One of Bitcoins major shortcomings that is not often used in an accusatory tone, is the fact that the base layer doesn’t have sufficient privacy. There are growing pains and aspects that need to be optimized that are not unsolvable problems, it’s just where the stage of maturity that this technology is at today. Just like how you couldn’t really send movies on the internet in 1995, you can’t really do billions of transactions with Bitcoin yet.
Fortunately we don’t need to do billions of transactions yet and for the most part, the system as it is today is sufficient for what we need and it’s evolving and getting better. So there’s layers and layers of optimization that can be applied to Bitcoin. One of the things that we need to get right and we need to get it right, in the beginning, is privacy.
One of the fundamental problems with the internet is it didn’t have sufficient privacy. Most of the encryption protocols are afterthoughts, they’re layers above things like SSL or encrypted chat based on Whispernet. Those are not sufficient and as a result, as the internet became centralized, it allows the worlds intelligence agencies to eavesdrop on mass, on humanity and that’s an unacceptable state of affairs and it’s really difficult to fix if you don’t have it in the base layer. Most people are concerned about Bitcoin having sufficient privacy in the base layer, the ability to do transactions without those being traced, otherwise if we don’t fix that then Bitcoin isn’t really a safe place to transact in the long term because it will allow global surveillance of finance in a way that hasn’t been done before.
Blockchain: Who Gains and Who Loses
Mostly when people say blockchain, it means one of two things, either people use blockchain to describe applications that are non-financial in nature, so for example, using the same general concepts of a peer-to-peer flat network without intermediaries in order to do things like real estate, or do access to various types of other assets, or voting, social organizations, corporations, things like that, and that’s really interesting. It’s premature, but it’s very interesting and it will happen eventually. Another use of the world blockchain is to imply that the most interesting technology in Bitcoin is the data structure that is produced which is called the blockchain.
The people who tend to use blockchain to mean that, are mostly trying to strip away many of the characteristics of Bitcoin, the fact that it’s open borderless, peer-to-peer neutral and censorship-resistant, and try to create alternatives of this technology that are closed, centralized, controlled, subject to censorship where every participant is vetted, and it’s not open to everyone, those are going to be used. They’re going to be used in corporate environments, most people don’t think they’re particularly interesting and they won’t be particularly innovative.
Most of the innovation will happen in the open public networks.
So depending on what you mean by blockchain, there is this power struggle happening and this power struggle is if you like the fundamental human weakness which is the desire to have a hierarchy, the desire to elect rulers to appeal to authority, to look for leaders.
Bitcoin introduces this environment in which there are no leaders, there are rules without rulers. And of course, some of us look at that and say
“Great! This could revolutionize human society!”
but most people look at that and go,
“Let’s elect a leader!”
They instinctively want to find someone to trust and to make the authority which runs counter to the whole thing. So from the very early days of this technology, just like from the very early days of the internet people tried to centralize, control and tame this open and slightly chaotic architecture.
We think that’s where the power struggle comes.
The Bitcoin Developer Community
One of the challenges with not having rulers is that in traditional hierarchical systems, a debate has an end point, meaning that you can gather all the people in the room and they can all have an opinion and those opinions will be discussed and debated even in the most meritocratic and open of organizations at some point, someone in the room has the authority to say,
“Alright, I’ve heard and considered all of the opinions, we are going to go with plan A!”
In Bitcoin, there is no such person.
No one has the authority, many are trying to do that, many try to say, okay, stop debating, we’re going to go with plan A, but it’s not an end to the debate because no one has the authority to impose that opinion to everybody else.
Consensus, which is the fundamental emergent property of these network-based systems is really something difficult to achieve. Consensus means that the vast majority and we’re talking upwards of 95% of the participants in the system have to come to complete agreement on the rules that operate. If they don’t, they end up being cleaved off the network as a minority.
And achieving a consensus of 95%, think of traditional democratic systems, most votes are secured with a 51% majority and the reason because otherwise, you can’t get anything done. It’s very difficult to change the rules, in some cases you have the concept of a supermajority.
For example, let’s say the US Senate if you want to end the debate on a topic, you need 60% effectively to stop debate. Then you have very serious questions which are constitutional issues, and for constitutional issues, you need a 75% majority, plus verification by all of the states, something like that in a federal system.
Well if you think of Bitcoin, it’s consensus rules and this applies to all open blockchains are a constitution, but their a constitution that has a much higher burden of consensus, you actually need to hit in excess of 95% agreement by the participants in order to proceed with a rule change and for simple rule changes that don’t affect the fundamental principles or people don’t feel they affect the fundamental principles, that’s achievable, but for major rule changes that affect the fundamental principles of the network, it’s impossible to achieve, there will always be a significant minority who absolutely refuse to follow those rules.
Now how do you get an outlet from that?
In democratic systems when you fail to reach consensus on the governance of a country, the outlet is secession, you take your state.
In fact, if you look at American politics every few years, there’s a movement to take Texas and make it an independent country or California or now in Europe, you see that in the Basque region, we see these secession movements.
