Money Boo Boo
These days, many people are questioning the legitimacy of cryptocurrency. They point to Elon Musk’s market manipulation, or highlight the meme of a dog riding a rocket which represents a payment system initially created as a wisecrack. Last month, someone in Singapore paid $69M for a digital collage. And a few weeks ago, Bill Maher ran a segment tenderly subtitled “Money Boo Boo” on cryptocurrencies, in which he said the whole thing is a joke.
Bill may have been missing something, and to understand why requires a look into the evolution of money.
Money came into existence 10,000 years ago when foraging-bartering communities realized it would be a more efficient way to facilitate trade and exchange. Trust in the value of money transformed human culture because it brought us into shared economic existence. Money has no intrinsic value. Although it is popular to say that “money is the root of all evil”, money actually represents widespread human tolerance. In fact, it is the most universal and efficient system of mutual trust ever devised.
Enter the unabated digitization of everything in modern day. What is the deal with Bitcoin and why do we care?
Bitcoin is a peer-to-peer electronic payment system in which all transactions are publicly announced and verified on a distributed network of computers. Bitcoin functions on a methodology called proof of work. As a miner you must expend something to receive something in return. Although it is true that proof of work needs to evolve to fit green biosphere goals, business is indeed being conducted on a large scale. Miners must pay for the energy to produce a digital good and in turn, they receive something in which they believe has value.
The exchange detailed above is no different than you paying me U.S. dollars for mowing your lawn. Our fiat currency is printed and regulated by the U.S. government, while Bitcoin and most cryptocurrencies are created via software and an incentive system to participants on the network. This incentive system, which is detailed in the surprisingly simple Bitcoin White Paper, keeps bad actors at bay by incentivizing the good actors to control the lions share of the CPU power, therefore letting cryptography do its work and keeping the blockchain secure.
Bitcoin may just be a logo on your Twitter feed, but it is insatiably innovative. It has been described as digital gold because it has a fixed value which eventually runs out. It was the first major digital currency to solve the issue of double spending. The Bitcoin blockchain retains records of time-stamped transactions going back to the founding of the cryptocurrency in 2009. It was created on the heels of the Great Recession, the global collapse of the modern-day financial system.
Those of us living in the United States reside in a republic where our financial systems generally work and are safe. You may not like the Treasury or the IRS, but we have enough checks and balances in place where American citizens are fairly supported and protected. The U.S. government isn’t going to wake up one day and announce that your $100 bill isn’t good anymore, take it out of circulation, and leave you with little time or alternatives. This happens frequently in other countries, especially those with endemic central corruption like India in 2016. One of the initial drivers for the invention of cryptocurrency was to allow the pedestrian individual to possess purchasing power regardless of what their government says or does.
The comedy surrounding the nascent state of digital currency might be a gas today (pun intended), but cryptocurrencies are borderless, secure, and decentralized. When governments cannot compete with this in a relentlessly digital world and networks undoubtedly evolve to become faster, cheaper, and more efficient, there won’t be much stopping individuals from using digital currencies on the regular. China knows it, and this is why they are moving to create a digital currency, and of course, control it centrally and track its users.
Not all cryptocurrencies are mined with electricity. Some are moving to proof of stake, in which participants gain more blocks by asserting their portion of the pie, which involves little energy consumption. There are pros and cons to each method, and just as there are new features being rolled out to out iPhones to modernize them, the same is happening with blockchains. Cryptocurrency can be mined anywhere with an internet connection, so hypothetically you could run a mining farm solely off of hydroelectric or wind power in the middle of the country.
It is also worth noting that Ethereum, which is the prominent native cryptocurrency alongside Bitcoin, DOES have a product despite Bill Maher’s perspective. It’s called a decentralized platform, and people have been building games, exchanges, and social networks on it for years. If Maher thinks games and social networks are not a product worthy of value, he may want to take a look at Facebook and Apple’s App Store earnings reports this month.
This is all coming at a time where the public is increasingly awakened and fed up with big tech intrusions. Apple knows it, which is why they recently took the chance to control the narrative around privacy. The once starry-eyed democratization of the internet has become a track and trace beacon of surveillance capitalism resulting in the phrase “if you aren’t paying for the product, you are the product”.
Although some early NFTs might be wildly overvalued, there is a legitimate purpose for the utility they represent. For example, NFTs due to their digital fingerprinting could prevent concert scalping, allow acts to get a cut of secondary market sales, and prevent ticket fraud. One musician said it like this: “my art could get traded into oblivion for the rest of my life and I’ll keep getting 10 percent.”
The next digital revolution may have little to do with Bitcoin or Ether (although I doubt it), but you can bet your Doge that a rise of digital assets is coming. It will make a material impact on our daily lives, the way we conduct business, the way we buy and sell, and the way we interact with one another. Some people compare this era to the early days of the internet. They point out that cryptocurrencies are the revolution of money, just as the internet was the revolution of information sharing. This might not be too out of whack. The early public Internet was also slow and expensive, and a pretty geeky place to hang out. Originally an academic network, scientists and engineers spent time waiting for web pages to load, dabbled with new gadgets, built networks, and racked up their parents’ phone bill. Does any of this sound familiar?
With revolutions come a new set of language. The computer mouse, “logging on”, and browsers may very well be the equivalent of today’s hard wallets, mining rigs, and smart contracts. Many people like to point out that Bitcoin today is primarily used to pay off ransomware actors. The proliferation of email during the late 80s introduced similar problems to vulnerable individuals who were the victims of scams, malware, and identity theft. That didn’t stop the internet from moving forward.
When money first came around, it was purely a mental revolution. People realized they can use a shell, rock, or piece of salt to represent the value of something else. With 90% of the world’s cash today already existing purely on computer servers, some people may have missed the fact that the Revenge of the Nerds has persisted since 1984, and it’s not likely to go away. The jury is out on what form it will take, but these decentralized models can work alongside existing centralized ones, thus preventing centralized corruption. They might even preserve our individual freedom and anonymity, whatever of it we have left.
It might be about time.