Blockchain writer, DeFi disciple, member of dOrg and DXdao
The following are not my beliefs, but a compilation of notes from conversations I had with a self-described Bitcoin “mutant”, named Edan Yago, contributor to Sovryn. Letting him ramble on about Bitcoin resulted in mesmerizing, mythical, and fascinating ruminations about Bitcoin’s destiny. So for one, I myself believe in Bitcoin as a digital store of value. It is a huge chunk of my portfolio, and I believe it will outlast 99% of the cryptocurrencies we have today. There is no better symbol of scarcity and hard money in crypto to date. However, I feel just about the same level of admiration for Ethereum, as it is opening up so many use cases through DeFi and DAOs. I am putting my biases aside to explain a very rare (and what I find fascinating) point of view. I present you Part 1 of The Hero’s Journey of Bitcoin:
The Great Game
The cryptocurrency experiment could not have higher stakes. Geopolitics is often referred to as the “Great Game”. It’s the game of thrones for global power. It is a game played by sovereign states. Bitcoin is the only way that ordinary people can play the Great Game. Bitcoin allows us to play this game by creating a sovereign currency that can challenge state powers and contend for the title of global reserve currency. To me that is the goal. For if we, ordinary people, can challenge sovereign states, we become sovereign ourselves: sovereign individuals.
If we wish to play the game on this level, it is very important that we understand that this is a game that can only be played by Bitcoin. No other cryptocurrency can win this game, no matter how “advanced” it is. Indeed, if any other cryptocurrency ever seemed like it could rival Bitcoin for the mantle of Cryptocurrency King, it would not simply mean that Bitcoin had failed. The entire cryptocurrency experiment would have failed.
The purpose of this is to explain why. First, we must examine the true nature of money. Then we must understand how Bitcoin hacked the nature of money to create the perfect money. Finally, we must understand Satoshi’s Paradox — that if anyone can create a successful crypto-”currency”, nobody can.
Bitcoin is invented scarcity in the face of inflation
The Homosapien: this weak, hairless, primate with pathetic teeth and claws, is the dominant life form on earth. How? It is not our intelligence, our ability to speak or our opposable thumbs. We had all those for hundreds of millenia and were still just in the middle of the food chain, living in fear of cats. So scared of bears it was taboo to even mention the word for bear. Then, just a few tens of millenia ago, something changed- and we began a rampage of domination across the planet. Intelligence and speech contributed, but the turning point was that we learned to collaborate at scale. We did this by creating shared illusions, “stories’’ that guided our behaviour beyond our tribal instincts and allowed us to share goals with people we may never meet, in distant lands and times. Chief among these shared illusions was religion and money. Religion allowed us to hold abstract ideals as collectively valuable. Money allowed us to trade with distant strangers, even adversaries. Blockchain is the newest human innovation for dispersed collaboration, even among adversaries, and it is no coincidence that it was invented for the express purpose of creating a super-money.
Today, the dominant money, and hence the dominant shared illusion, is the US dollar. Despite the obvious flaws of fiat, there is no shared story as universally accepted as the U.S. dollar. USD is the current reserve currency of the world. 61% of international bank reserves are denominated in USD. People hide Benjamins under their mattresses in San Francisco, Beijing, Tehran, and Khartoum. No matter the differences in culture, political ideology, or religion, most of the world agrees on USD. Iran and the United States are in a state of open conflict. Yet, both hoard USD. It is the only cultural invention that is so universally accepted.
To compete in the Great Game, we would need to create a shared story about money, that was the most powerful shared illusion yet. We would need to bewitch the world with a spell of almost unimaginable power. Ten years ago, Satoshi Nakamoto created that spell, wrote it in code, and unleashed it upon the world with the perfect Enochian ritual.
What Satoshi Nakamoto did, should have been impossible. He created value from nothing. On January 3rd, 2009, the Bitcoin network came into existence and Satoshi Nakamoto mined the genesis block of Bitcoin. As of October 1, 2020, it sits at a market capitalization of about $200 Billion. Bitcoin has become a working manifestation of the abstract concept of financial sovereignty. Powerful as it is, his spell (like all magic) is a fragile illusion.
“There are trivial truths and there are great truths. The opposite of a trivial truth is plainly false. The opposite of a great truth is also true.” ― Niels Bohr
We must remember that shared illusions are just that: illusions. The greatest shared stories are mind-bogglingly absurd to the uninitiated. “Jesus was born to a virgin?” “Nirvana can only be achieved by ceasing to desire it?” “China is communist?” “USD has value?”
The internal logic of Bitcoin is just as mind-warping. One need only listen to Warren Buffet as his mind reels from it: “Cryptocurrencies basically have no value,” Buffett said. “They don’t produce anything.” “It is a delusion, basically,” “rat poison squared”.
Buffet is not a stupid man. In fact, he is right, but he is not “right on the money.” Buffet sees only the trivial truth, not the great truth.
What is the mind-warping great truth about Bitcoin? Bitcoin is an invented digital scarcity. Before Bitcoin was created, there was no shortage of Bitcoin, yet since it came into existence, the shortage of it only grows.
And this is the fundamental truth that must be understood by anyone who seeks to understand cryptocurrency: It is valuable only if it is assuredly scarce. Without that fundamental property, the entire cryptocurrency spell is broken.
Raoul Pal, one of the most prominent new converts to the Church of Satoshi, explains this very clearly. When the Bitcoin forks began, he lost faith, the spell was broken. If anyone could create a “version of Bitcoin” — then Bitcoin’s scarcity was replaced with infinite inflation. He sold.
