Why Bitcoin Might Become the One World Currency
Monetary networks converge into one.
Post Bitcoin, every Tom, Dick & Harry seems to think that they can create money too. At a root level, this is the audacity of everyone who attempts to create a copy of Bitcoin. Whether by hard-forking out of consensus (bitcoin cash), cloning bitcoin (bitcoin), or creating a new protocol with “better” features (Ethereum), each is an attempt to create a new form of money. If Bitcoin could do it, why can’t we?
We sit here witnessing the monetization event of an economic good (bitcoin) on the free market for the first time in thousands of years (h/t gold). Rather than stopping to contemplate the weight of that reality or to understand how or why that is possible, many people skip right past it to focus on some derivative or some way to improve upon a problem they didn’t see in the first place.
Everyone wants to get rich quickly, and so long as there is money, there will also be alchemists. Those that attempt to copy Bitcoin are our modern-day alchemists.
They tell us that bitcoin is too slow so they create a copy that is “faster”. Or they tell us that Bitcoin cannot handle the number of transactions required by the global economy so they create a copy with a “greater” scale.
Then they tell us that bitcoin is too volatile to be a currency so they create a “more stable” version. It goes on and on. Next, it’s that Bitcoin is too rigid and needs to be more programmable so they create a “more flexible” copy.
They often even tell us that their creation is not money but instead, it’s a vehicle for “payments” or a “utility” or maybe a “global computer fueled by gas”. They also try to convince us of a world with hundreds, if not thousands, of currencies. But make no mistake, in each case, they attempt to create money.
Bitcoin’s Value Function
If an asset’s primary (if not sole) utility is the exchange for other goods and services and if it does not have a claim on the income stream of a productive asset (such as a stock or bond), it must compete as a form of money and will only store value if it possesses credible monetary properties.
Bitcoin is a remarkable cryptographic achievement, and the ability to create something that is not duplicable in the digital world has enormous value. - Eric Schmidt (Former Google CEO)
With each “feature” change, those who attempt to copy Bitcoin signal a failure to understand the properties that make Bitcoin valuable or viable as money. When Bitcoin’s software code was released, it wasn’t money.
To this day, bitcoin’s software code is not money. You can copy the code tomorrow or create your variant with a new feature and no one who has adopted Bitcoin as money will treat it as such.
Bitcoin has become money over time only as the Bitcoin network developed emergent properties that did not exist at inception and which are next to impossible to replicate now that Bitcoin exists.
These properties emerged organically and spontaneously as individual economic actors all over the world evaluated Bitcoin and determined to store a portion of their wealth in it.
As Bitcoin’s value increased, it became decentralized and as it became decentralized, it also became increasingly difficult to alter the network’s consensus rules or to invalidate, or prevent, otherwise valid transactions (often referred to as censorship resistance).
There remains reasonable debate as to whether Bitcoin is sufficiently decentralized or sufficiently censorship-resistant, but while this may be the case, there are other considerations less subject to debate:
Bitcoin represents, by far, the most decentralized and censorship-resistant monetary system in the world today, whether compared to traditional currencies, other digital currencies, or commodity monies like gold.
Bitcoin derives its value because it is decentralized and because it is censorship-resistant; it is these properties that secure and reinforce the credibility of Bitcoin’s fixed 21 million supply (i.e. why it is an effective store of value).
Bitcoin becomes increasingly decentralized and increasingly censorship-resistant as its value increases and as it scales at all levels of the network.
Repeat.
Monetary Systems Tend to One
Every other fiat currency, commodity money, or cryptocurrency is competing for the same use case as Bitcoin whether it is understood or not, and monetary systems tend to a single medium because their utility is liquidity rather than consumption or production.
When evaluating monetary networks, it would be irrational to store value in a smaller, less liquid, and less secure network if a larger, more liquid, and more secure network existed as an attainable option.
Apply a common sense test. If you worked for two weeks and your employer offered to pay you in a form of currency accepted by 1 billion people all over the world or a currency accepted by 1 million people, which would you take?
Would you request 99.9% of one and 0.1% of the other, or would you take your chances with your billion friends? If you are a U.S. resident but travel to Europe one week a year, do you request your employer pay you 1/52nd in euros each week or do you take your chances with dollars?
