Something really important happened on January 3rd, 2009. The world changed but as with many fundamental and significant changes in the world, very few people noticed, almost no one noticed. That change started out as a small ripple and it started spreading and now we are here almost a decade later and that small change, Bitcoin is radically rewriting human history and human society.
We are part of something unique and we are part of something really special, that started out as an idea that even the author of this idea didn’t believe it would work, and all of the people that looked at this idea and looked at the theory behind Bitcoin had many, many things to say about how it wouldn’t work. On internet some of the most interesting things are the things that don’t work in theory, but do work in practice. My favorite example is Wikipedia, if you think about Wikipedia objectively, based on what you know about human knowledge, it shouldn’t work.
Why would anyone spend their time for free writing an article on a single Pokemon card for months? That doesn’t make any sense and yet, people do that. We underestimate human nature sometimes. Bitcoin is like that, in theory, it’s difficult to understand how it works, but in practice it has spawned a revolution, it has created something very new.
The era before Bitcoin can be characterized by a short lived period of time which started in the beginning of the 20th century with the introduction of central banking and for the first time, money became completely detached from commodity and became managed on a national basis by central banks.
This was a very different model than what we had before and it continues to this day. Many of Bitcoin religious holders believe that when we look back, 100 years from now, we will see central banking as a short lived, and not particularly successful experiment.
What Bitcoin started is different not because it replaces central banking, but because it opens the door to a new form of competition, a form of competition where money can be created on the internet by anyone and be instantaneously global, unforgeable, open and secure and with that new system we not only created a new form of money, but we also created a new environmental niche for money to compete in.
In my opinion, with the invention of internet money, we are now start to see the first model of network centric evolution of money where different forms of money compete as species, and they compete by finding an environmental niche and adapting to that niche through simple competition, and this has never happened before. The reason this has never happened before is because the environmental was hostile to that form of money. Geography, nation-states limited the ability of money to spread and compete with other forms of money on a global scale.
What happened on January 3, 2009 was a very significant event because what it did was fundamentally change the environment in which money competes.
The best counter example or similar example I can share is a very special moment in the history of this planet. When the levels of oxygen in the atmosphere started rising and they gave the possibility of aerobic metabolism.
Aerobic metabolism meaning that species could now metabolize with oxygen and before that, all species were anaerobic, they metabolized without oxygen, they lived in an oxygen free environment, in fact for them, oxygen is toxic. Oxygen is an oxidizer, it’s poison to an anaerobic organism. It’s like an acid, it destroys them.
What happened when the environment changed to allow aerobic metabolism was suddenly a whole new environment opened up for species to compete, species that were not competing with the previous species, because they operated under a completely different niche and they had a specific advantage because aerobic metabolism is an order of magnitude more efficient and within a very short period of time, the planet changed.
Aerobic organisms got pushed to the deepest crevices of the world, they still exist in the bottom of the Marianas Trench buried in glaciers inside volcanos in places where oxygen doesn’t reach. They still exist, they haven’t gone away, but this is now a planet of oxygen breathing organisms. The world changed. One of the interesting things about evolution is that, it doesn’t work in a linear fashion, it works through a process called punctuated equilibrium. Things have equilibrium for a long time and suddenly there’s a great rush of evolution as a lot of things change, new environments open up and species evolve very rapidly in a short period of time and they reach equilibrium again and persist for thousands, hundreds of thousands, millions of years and then again something changes. Some environmental factors, some external stimulus, some advance in evolution.
Species able to create DNA instead of RNA. Oxygen in the atmosphere or, for the dinosaurs, a meteor or other geological events.
On Janaury 3, 2009 a meteor appeared in the sky of our society and until that time, banks were the kings of this planet like giant lumbering dinosaurs completely dominating for hundreds of millions of years with complete disregard, even contempt for the tiny little furry mammals. The tiny little furry mammals that they routinely step on, as they walk around the planet, but something has changed and very soon those mammals will inherit the earth.
In this new environment we don’t compete against banks with Bitcoin, because Bitcoin has adapted to a different environmental niche, Bitcoin is not the money of the physical space, it’s the money of the internet. Bitcoin is not the money of the nation-state, it is the money of the world. Bitcoin is not the money of the current generation, it is the money of the generations to come, and it doesn’t compete against banking because for Bitcoin, banking and borders and physical money are irrelevant, just like to mammals, dinosaurs were irrelevant, and to aerobic bacteria and anaerobic bacteria are irrelevant, unless they’re suitable as food.
