Barriers to Adoption
The fascinating emergence of Bitcoin has been powered largely by a “for us by us” dynamic, the growth of specialists intimately involved with cryptography, embraced by highly technical people of a wider variety. Eventually this bubbled up to the venture capitalist world, with a concerted attempt to “bring Bitcoin to the masses,” including PR campaigns like that recently waged by Marc Andreessen in the New York Times.
Although the “for us by us” approach has been successful in many instances, it also presents very large barriers to mainstream adoption. One of these that surfaces the most frequently is the political issue, exemplified by the strong libertarian leanings of many involved in the Bitcoin community. Although venture capitalist backers of Bitcoin (i.e. Marc Andressen, Chris Dixon, Fred Wilson) have sworn that they have mainstream political opinions (i.e. that they voted for Obama), there remains a strong core of dissenters who believe that government involvement destroys the principle of Bitcoin (i.e. Roger Ver, Erik Voorhees).
The Politics of Cryptocurrency
With the Mt. Gox collapse, it seems like the “move to the center” VC contingent is winning. Whether or not this is a good thing for Bitcoin is not clear. Much of the early adoption of currency is based on a certain degree of political radicalism. AuroraCoin has recently exploded largely on this basis. It’s a direct threat to an existing political order. What makes it dangerous is also what makes it exciting. Although I am doubtful that this is the best model for the long term, I did acquire a handful of AuroraCoins to be part of this important historical moment.
Navigating these political issues is one of the most important aspects to cryptocurrency growth, but so far there have only been two options. Like many things, it seems to be either “let’s get rid of the government” or “move to the center.” The first puts people in a perpetual state of clashing and conflict with state authorities (i.e. via Silk Road). The second is “pure business,” which is to say, it compromises the exciting disruptive power of cryptocurrency.
I have a more radical proposal. What if we evolve the nature of governance itself? For thousands of years governance was primarily ethnicity based. With the birth of the American republic, it moved back to a doctrine of “free assent.” Practically, however, it remained primarily location based. This means that all government has effectively been “opt out” instead of “opt in,” and many times you can’t even “opt out.”
I believe in the fundamental principle of human freedom, but I also believe that “with much freedom comes much responsibility.” The growth of high growth, high volume networks for transferring money means that we need to evolve frameworks that provide greater accountability and trust than the current financial system. Although decentralized networks are an amazing start, we also need to re-align incentive structures so that people are not encouraged to “cheat the system.”
Some of the fundamental innovations which are part of Cryptocurrency 2.0, especially Ethereum and Mastercoin, allow us to build the structures that we need to move out of a phase of dependence on existing infrastructure for accountability, to new structures which complement human freedom and work on the basis of free assent. Simply “moving to the center” by tweeting that one voted for Obama or “welcoming regulation” as has Charlie Schrem, are, I believe, fundamentally short-sighted.
The Big Picture
One additional set of very important concerns regards macroeconomic policy. Price volatility in a distributed asset on the free market is a major concern, particularly when there is both no underlying asset and no coherent long-term demand. Creating long-term demand via the adoption of a particular nation-state is extremely risky, as boom bust cycles will inevitably hurt the most vulnerable. In the event of a downturn, engaged traders who constantly watch the markets in this globalized “open society” will be the first to dump the assets. Like so many other recent financial cases, mom and pop will be left footing the bill, while the new George Soroses of Bitcoin fund campaigns for even greater “openness.”
Although Bitcoin is touted as a “store of value,” comparable to gold, it’s not at all clear that Satoshi thought the same way. I personally think of it more as a pioneering experiment on what can be done on a purely anarchistic model, potentially with the awareness that transition to a true “currency” that serves as both a unit of account and means of exchange will require a good deal of tweaking and evolution. Thankfully, within Bitcoin we have minds like Vitalik Buterin, who is currently bending his rather considerable mental faculties to one of the more difficult current problems of cryptocurrency, the creation of incentive-aligned non-volatile cryptographic asset.