These are failures to achieve governance at scale and part of the problem with doing that in a system that’s geographically bound is that you force the people who live there to come with you. But with network-based systems you can secede from the main network and take with you only the people who want to follow the new rules and everybody else remains where they are.
So it’s actually a fair way of resolving differences.
There are two ways of achieving agreement, one is you have to achieve a very high degree of consensus, upwards of 95% and the other is eventually if the debate is not resolved some people are going to say, well, we’re going to take our computers and money and effort, passion and creativity and we’re going to build another system that follows all of the rules except this one that we disagree with and that’s okay because they can and you can have a system with lots of different blockchains and lots of different networks and no ones forced to participate.
Think of it a bit like a game of basketball and there are 20 people in a basketball arena and 15 of them want to play hard, foul and maybe get a bit physical with their game, but 5 of them don’t. They want a softer game, so how do you resolve that? Very simple, you’ve got two hoops? You play two games. Well, we have infinite hoops, we can just keep doing that. Everybody can have a voice. Of course, if you take your ball and decide to play by yourself and nobody follows you, you’re playing a minority game which isn’t much fun and in the case of these cryptocurrencies that means you may end up on a network that doesn’t have much activity.
The token that’s used may not have as much value, but that’s okay, you get to choose.
The vast majority of questionable activity, questionable of course is a matter of perspective, occurs on the US dollar and it occurs through the banking channels that are otherwise supposedly regulated to prevent money laundering and things like that. Rational people looking at the real state of the world know that the vast majority of funding of terrorist organizations happens by state actors and the vast majority of money laundering happens by banks. Of course money laundering happens by banks, they are the best positions to do that and they have a license to do that and in most cases when they are caught doing it, they get a slap on the wrist and they continue business as usual.
For the illusion of protection from those activities we pay the price of keeping billions in poverty. Corrupt money will always find a way, and corrupt people will always use whatever mechanisms they have in order to transmit money.
The truth is that only a tiny, tiny fraction of that kind of activity actually happens with these digital currencies. They’re too small, too cumbersome, too complicated, too technical. It’s much easier to walk into your local bank, dump a billion dollars on the table and corrupt everyone around you from the lowest level police person to the Minister of Finance and this happens routinely in most countries.
Corruption is an inherent aspect of human nature. Corruption uses money as a tool of power because all tools of power are used by those who have the means and the incentives and the motivation to use them and they will of course use Bitcoin. If they couldn’t use Bitcoin, arguably it wouldn’t be money.
Of course they will use Bitcoin just like they use dollars, euros and yen.
The question is how far are we willing as a society to go to use money specifically as the tool to control corruption when we have failed to control corruption in our banking system. We have failed to control corruption through democratic institutions, we have failed to control corruption through all of the other mechanisms and the question we should ask is not are we achieving the goals of controlling corruption with these mechanisms, but what are the side effects? What is the cost we pay? And the cost we pay today is horrendous. The cost is leaving billions of people, some estimates up to 4 billion people completely outside the banking system and mired in poverty, just so we can maintain of a just and clean society which really is quite an illusion.
When people say that corrupt money will flow into Bitcoin, of course it will. Bitcoin is better money, it’s fast, it’s cheap, it’s secure and it’s global and it will flow into all forms of money that have those capabilities and characteristics. Turning money into something that is slow, unavailable to most, expensive and insecure in order to stop corruption just ends up hurting a lot of people and it doesn’t end up stopping corruption.
Best Examples of Blockchain For Good
There are a number of examples, although it’s important to realize that we’re still in the very early stages of this technology and one of the things that happens in early-stage technologies is that they’re mostly accessible and used by the most privileged members of society.
So let’s not kid ourselves right now, this technology is not in the hands of everyone. It’s very concentrated in the hands of those who are affluent, literate, free and able to express their power in this way. That’s a tiny minority of the population, not unlike the first automobiles were only accessible to the super rich, the first electrified homes were the homes of the rich, the first of planes were only used by the rich, etc.
Similarly, the first cell phones, the first access to internet connectivity, but gradually these technologies reach a tipping point where the cost per unit drops to such an extent that it can become a mass market opportunity and then it gravitates to the people with the most need and those are not the richest.
So today for example, if you see someone holding a cell phone, you don’t assume they’re rich. When you had your first cell phone, it was a status symbol, holding a cell phone made you look important. Today, important people don’t hold cell phones, they have secretaries to do that. In fact, the status symbol is to not hold your own cell phone but to have a gaggle and entourage behind you that answer your calls.
The plumber answers his phone. The boss doesn’t.
And today you’ll find this technology spreading to every part of the world, even in the most remote places in world, you’ll see a solar panel and a Nokia phone in the middle of the Amazon jungle.
It’s an empowering technology because the unit has dropped in cost to less than $10 and at that price point, the power brings individuals can be achieved by anyone.
What happens when we do that with banking? With cryptocurrency?
We’re not there yet.
There’s some interesting emergent phenomena that are happening already, one of them is the use of these currencies for oppressed populations who are in a state of crisis or who are under constraints where they cannot use money legally.