When you look at this environmental niche, you have to realize that it’s not just one species of money, not just one new species of money, Bitcoin, but an explosion in the ecology of money.
On January 3rd, 2009 there were 194 currencies. Today there are more than 3000 currencies, and of those all but 194 are digital, decentralized, internet exchanged money. They’re the new species that live on the internet and most of them will be extinct, most of them will disappear, but they will continue to evolve independently.
When you look at the evolution of money in this environment, you have to realize that there are many factors that affect this evolution. One of the factors is us, human beings. We give these things life. This evolution is not evolution by random mutation, it is directive evolutions by designers, you reading this, there are people who are directing the evolution of these new currencies and in doing so they are responding to environmental stimuli, supply, demand, the needs of customers, the applications that they have in mind, untapped markets and opportunities that traditional currencies can’t fit in, and they direct the evolution of these currencies in that direction in order to take advantage of these new niches.
But there’s also a broader environment, because at the same time that these new currencies are evolving, the old currencies are in crisis. We are not facing an unprecedented currency crisis around the world that is affecting hundreds of currencies, hundreds of countries and it is affecting every central bank. We are in an environment that hasn’t happened in the last 200 years. When you were growing up and you were studying just some basic macroeconomics, economic orthodoxy said that the lowest you can go with interest rates is zero and you never go there, never go full zero, and yet now, 24 different central banks are at zero and not just temporarily. Some of them for eight years, some of them for longer, and some of them have also gone negative.
Bitcoin is not going to destroy central banks. Bitcoin doesn’t give a damn about central banks. Central banks are doing a pretty good job destroying themselves.
The reason is because we live in a world where billions of people have no access to finance, have no access to banking, have no access to traditional financial instruments. They operate entirely on cash, a single currency isolated from the rest of the world and that is an environment in which Bitcoin can thrive.
We’re not going after the environmental niche of traditional banking because there’s a bigger environmental niche. The gray economy is more than 60% of the economy of the world, the unbanked, de-banked and under banked are the majority. The disenfranchised, disempowered are the majority and that is the niche that Bitcoin is tapping into and we will continue to serve the needs of people who are not being served today. Some of us, because that’s the matter of principle or ideology, some of us because it’s a matter of supply and demand and it is their prudent, sensible and profitable thing to do.
In this evolution of currencies, we are going to see external stimulus and then of the most important things to keep in mind is that these new currencies will be attacked and they being attacked with misinformation, propaganda and in some countries with direct attacks, with legal attacks, with extra legal attacks, outside of the judicial system. These new currencies remove power from people and organizations that are accustomed to power and therefor they represent a threat.
Who do they represent a threat to? Maybe the question you need to ask yourself is what kind of government and what kind of organization is threatened by the idea of people having independent financial control and empowerment over their own money. A government that is threatened by that, is threatened by the fundamental concepts of the Renaissance, of the enlightenment, freedom of association, freedom of expression, freedom of speech, freedom of commerce. A government that is offended by freedom is not a government that I want to support. Now arguably most of the governance in the west today are not hostile towards Bitcoin. They’re curious. They don’t understand it. They want to see how it can be fit into the status quo. They want to tame it, control it, co-opt it. In other countries where it represents a more serious threat, because it represents freedom, Bitcoin is illegal with very heavy penalties.
But one of things about an evolutionary system is that it doesn’t stand still and if you introduce it to the environment with a predator, then the system evolves to defend itself against the predator. If the predator is an attempt to identify every user of the system, which is antithetical to the evolution of Bitcoin and other cryptocurrencies. They will evolve to become stealthier, and more anonymous. If you isolate a cryptocurrency, you trigger a specific type of accelerated evolution.
We’ve seen this happen with species, to species that became isolated for example in the continent of Australia with fierce competition for very limited resources, evolved to be the worlds most venomous, poisonous and dangerous animals in the world.
Everything in Australia is trying to kill you.
Australians actually love to remind tourists, that they even make up species that don’t exist just to scare tourists. Why did species in Australia evolve that way? Because they were isolated and pressured, and when you isolate and pressure something, it adapts and it adapts by increasing it’s stealth, increasing its venom and increasing its resistance. Bitcoin already has an element of evolution that is quite effective.