However, as Bitcoin triumphed against these pretenders, not only was his faith renewed, it was redoubled. Indeed, the threat that BCH, BSV and the other “competitors” represented, was a necessary step along Bitcoin’s hero’s journey to ultimate victory.
Bitcoin is the invention of programmatic scarcity. It can only happen once. No blockchain after Bitcoin can invent programmatic scarcity again. Herein lies Satoshi’s Paradox: if anyone can create money through crypto-currency, then nobody can.
Which brings me to ETH (and by extension, all altcoins)
Anyone can create a token that has value. However, nobody can create a token that can be money. And should any present or future Vitalik Buterin, Justin Sun or Gavin Wood, ever create a token that could plausibly rival Bitcoin, Bitcoin will fail. And with it, every single other pretender, including the token that came to rival Bitcoin, will also fail.
Before I explain why, let me be precise in what I mean by “fail”. I do not mean that Bitcoin will lose all value. Bitcoin will always have value, if only as a collectors item. What I mean by fail is that we will lose the Great Game. We will lose the ability to be sovereign through the creation of our own sovereign currency. We will lose the battle that really matters: the battle for the world’s premier money.
Vitalik has always been very careful to describe ETH, not as a money, but as a commodity. ETH was analogous to oil, used to power transactions with “gas”. This was a very careful word choice by Vitalik, and I believe stems from an understanding of Satoshi’s Paradox. Recently however, the “ETH is money” meme has caught some traction. ETH, the argument goes, can “flippen” Bitcoin. ETH is the reserve currency of the Ethereum network, the Ethereum network is able to support advanced use-cases Bitcoin cannot, and this will lead to the Ethereum network overtaking the Bitcoin network and, as a result, to ETH overtaking BTC — and become the global Money.
Perhaps you agree. Perhaps not. For our purposes here, it doesn’t matter. All you need to accept is that it is conceivable that some altcoin could go through this process. We will use Ethereum merely as an example for why this logic is deeply flawed but also very important.
Imagine this wet dream of ETH-heads were to come to pass, what would happen? Bitcoin and Ethereum, would both — quickly or slowly — lose value. Why? For the simple reason that for all the Raoul Pal’s out there, the spell would be broken. Ethereum would prove that Bitcoin can be usurped but instead of capturing Bitcoin’s market capitalization, it would cap the potential market capitalization of both. Everyone would realize, including ETH-heads, that digital scarcity could be created by anyone with a big enough network, which would mean that Facebook, Tik Tok and the CCP could do it, which would then mean that they too could be usurped in the same way that tech companies regularly usurp each other. This realization would be followed moments later by the realization that digital scarcity can always be inflated, and therefore cannot sustainably exist.
And with that the “exorbitant privilege” of Moneyness, that sustains the value of Bitcoin and the entire crypto-space would be gone. If anyone can do it, nobody can. All value would collapse to utility value, and since cryptocurrency can have near infinite velocity all value would tend toward zero. The entire space would experience what ICO tokens experienced in December 2017. A refutation of Chris Burniske’s misguided theory that utility tokens can have sustainable value. Narrator: they can’t.
From MV = PQ to QED
It is not enough for us to satisfy ourselves that Ethereum cannot succeed as Money. We must also look at the other side of the equation: it, or something like it, can destroy Bitcoin as a contender in the Great Game. Here is where my thinking diverges from that of most Bitcoiners. I wish to grasp Satoshi’s Paradox in full. Only Bitcoin can be money… but also it is not guaranteed that Bitcoin will be money. If I may be pompous for a moment, I think that there is such a thing as enlightenment. I think that one achieves it by grasping that what one believes is a fragile illusion, while still having faith in the illusion. Buddah realized the illusion of self, without abandoning his ego. Niels Bohr realized the illusion of scientific theory, without becoming a flat earther. I invite you to realize the illusion of Bitcoin, without becoming a nocoiner.
Bitcoin can fail, but we cannot let it. We cannot let Ethereum, Ripple, Libra or any future challenger build a network effect to rival Bitcoin’s lest the fools ruin the party for themselves and all of us in their ignorant avarice. However, we must welcome challengers, for each new challenger strengthens Bitcoin, provided we defeat it.
Yes, this is a space badger who happens to be bullish on Bitcoin
As to how we can ensure that Bitcoin is never defeated, that the illusion never be revealed, I leave to you, dear listener. However, I will offer my own opinion. In the Bitcoin lore of old, there was once a meme, now seemingly forgotten: “Any technology which improves upon Bitcoin will simply be adopted by Bitcoin.” In the wake of the block-size wars, where any suggested change to Bitcoin became heresy, this meme was forgotten. The lesson of the Blocksize wars was well learned: don’t change Bitcoin. Bitcoin must remain inviolable. Let’s not learn the lesson too well though. Bitcoin should certainly adopt any technology which even might be valuable. The place to do this is in Bitcoin Layer2, and particularly on sidechains. Is Ethereum a technology “that improves upon Bitcoin”? Who cares, people seem to like it, and even find it useful. It is building network effects.
“Yum”, says Bitcoin as it absorbs Ethereum’s powers- not on Bitcoin mainchain, but on the RSK sidechain. “Fee Fi Fo Fum”, says Bitcoin, “do I smell more innovation?” Polkadot, you say? “Yum”, says Bitcoin, as it continues to snowball towards its destiny as Sovereign Money. Our Money.