A couple of examples come to mind, one is in the state of Venezuela where there’s being a hyperinflation crises that has unfolded over the last 3 to 4 years, largely self-inflicted by the government and has ravaged society, has destroyed the fabric of society and led to famine, poverty, widespread death at very young ages. This horrible collapse of social order, some people there are using cryptocurrencies in order to preserve some safety and security, sometimes to even buy food from other countries and have it imported into Venezuala.
Still, it’s mostly the rich in that country that can do that. Another great example you’ll find fascinating was a group of woman who live in Afghanistan, where ownership of assets by women is forbidden.
Women are effectively legally children and controlled by their husbands or fathers as guardians.
They have no independent adult status, ever. They can never acquire it. They’re forbidden from owning property, they’re forbidden from owning bank accounts, they’re forbidden from owning cars, they’re forbidden to holding anything and certain people have tried to find ways to use cryptocurrency to allow women in Afghanistan not only to earn money using skills they might have but also to keep that money and sometimes keep it secretly, from their husbands or fathers who don’t know about that.
That at a great personal risk of course.
There’s a particularly interesting project that use Bitcoin for a short period of time, it wasn’t that successful in the early days, but still it’s interesting as a model, which taught girls how to code, how to write software and sell that service to developed nations, earn money directly in Bitcoin and use that to free themselves, free themselves from oppressive husbands or fathers and things like that.
That’s an example where things are beginning to get interesting.
It’s still early in the days, but there’s something interesting about the possibility to own a completely intangible asset that is invisible, yet one that you can use powerfully to gain freedom, to gain for example transportation, shelter or escape from a difficult situation.
Think about all the refugees streaming across borders that Western nations have created trying to find safety and they have to leave everything behind. Well, some of those refugees are crossing the border with 12 words memorized in their head and those 12 words unlock an amount of Bitcoin that no one can trace their carrying because they’re not carrying it, it’s simply a memory and as they cross the border they leave all of their belongings behind but they take their money with them in their head and it’s impossible to stop them from doing that and who would want to anyway?
It gives them the ability to preserve some of their autonomy and freedom as they move to a new country, so you can see how these technologies can really change the balance of power between individuals and the state, between oppressed and dispossessed individuals and those oppressing them, so that gives quite a bit of hope!
We’re also seeing very practical applications, for example, charitable giving using this. Because a lot of these cryptocurrencies as an emergent phenomenon have gained tremendously in value just like internet stocks did in the 1990s and the early 2000s, charities that have received charitable donations in Bitcoin for example, treat that almost like an endowment which gains in value and gives them a steady stream of income that they can use for charitable purposes.
It’s still early, but it’s very promising where we’re going with this.
Energy Efficiency with Cryptocurrencies
It’s tremendously efficient right now we can secure a global network of transactions against even a coalition of nation-states attacking it. At the moment we are securing a global payments network for an amount of energy that seems like it’s a lot, but it is the same amount of energy that we would need to use in order to secure this global network when everyone is participating.
You don’t actually need more energy in the future than you do today and it certainly doesn’t grow as a percentage of the transactions happening or anything like that.
There’s a misunderstanding that the energy that is being used in Bitcoin is per transaction but it’s not. It’s the energy you need to secure a global network against global scale attacks.
Think of it as building a massive warehouse-sized super-secure vault. Well, if you go and park a tricycle in it, instead of a thousand Ferraris, it kind of looks like an immense waste of money that you built this enormous vault, but it’s secure enough that it can actually do a lot more interesting things.
We have a very secure infrastructure because of the energy that’s being expended and what that energy gives us, is an investment in the immutability of the ledger, which is one of the securing principles for decentralization.
So it’s not wasted energy, it’s energy that’s invested in security.
The difference is that with these cryptocurrencies, you can actually see the energy that goes into it and measure it directly.
When a bank has a building tower with all the lights on, when it’s 600 employees from that branch travel on an automobile spewing diesel fumes all over the city every day, you can’t see that, you can’t relate it to the fact that you just did a Visa transaction behind the scenes there were a thousand data centres and 600,000 employees commuting every day that work in cubicles in air-conditioned offices in hot cities.
You don’t see that energy at all, but it’s there.
In fact, on the basis of how many transactions this network can do and how secure it can be, it might end up being one of the most efficient payment networks we’ve ever built.
SegWit2x and Network Changes
Recently in Bitcoin, there was a debate that has raged for a while about how to best expand the capacity of the network without sacrificing its decentralization, and in that debate, several different factions emerged and these factions tried to sway the debate and achieve overwhelming consensus for their pet outcome, for their chosen approach and one of those factions claimed to have overwhelming support attempted to force a change in the rules, discovered they didn’t have overwhelming support, and then the rules didn’t change.
Proving that one of the things that happen with this technology, is if you lack the overwhelming support of consensus, the rules simply remain the same and the status quo continues. These systems are resistant to manipulation, and manipulation whether it’s benign or malicious, not casting judgment, but simply if you do not have an overwhelming agreement, you cannot move forward.
