and fascinating game theory of the advent of Bitcoin in the next post in this series.