The practical reality is that almost all individuals store value in a single monetary asset, not because others do not exist but rather because it is the most liquid asset within their market economy.
Anyone with Venezuelan bolivars or Argentine pesos would opt into the dollar system if they could. Similarly, anyone choosing to speculate in a copy of Bitcoin is making the irrational decision to voluntarily opt-in to a less liquid, less secure monetary network.
While certain monetary networks are larger and more liquid than Bitcoin today (e.g. the dollar, euro, yen), individuals choosing to store a percentage of their wealth in Bitcoin are doing so, on average, because of the belief that it is more secure (decentralized → censorship-resistant → fixed supply → store of value). And, because of the expectation that others (e.g. a billion soon-to-be friends) will also opt-in, increasing liquidity and trading partners.
Why Bitcoin Can’t Be Copied
Many individuals creating digital currencies neither accept nor admit that what they are creating has to be money to succeed; others who are speculating on these assets fail to understand that monetary systems tend to one medium or naively believe that their currency can out-compete Bitcoin.
None of them can explain how their digital currency of choice becomes more decentralized, more censorship-resistant, or develops more liquidity than Bitcoin. To take that further, no other digital currency will likely ever achieve the minimum level of decentralization or censorship resistance required to have a credibly enforced monetary policy. And to steal a page from The Bitcoin Standard:
Bitcoin is valuable, not because of a particular feature, but instead because it achieved finite, digital scarcity, through which it derives its store of value property.
The credibility of Bitcoin’s scarcity (and monetary policy) only exists because it is decentralized and censorship-resistant, which in itself has very little to do with software.
In aggregate, this drives incremental adoption and liquidity which reinforces and strengthens the value of the bitcoin network. As part of this process, individuals are, at the same time, opting out of inferior monetary networks.
This is fundamentally why the emergent properties in bitcoin are next to impossible to replicate and why bitcoin cannot be copied or out-competed: because bitcoin already exists as an option and its monetary properties become stronger over time (and with greater scale), while also at the direct expense of inferior monetary networks.
One would likely never come to this conclusion without first developing an understanding of the following:
that bitcoin is finitely scarce (how/why);
that Bitcoin is valuable because it is scarce; and
that monetary networks tend to be one medium.
You may come to different conclusions, but this is the appropriate framework to consider when contemplating whether it is possible to copy (or out-compete) Bitcoin rather than a framework based on any particular feature set. It’s also important to recognize that any individual’s conclusions, including your own or my own, have very little bearing on the equation. Instead, what matters is what the market consensus believes and what it converges on as the most credible long-term store of value.
The empirical evidence (price mechanism & value) demonstrates that the market continues to determine why bitcoin is different, despite a significant amount of noise.
Before speculating, try to understand why bitcoin works and why it’s unique. When someone inevitably tells you about a better Bitcoin or some differentiating feature, remember that the market, which has come to this same crossroad over the last decade before you, has considered those trade-offs and chosen Bitcoin over the field for very rational reasons.
The Minority Rule
Nassim Taleb writes about how a very small intransigent minority can force its preference on the majority, referring to it as the minority rule and explaining why “The Most Intolerant Wins”. Bitcoin (and monetary systems) are a perfect example of this phenomenon.
If a very small minority converges on the belief that bitcoin has superior monetary properties and will not accept your form of digital (or traditional) currency as money, while less convicted market participants accept both bitcoin and other currencies, the intolerant minority wins.
This is exactly what is happening in the global competition for digital currency supremacy. A small minority of market participants has determined that only Bitcoin is viable, rejecting the monetary properties of all other digital currencies, while the majority is willing to accept Bitcoin along with the field.
Because of its intransigence, the minority is slowly forcing its preference on the majority. In the world of digital currencies, diversifying by picking the field is the equivalent of letting the crowd (or the intolerant minority) choose what your future money will be while resigning yourself to only a fraction of what you otherwise would have saved. Evaluate the trade-offs and consider the minority rule before trading in your hard-earned value for a flyer. Money doesn’t grow on trees.
- By Parker Lewis (source)