Ironically some of the people look at this and say,
“Oh, so this faction lost, meaning the other faction won.”
No, the other faction didn’t win either, the other faction just happened to support the status quo more and so the status quo just continued happening, if the other faction had to go it alone and change the rules in a way that didn’t have consensus, they would have lost and have discovered the consensus rules are not easy to change.
Resistance to change without overwhelming consensus is the fundamental principle and more and more groups are going to discover it as they try to attack the rules or change the rules or make changes they think have broad consensus and then they discover that simply the market isn’t supporting them.
“Everybody is walking around with a Swiss bank in their pocket” – President Barack Obama
Obama was wrong.
Everybody’s not walking around with a Swiss bank account in their pocket.
Everyone’s walking around with a fully-fledged Swiss bank in their pocket, not just one bank account but a bank that can generate a billion bank accounts a second, as your smartphone can do with Bitcoin.
It’s much more powerful than even he thinks.
What happens then?
The middle class suddenly acquires the same capabilities of a multinational corporation and the rich who have been cheating on their taxes for decades. And somehow now it’s a concern, wasn’t a concern when they were doing it, but suddenly now it’s an urgent concern and we must put a stop to this. There are other ways of achieving the government goals, the idea that you must eviscerate financial privacy, submit everyone to totalitarian financial surveillance just to fulfill the narrow government interest of taxation, is fascist and we can do better than that.
There are many ways that we can tax that don’t involve income tax or the ability to see every transaction that every person does. In fact, if you give governments that power, democracy gets eroded really fast.
One example is consumption taxes which have been used in many places.
Once you have programmable money, you can also have use taxes that are much more specific.
So for example, you can’t pay for every mile that you drive my car or your self-driving car drives you because the payment mechanisms are too complicated, slow and expensive. But with cryptocurrencies you can, you can pay for every centimeter that your car moves and so the roads get paid for themselves and you can pay for schools and other things the same way.
But let’s not kid ourselves.
When people ask, how are we going to pay for the roads?
The answer is, you mean how are we going to pay for the wars? Because if you think your taxes are paying for roads, you haven’t looked at a government budget, at least in the United States, 60% of the budget goes to the combined Department of Defense, military spending, veteran affairs, nuclear weapons, the maintenance of those and the debt payments for all the wars we’ve been fighting for the last hundred years.
So what are your taxes paying for?
They’re not paying for roads, as anybody who’s had to drive on those pitiful roads will tell you.
We are going to have a reckoning but we’re going to have a reckoning because the system as it is already falling apart, it was not serving citizens and in some countries, yes it does.
In Sweden, in Canada, it does.
You actually do get health care for the incredible taxes that you pay, but that’s an aberration.
That’s an exception.
The vast majority of the world doesn’t work that way. Most people pay taxes and get very little in return other than enriching their rulers or paying for war. So yes, it will force a change in society, but that change is happening anyway because of multinationals, because of tax evasion by the rich. And the fact that we are empowering the entire middle class to have financial privacy is not the reason why the tax reason is failing.
Bitcoin as a Business
This is kind of a technology for which there is such an enormous need, that as long as the technology is made available, is made accessible, is made easy to use, is made easy to use securely, people will use it, because there is such enormous need. There are billions of people who absolutely need access to economic tools today and that is a very fundamental need and a fundamental human right.
The ability to express yourself and money is a form of expression and to associate with others commercially is a fundamental human right. For whatever reason, a lot of people don’t have access to that. So it’s not about facilitating this technology, as long as this technology does what it needs to do and it does it in a way that the people can use it and can use it effectively to change their own future, then you don’t really need to market it or sell it or facilitate it or anything like that.
We do need to preserve some of the fundamental principles, and those principles are the openness, neutrality, borderless nature, censorship resistance, the privacy of this platform. The Bitcoin platform as originally designed is designed to be decentralized, its designed to not consider borders as a barrier, it’s designed to be neutral, it doesn’t care if the sender is male or female, Christian or Muslim, old or young, black or white, any of those things are irrelevant.
In fact, it doesn’t even know if the sender or recipient is human.
It determines the validity of transactions based on completely neutral mathematical rules. In that lies freedom. Fundamental human liberty in the ability to avoid discrimination by the underlying payment platform just because it simple doesn’t know how to do discrimination.
If we can preserve these principles and make it a system that is truly open to all, that is a universal ledger, that is a universal currency that’s accessible and it doesn’t have to be just one. There can be thousands of universal currencies that are open and accessible. In that case, people will eventually use it. Of course as soon as this technology emerged, a lot of people tried to co-opt and change, mold this in order to suit their own needs and their own interests, everybody’s trying to grab a piece of the pie.
There is a lot of money on the table and that makes people greedy.
Fortunately what we’ve seen is the decentralization in the underlying technology actually prevents people from doing that so it’s quite resistant to that form of control or centralization that people are trying to apply.
What Type of Business Models Could Emerge in Place of Current Models?