In the current regulatory system, banks that try to swallow Bitcoin get indigestion. It doesn’t kill them, but it certainly makes their tummy hurt, and so Bitcoin can’t be adopted, co-opted and absorbed by the traditional banking system which is a huge advantage in evolution because it means we can continue to do our own thing without worrying about that being swallowed by the traditional system and this comes as a huge surprise to traditional banking, because over the past 50 years they’ve been accustomed to to swallowing any type of competition and they can’t swallow this one. It doesn’t taste good.
So when we look at the evolution of money, we see this explosion, thousands of new currencies and this will continue. We will have thousands and then tens of thousands and then possibly hundreds of thousands of currencies. You think about that and it doesn’t make any sense, if you look at it from the traditional perspectives of money, how can you have hundreds of thousands of currencies, that doesn’t make any sense. How can they possibly have value? What happens is fragmentation. They have value but to a smaller and smaller group, which is actually the normal behaviour of money. Money is something that emerges among small groups, the idea of one money to an entire nation is relatively new. If you watch children in kindergarten, they develop their own money. They develop their own culture of money, they trade rubber bands and Pokemon cards and cubes, they use it as a language to express themselves.
So out of the hundreds of thousands of currencies that will evolve in this space, the vast majority will have no real economic value outside of the small unit that uses them. Maybe some of them will represent your most favoured football team. You can imagine currencies that represent loyalty. Currency that represents loyalty to an artist, loyalty to a sports team, loyalty to a friend, loyalty to a business. You can imagine a currency that are used to represent commodities or assets, to represent assets or sharing tokens for a taxi service, to represent all kinds of things we haven’t imagined yet and out of these hundreds of thousands of currencies, we will see some that will behave very much like traditional money and they will be used a primary means of exchange, store of value for societies, but these will not be geographic societies. These will be societies with common purpose, these will be adhocracies and groups that exist on the internet, beyond borders, beyond nation-states.
We now see the emergence of the first opportunity for the cosmopolitan class and cosmopolitan minded people to have a cosmopolitan currency.
A currency that belongs to the world, not a single nation and we will see these types of things emerge, and they do not compete against traditional currencies. We’re not going to replace the Euro with Bitcoin, in fact that would be a disaster, that would be even worse than the Euro, arguably. The reason is because the fundamental failing in world money is the imposition of monopoly and centralized control and the fundamental evolutionary characteristic of the you money is the decentralization and choice and that’s why we don’t compete in the same environment, we create our own environments. When you think about these forms of new electronic money, the instinctive thought at first is to evaluate them in the context of traditional money.
How many dollars is a Bitcoin today? Everyone knows that question or that answer and that shows that we are still evaluating Bitcoin in the context of traditional money. We are still assuming that if we earn, we will probably earn in traditional currencies, we will convert, we will then convert again and spend in traditional currencies and with that thought, you have to think about exchange rates and volatility. In many cases it is priced in traditional currencies, but as time goes by, increasingly it’s not. Increasingly, Bitcoin is being used to buy Ethereum, services, disk space, websites, VPNs, bandwidth, food delivery, car rides, etc and in those questions the only thing that matters is purchasing power. Which means that gradually, Bitcoin has started to evolve from a simple means of exchange that we transfer into another currency to a store of value that has it’s own purchasing power, completely independently.
One day, this transition will happen completely for a few people and then for more people. We will build an economy operating in denominated entirely in digital currencies, entirely on the internet. Never exchanging, never touching the traditional banking system, outside the system and on that day, the answer to the question how much is one Bitcoin worth will be 1000 little bits. We have made that transition.
You will have to explain this to you children. They won’t have to explain it to their children. They won’t have to explain paper money to their children.
Just like how you would have to explain VHS and fax machines to younger people. These things are the relics of old thinking and the thing about this is that you don’t notice you are bathed in the relics of old thinking until you have an opportunity to step outside of that context and Bitcoin is giving us that opportunity. Bitcoin is the vehicle in which we step outside the traditional notions of money tied to geography and nation, controlled by a central bank with intermediaries of trust. We step outside of these and we re-evaluate fundamental truths.
What does it mean to trust? What does it mean to have authority in a system that is network centric. What does it mean to express value on a global basis and as we enter that new context, we are evolving as a society. We are now moving into an environmental niche of the cryptocurrency.