Bitcoin is Inevitable | The Future of Money P10
A look at the future growth of Bitcoin, and how it becomes global money.
On the journey from bitcoin being impossible to inevitable, the final stage is crossing the myriad of ways in which bitcoin could fail.
In this edition of The Future of Money we’ll discuss bitcoin being copied, and in the next edition, bitcoin being banned. Special thanks to Parker Lewis for pioneering these ideas. Again, I’m merely the bridge.
Bitcoin Has No Competition
Bitcoin is a new iteration of money with the potential to become the world’s preferred store of value. This once in a thousand lifetime phenomenon is so rare many cannot believe a revolutionary transformation will take place until it has happened. Accepting that money could be reinvented (regardless of in what form) is part of the reason many refute Bitcoin.
This is why claim that ‘bitcoin can simply be copied’ is ill founded. A successful copy of bitcoin would mean two iterations of money in a decade, when historically such events take a hundred times longer.
Think about what it means to claim that bitcoin can be copied. Most people aren’t even aware that fiat money is a problem, and suddenly we’re not only going to reinvent money, but we’re going to do it twice, when the first iteration hasn’t fully come to fruition?
Another blockchain cannot replace Bitcoin for two reasons: network effect and decentralization. First, digital scarcity is a onetime discovery.1 Although Bitcoin’s code can be copied by anyone, a copy of bitcoin’s code is not bitcoin.
A simple thought experiment illustrates this. John is debating where to store his wealth. Is he going to choose the largest, most long standing network with the most liquidity, or one in its infancy with little to no liquidity whose track record is unknown? Each independent actor is compelled to choose bitcoin, making its network effect virtually impossible to replicate.
Remember that bitcoin is not inherently money just like no commodity or item is born as money. It has become money as independent economic actors evaluated its monetary properties and decided to store their wealth in it.
As adoption increases the network becomes more decentralized, thereby increasing its security and censorship resistance. Every day the market decides that bitcoin is the superior place to store value.
The most liquid money begets more liquidity, creating a positive feedback loop for adoption. Every day for the past decade the market has been faced with the decision and has continually chose bitcoin.
Bitcoin is Uniquely Decentralized
Bitcoin’s security comes from its decentralized nature, meaning it has no owner nor controller. In order for a network to be sufficiently decentralized it must be unable for any one person or entity to control 51% of the network. For a network to be to expand to the point where it becomes decentralized enough that it cannot be hacked is nearly impossible unless it happens organically.
With bitcoin this spawned organically as people were largely unaware of Bitcoin and its potential, and miners (those whom validate the network) spread out naturally, allowing for Bitcoin to become decentralized to the point that it’s widely believed it’s impossible to hack.
It’s easy for one party to control the majority of an infant blockchain, thereby compromising its security. Experts believe too much awareness and capital exist in the blockchain space for something like bitcoin to ever emerge again.2
If Bitcoin Copy were to emerge and try to take market share from Bitcoin, one could easily control 51% of the mining power of a nascent blockchain, and therefore control the network and debase the currency. This is precisely why Bitcoin cannot be copied.
As Andreas Antonopoulos, one of the most prolific Bitcoin experts observes, ‘Bitcoin is the next Bitcoin.’
If you’re new here, my name is Alec Torelli and I’ve spent thousands of hours in crypto, DeFi and NFTs.
My mission at CrypTorelli is to simplify crypto so anyone can understand it. I’ll also share the latest, most exciting opportunities in the space before anyone else. Join the thousands of others to stay up to date.
The Stubborn Minority
Once gold was chosen as money by a small subset of the population due to its superior monetary properties, its quest to become money was largely inevitable.
Gresham’s Law states that ‘good money drives out bad’, meaning people will spend the item of lower value and hoard the item of higher value (the scarcer asset).
It is this current stubborn minority that will propel Bitcoin forward. A small, but growing subset of society has converged upon Bitcoin as money. They will not accept any other virtual currency and certainly disdain fiat. (Several of my friends haven’t transacted in fiat for years).
Nassim Taleb refers to these people as ‘the stubborn minority’ and observes the phenomena that they pull the majority toward their demands.3
He states: ‘It suffices for an intransigent minority to reach a minutely small level, say three or four percent of the total population, for the entire population to have to submit to their preferences.’Â
This revelation struck Taleb while at a barbecue when a friend poured a glass of Kosher lemonade.
‘The Kosher population represents less than three tenths of a percent of the residents of the United States. Yet, it appears that almost all drinks are Kosher. And the simple rule that changes the total is as follows: A Kosher eater will never eat non kosher food , but a non kosher eater isn’t banned from eating kosher.’
We see this phenomenon in many aspects of life, such as with ubiquitous handicap signs, restaurants catering to food allergies, and how when one person in a group is a vegan, the entire group must accept to choose a restaurant that is vegan friendly.
With Bitcoin, this ‘stubborn minority’ act as the monetary equivalent of vegan eaters. An intolerant minority (called ‘Bitcoin Maximalists’ or ‘Maxis’) have determined that Bitcoin and only Bitcoin is money, while the rest of the crypto market accepts both Bitcoin and other forms of digital currency (such as Ethereum or ‘ETH’).
Just like the vegan pulls the entire group to cater toward their needs because non vegans can eat vegan, but vegans do not accept to eat meat, the ‘Maxi’s’ will slowly force the herd to transact in bitcoin until it becomes the global settlement layer upon which all transactions are denominated.
As always, I’m curious to learn from you and hear your feedback. Share your thoughts in a comment below.
Alec
Bitcoin and the Number Zero (Path Dependance of Bitcoin): https://medium.com/@breedlove22/the-number-zero-and-bitcoin-4c193336db5b
The Most Intolerant Wins: The Dictatorship of the Small Minority: https://medium.com/incerto/the-most-intolerant-wins-the-dictatorship-of-the-small-minority-3f1f83ce4e15#.hr22nda85