There are a lot of people trying to build centralized business models on top of this decentralized infrastructure and eventually, hopefully they will be replaced by better decentralized alternatives. There is a lot of opportunities to build bridges to the future, bridge the current systems that we have with these new systems and some of that require centralization at least for now, but any intermediaries who appear in this space will themselves become disrupted and disinter-mediated by this technology in the long run. Their business will be replaced by a protocol, just like they’re replacing the businesses that came before them.
If it’s not Bitcoin that’s doing it, there will be a better system that does it.
Decentralization is the essence of this technology and centralized solutions don’t really offer benefits. That doesn’t mean you can’t build a startup, that just means that your startup has to be focused on decentralization as a principle and utilize, embrace and build on that, rather than trying to subvert it.
So if your business is a business that doesn’t look like a traditional business, that doesn’t have a hierarchy, that doesn’t have a fixed team, that doesn’t have a fixed product, that instead builds protocols and develops collaboration between lots of different people. Then you have a better chance of succeeding in this new space. There are some very interesting businesses that are slightly centralized, but the vast majority of them is decentralized and they’re doing quite well.
We’re going to see more of that.
Basically, the fundamental way of doing business has to be rethought with this technology, because it’s possible and since it is possible then the benefits of making a decentralized business and benefits not for the business person, but for the customers, benefits for the citizens, benefits for the individuals far exceed those of a centralized business.
In the future, it will be very difficult to compete if what you build is a centralized business that’s entire purpose is to enrich you and your employees. That simply won’t be as effective as instead building something that enriches everyone, that makes everyone’s life a little bit better, that makes everyone’s life a little bit more equitable.
Decentralization is a century trend, it’s not just Bitcoin, it’s the internet, it’s telecommunications, it’s globalization itself. Our planet is becoming decentralized, it has been on the path of decentralization for 4 or 5 centuries now and it’s accelerating. Now it’s being noticed because of its acceleration.
The Notion of One Physical Location Becoming Obsolete
The notion of a physical location is becoming very much obsolete. The notion of being able to manage society is a series of fragmented jurisdictions that apply pressure on your most common geographic location or point of origin in itself is arbitrary, capricious, unfair, unjust and on it’s way out, and that means that if successful, these technologies will have a far greater impact because they disconnect us from geography and rather they free us from the constraints of geography.
Of course in the interim there are jurisdictions, there are nation states, there are powerful entities, there are laws and legal environments that companies operate in. Most of those are being challenged by this technology.
At the same time, they’re also competing in this environment to attract these types of technologies.
Part of this is what’s known as jurisdiction arbitrage.
The ability for companies to choose a jurisdiction that is most suitable for them.
What happens when jurisdiction arbitrage becomes accessible to the vast middle class and then to everyone?
What happens when everyone can behave the way a multinational corporation behaves, to pick and choose a jurisdiction of their choice, to migrate to the place of their choice. Not physically, migrate as a legal entity, migrate as an economic entity.
Even while their physical state remains in the same place.
Borders can keep people in fixed locations but they find it very difficult to control financial interests which is why we have this great disparity between the power of multinational corporations and nation-states and what these technologies do is they democratize access to these capabilities to jurisdictional arbitrage. They allow people to operate more like multinational corporations.
Ironically many of the states that had no problem with multinational corporations avoiding taxes, playing jurisdiction arbitrage, having this immense power are suddenly now concerned when the rest of the middle class gets to play by the same rules. It’s about time we found some solutions to these problems and stop pretending they don’t exist. So these are empowering technologies that are going to force various jurisdictions to play the jurisdiction arbitrage game.
If your country bans Bitcoin, it doesn’t remove Bitcoin from your country. It removes your country from Bitcoin.
It removes the ability your country to play in this new space. It punishes your own citizens, but it doesn’t affect anybody else and some of those citizens, the ones that have the means, the technological literacy, the corporations, will simply leave and they’ll take the very best minds with them, the most creative ideas and the capital and go to a place that’s more welcoming.
This was already happening because of the internet and is now being accelerated because of these new technologies.
There are a number of countries that knew this already are playing this game hard. Good examples include Switzerland which is working hard to attract a lot of talent in this new industry and to create rules that are flexible and recognize this new technology for what it is and don’t try to change it.
Singapore is doing the same and many other smaller nations may suddenly break out and try to become very attractive places for this kind of technology.
Ultimately this is going to lead to quite a bit of conflict, it’s going to lead to quite a reaction from those jurisdictions that have become accustomed to throwing their weight around and getting their way. There are a few countries in the world that believe that their jurisdiction is the world jurisdiction and of course that’s not true, but this technology is going to make that glaringly obvious.
Where Bitcoin Meets Institutions The Financial Sector and Investment Vehicles
It’s causing a lot of money to flow into this space. The concern is that if too much money flows in prematurely it’s going to have a corrupting influence, and there may have to disrupt this technology with another round of technology again.
One of the problems with ETFs, ETNs and all of these other vehicles for participating in cryptocurrencies is that they introduce intermediaries and centralization in a system that is designed to have no intermediaries and centralization.
You don’t hold Bitcoin when you hold an ETF. What you’re doing is giving money to a fund manager to hold Bitcoin for you. How does that fund manager decide which consensus protocols to follow, how to participate in the broader Bitcoin community? That gives them a lot more power than the average Bitcoin user through their concentration of ownership.
That’s not necessarily a good thing. Unfortunately, it is a thing that is happening and will happen, of course eventually institutional money always was and is going to pour into this environment. Which just means we’re going to have to find ways to preserve the original principles.
This is very similar to what happened with the internet. At first, it was an academic curiosity driven by principles and things were very decentralized and then giant multinational corporations poured in and now we have problems with the centralization of power and control in the internet and surveillance, all kinds of issues like that.
There are some concerns but the technology has within it the seeds for the next round of disruption. Every 20 or 30 years, you have to disrupt everything all over again, that’s the only thing that keeps freedom going.
Blockchain is one of those things that has brought an attitude that anything can be done with the blockchain and then venture capitalists will fund it. It’s the magic word that reigns millions on a startup and just like any hype cycle before it, it’s generated absurd applications where people miss the point.
The vast majority of the time when a company says they’re using a blockchain, what they mean is a database and what they’re using a blockchain for is a database and a blockchain is a very slow and inefficient database.
The real principles are censorship resistance, neutrality, open and borderless access on a peer-to-peer protocol if your project needs those capabilities then it needs the technology that Bitcoin uses, which is not just a blockchain but a blockchain with a consensus algorithm that is open, a peer-to-peer network that is open and cryptography to secure it all.
Most applications don’t need that and the applications today of blockchain technology are limited. They’re limited to areas where what you want to do is scale trust, where you want to be able to have participants from different parts in the world, who have never met before to be able to trust in a neutral platform because they don’t trust each other and still be able to transact with each other.
That’s the application and there are lots of applications that can be used for.
Real estate, ownership of assets like cars and homes, things like that. All kinds of digital assets, of course, voting, there are all kinds of uses where you can apply that but those are not the ones that we’re seeing.
Many people tend to apply the thinking of the past to the new technology.
This is called skeuomorphic thinking and the end result of that is that we try to recreate the past rather than truly innovate. It usually takes a couple of rounds of maturity of the technology before they’re really innovating the things that couldn’t be done before start emerging from these technologies.
Bitcoin as a Technology
This comes down to the fundamental worldview of every person who encounters a technology that empowers individuals and if you look at the trajectory of technology, we see this happening again and again.
People were terrified with the idea that a single individual could own a printing press and print their own Bible.
People were terrified with the idea that a blogger could write an article and compete head-to-head with the New York Times.
People were terrified with the idea of people being able to own weapons for example.
Each of these has represented a challenge for society which is what happens when an individual becomes powerful and how do we handle that in a society where some people are not up to good. That doesn’t mean we can actually control these technologies, unfortunately controlling technologies means that we make it difficult for individuals who obey the law to use the technology but individuals who disobey the law will disobey this law as well, and they will use whatever technology they can.
So this is a fundamental societal challenge which is how do you trust people with the power of a bank. This argument compared to some of the other challenges we have, you know the fact that someone can 3D print a gun or build something with CRISPR that does genetic manipulation of DNA, those are bigger challenges or what what you can with a 3D printer or the fact that you can drive a three-ton truck anywhere you want.
Those are all bigger challenges with society than the idea of people using money and being able to express themselves and associate with others and have commercial interactions. Most people’s world view is simple, the vast majority of people will use this new capability to lift themselves from poverty, their primary objectives will be to achieve food security, health care and sanitation, education for them and their children.
That is a good thing because billions of people are outside of that today, so in uplifting billions of people, most people are personally willing to take the risk that some people will use that for evil because the net good that is done is enormous.
That’s a utilitarian philosophy of good versus evil.
Some people see it very, very differently.
That’s the philosophical and moral perspective then there’s a practical perspective and the practical perspective is really simple, this technology now exists. Anyone can recreate it, there is no going back when have to as a society face the consequences of these technologies, all of these technologies and the fact that individuals will have these powers.
So how do we make sure that most use it for good and those who don’t are appropriately handled by society, and that has nothing to do with the technology really. We can’t constrain technology as a means for social policy, whenever it’s been tried in the past, what it does is it results in disenfranchising people who have good intentions and criminals still go on and use whatever they can use.
What’s more interesting is the possibilities that open if we can give equal access to the world economy to billions of people who don’t have it today.
What are Some Characteristics of Alternative Coins and the Money That We Have Today
The term token really represents this concept of an abstraction that may or may not carry value but which can be held, traded, owned by someone.
A token can be, you can think of it simply as a casino chip, you can think of a token as the key to your house, you can think of a token as a playing card, you can think of a token as an ID card, so it has all of these different characteristics. Tokens can be used to contain value as with a casino chip, they can be used as a means of access as a car key or house key is.
They can be used to identify members of an organization like for example your business card or your employment door access card. They can represent loyalty towards a team, a brand, an artist, they can represent many different things.
These abstractions sometimes have monetary value, sometimes don’t. Sometimes their monetary value is hard to discern because they’re not actively traded, other times they really are pure money, other times they are more used for access to products or services. This new world of tokens will touch every aspect of our levels.
Every single brand that currently has a loyalty card that gives you air miles or points or something like that, that is a token.
It’s not currently a token based on an open protocol that’s freely tradable in open markets but it will have to be, and the reason that it will have to be is that the second version is much better. A token that is tradable is much more powerful than one that isn’t. So everything today that we see that represents loyalty, access, value, association, etc can be represented by an unforgeable digital token that is fully transferable and tradable that operates on a global basis, that is completely unforgeable and the fact that any 5 year old can create such tokens and imbue them with the qualities of global access, unforgeable, perfect security, trade ability on liquid markets everywhere in just a few minutes, means that we will have millions of them.
Kindergarten children will generate tokens to represent their friends. Why not? They can. They do it today when they trade blocks and rubber bands. They’ll do it with digital tokens in the future that will represent their digital pets, their friends, their associations.
If you imagine that rippling across society, the tokenization of many different things. Fundamentally what these tokens represent is abstractions of language. They are used to express value and in any field of life in which humans feel that need, in order to grow stronger bonds, in order to affiliate themselves with others, to express loyalty or friendship, to exchange value, to trade commerce, to participate in organizations, all of those activities are expressive activities.
Now we have these universal tokens that can act as the abstractions that allow us to express these activities and humans talk a lot, and we will talk with tokens because that’s how we will express these things.
Currency and Sovereignty
One thing that has become evident with the emergence with Bitcoin and the internet and other related network-based global technology is that we flipped the world around whereby in the past, the power and authority of essential institutions, such as a king, a sovereign, flows downwards and gives rights to the people. Part of the world as we’ve known it since the Renaissance, since the industrial revolution and now since the emergence of the Internet is one in which, we understand that individuals on their own have rights have expression, have power and now that power is flowing upwards. It’s grassroots, it’s emergence and it comes out of loosely associated human populations who may be geographically spread all around the world who share a common voice, who share a common interest or a common idea, whether that’s religion, whether it’s belief in an idea. Whether it’s belief in a political idea or whether it’s the fact that they all love Justin Bieber. It doesn’t matter.
But in the case of currency specifically, money has particular power within a society, because if you can create money in a top-down way using the authority of a sovereign and then imposing that currency on an entire population as a monopoly, that conveys great power just like when the sovereign could define the religion of a state and impose that on all of the citizens before we had secular governments and separation of church and state, that power was awesome, immense, and terrifying and dangerous, and corrupt.
The power over money is similarly awesome, terrifying, immense and corrupting and it corrupts democracies and it corrupts sovereigns and it corrupts governments and it corrupts large multinational corporations.
What if we flip that around, what if money doesn’t come from above granted to the people but emerges from below and used by the people? Then individuals themselves can give this currency power and that power is their own power because they choose to participate in this currency and by choosing to participate, they give it velocity which is the exchange of currency and commerce.
That velocity gives it value and that value makes it powerful which makes more people participate.
You have this emergent power that comes from the masses. It is the ultimate democratic phenomenon. It is a bottom-up emergence of value as a common language without rulers.
That’s where you see the idea that sovereignty emerges from currency rather than the other way around.
How Did Money Become So Complex?
The problem is that for the vast majority of human history, money had two natures, it had an abstract nature as a symbol, it’s a symbol in terms of language or letters or symbols or mathematical notations are symbols, that represent something else. In the case of money it represents the value you want to exchange with the person you’re trading with, it represents the value of the product you hope to receive in return, value isn’t inherent to money, it’s simply expressed by money and symbolizes.
But at the same time, most of the forms of money we’ve had have been very, very tangible.
Not abstract at all.
A physical thing you hold, a shiny coin, a crisp piece of paper, a certificate from a bank, share certificate, a letter from the king, a line of credit.
These very physical manifestations of money fool us into believing that money is physical even though it’s not, it’s just an abstraction. The the more we see the physical and the abstract tied together, the harder it is to discern the real nature of money.
Well, Bitcoin now brings that to a head because there is no physical. At all.
There is no tangible representation of Bitcoin, except for the shiny gold coins with the B inscribed on them that are made as souvenirs and trinkets for those new to Bitcoin. If you look at every single newspaper article, magazine article, TV program about Bitcoin, at some point in the show, those gold B inscribed trinkets will show up because people are so tied to a physical manifestation that even when one doesn’t exist, they’ll bring out a trinket to represent it.
It’s hilarious because in the Bitcoin space they call that the journalist’s startup kit which is a series of photos of these trinkets that absolutely have nothing to do with Bitcoin itself.
We need the physical because it’s something we understand. If you talk to people who are confused and skeptical about Bitcoin, they often say things like it’s not money if I can’t touch it, which is ironic because the money that we have in the world, less than 8% of it takes physical form.
Of the entire amount of money that circulates, that is in checking accounts and savings accounts and corporate accounts, in certificates, in bonds, in all of the other forms of broad money circulation, less than 8% of global money exists as physical coins or notes.
So what we’re actually touching isn’t the money, 92% of it doesn’t exist in that physical form.
Yet people feel so tied to it they’ll say things like it’s not money if I can’t touch it.
Actually, it is. It has been for quite a while, you just haven’t noticed.
This is really the fundamental aspect of money that is so mysterious to us, the other is this observation: sufficiently advanced technology is indistinguishable from magic.
The idea is that once the technology is advanced enough, it looks like magic to those who don’t understand it. The corollary of that which is rather interesting is the idea that once the technology is established enough, it stops being a technology and becomes completely invisible.
We don’t think of technology around us that existed in our culture for thousands of years as technology anymore.
It’s just so embedded that we don’t even see that exists.
Money is one of those. Money as a technology has existed for thousands of years and it’s become so and masked in our culture, in our language, in our traditions, in our way of thinking that we no longer see it as completely transparent.
Just like language.
We don’t really think of language as a communications technology, is just part of human nature.
So when you have something that is simultaneously abstract but most people view it as physical, that’s part of a culture, that has been embedded for thousands of years that we don’t teach in school because why would you examine something so basic.
People often have very strange ideas about what it is and how it works. When you talk to people about Bitcoin, every single one of their first 10 or 15 questions, if they’re absolutely new to this reveal not that they don’t understand Bitcoin, but reveal that they don’t understand money.
One of the most common ones is actually almost comical, you’ll talk to people about Bitcoin and they’ll say, but how can it have value, it’s not backed by anything?
You can say, well okay, what is the Swedish Kroner or what is the US Dollar backed by? They’ll say, oh it’s backed by the gold that’s in the vaults at Fort Knox.
That is equivalent in monetary terms as the story of Santa Clause.
It’s a story we tell children. It doesn’t exist anymore. It hasn’t existed for 90 years now. Since the 1930s.
We no longer have gold reserves in Fort Knox that actually back our money. Our money used to say, one dollar, silver dollar certificate. Meaning that you could take the paper note to the bank, you could give it to the banker and they were obliged by law to give you a pure silver dollar. In return for that certification. Every single dollar in circulation had that amount of silver equivalent backing it.
But that hasn’t existed for 90 years and yet most people don’t know that that doesn’t exist, they have this fantasy this mythology around money, this simplified story for children about how money works and how it’s issued. In fact, if you told people the real story of money they’d look at you like you were a two-headed alien and tune out of the conversation almost immediately.
There’s an infamous play where they replicated the conversation between a mother and her daughter and the young girl goes,
“Mommy, what is money?” and for the first time what happens when the mother actually answers that question.
“Ok, Jenny – well you see, money is a, is a system of bilateral obligations traded through the international bank that uses special drawing rights, which is a virtual meta currency that is a basket currency of all nations. Calibrated for GDP. These are traded on international markets where each government has a treasure that issues debt, that debt is issued to private corporations that issue notes in return for that debt to buy treasure bonds that are floated on an open market with yield and price. These are then distributed to regional banks which use a system of fractional reserve to extend credit to small businesses and individuals, thereby creating velocity in the economy. But that velocity must be carefully calibrated to adjust for inflation so as not to create a loss in value of the average currency unit.”
Now if mommy said that, because that is the correct answer, Jenny would be very confused.
So instead, mommy says something like,
“Oh, it’s like gold. It’s valuable and we use it to trade.”
We don’t know money because money has become such a complex technology with giant infrastructures and interests and international relations that it has become this invisible machinery of the state that we do not question.
In fact, the ability to not question money is one of the greatest privileges.
If you have the ability to not question money, that means your government and it’s money functions and the moment it stops functioning, everything goes to hell and you immediately have to learn very quickly what inflation is and then what hyperinflation is, and why money is important and what happens when it goes wrong.
Out of 194 countries, a good 100 of them repeat that lesson every 20 to 30 years, destroying the wealth of a generation because they don’t understand what money is.
So what is money? If we could answer that question simply then bringing people a new form of money and saying simply, okay, this is the same thing only a digital representation that is a community and collaboratively based.
They’d understand it.
But because people don’t understand money, they can’t understand this new form of it. They simply have to decide whether they trust or not, that it still works more or less in the same way. Of course most people don’t.
It takes a while to overcome these hurdles and preconceived notions about what money is and to trust that a new form can work, but we’ve done this before.
The first time someone pulled out a Diners Club Credit Card and went to a hotel and said I don’t have money, I have Diners Club, the hotel person’s response was, “Sorry, I don’t know what that is, but that’s not money.”
Credit cards were introduced at 1950, at first nobody believed that you could actually do this with just a piece of paper, not plastic at the time and here’s this card, trust me, it’s as good as money.
The first time someone gave a paper note from the Bank of England instead of a gold coin to a merchant, that merchant laughed in their face and said sorry mate, we only take real money here. None of that paper.
This goes back through history. It took almost 400 years for paper currency to be accepted as a viable form of money, it took almost 60 years for credit cards to be accepted broadly as form of money, we can do it in less than 20 with Bitcoin.
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