Without this “regulative principle” in place within the network, you have the possibility and perhaps even likelihood of a “subprime 2.0” unfolding on an epic scale within the Bitcoin world, as people move their Bitcoins into the next alt coin of the month. My own expectation regarding Bitcoin volatility is that, perhaps ironically, it has been limited because of the lack of liquidity in the Bitcoin market. The easier it is to move from fiat to Bitcoin, the potential greater shock each new time we are goxed or find out that the Bitcoin Foundation board members are not as virtuous as we once suspected.
“There goes my hero,” goes the lyric, and, for better or worse, in this post-modern age, we have done away with heroism – hopefully we had a low expectations to start with. But, perhaps, something else is stirring on the Blockchain, a blending of ethereal wisps and slumbering embers into a movement that has the potential to stir the intellectual fires we need to solve the problems that previous generations have left us with.
There have been many political movements in the centuries that emphasized the will of the people and mass propaganda. Currently democracy worldwide seems to be increasingly tablotized and incapable of asserting its full strength. But I what I see in the Bitcoin world gives me great hope in the incredible power of humanity to address the problems in the world ahead of us.
One of the most promising aspects concerns the mass of intellect currently concentrating their mental efforts on these problems. Increasingly, the first generation of cryptocurrency enthusiasts has either become aware or been complemented by folks intimately aware of the larger macroeconomic issues that are necessary to address to have a currency that works at a larger global scale.
These problems include faster transaction clearing times, increased in-network trust, exchange rate stability, secure programmable contracts, distributed consensus systems, and rewards proportionate to value provided to the network (in which hashing power provided is not the only definition of “value”).
One of the most important shifts accompanying cryptocurrency 2.0 is the movement from tokens to platforms. A token is something you can trade. DogeCoin is a tradable doggy. Much excitement. Such wow. To the moon.
The problem with trying to get to the moon (or, my own goal, Alpha Centauri) you need a pretty big engine, and you need to be able to build it in stages. You need a rocket that gets you to the atmosphere and another that puts you into outer space. Cryptocurrency 1.0 provides the first stage of the rocket; Cryptocurrency 2.0, by iterating on itself, has the potential to provide the 2 … n stage.
That’s because it provides a platform. A platform gives you the power to create whatever application fits the need that you have. It’s a toolkit that enables people to build what they need to solve the problems that we face every day. Even at this moment, I am closely engaged with people building the next generation of reputational currencies, distributed systems of trust that were not possible prior to Ethereum.
What changes can we expect to see as cryptocurrency shifts in this direction? The first is a shift from hostility towards existing political structures to a movement to create new consensus systems that make many types of contractual arrangements no longer necessary. It’s a move from antagonism toward governments, to a metalayer that increases trust within a network.
Part of this will be necessary. Although governments, especially irresponsible governments, will not necessarily be able to totally shut down alternative currencies they perceive as threats, they will be able to make life very difficult for people using currencies that are designed to serve as replacements for nation-state money. Along these lines, I suspect AuroraCoin and MazaCoin will be interesting experiments that will illustrate the pros- and cons- of this particular model.
That said, there is another exciting future possibility for cryptocurrency. One of the major shifts in the last half century has been the near extinction of the middle class. Why have artists and artisans and workers faced wage stagnation and loss of power globally? Part of it has been a natural consequence of globalization. In an open society, “the world is flat,” and there is perfect competition on low cost jobs. Even where there is a minimum wage for citizens, you can bring non-citizens across the border and pay them under the minimum wage. Kickbacks are promised for votes by the financing class, which finds that legislation that would bring life back to main street is never passed.
Who wins in this scenario? It’s certainly not the people. Instead, it’s always the infrastrustructure providers who take the tolls on the highway that you ride. In a monopolistic situation, something that has been artfully designed by the global banking elite, you also get to decide just how high the tolls will be. Unsurprisingly, they have decided that it should be quite high.
For instance, it’s almost unimaginable today that a single wage earner would purchase a house and provide for a family only a few years out of university. Property costs have risen far in excess of purchasing power, creating a cycle of debt and choking productive growth.
The next phase of cryptocurrency evolution needs to be “for the people, by the people.” This is, among other things, because nerds are already doing just fine in the present system. They build the infrastructure that you use and make the money that could be yours. In the Bitcoin context, they even make money trading the latest currency of the month. But, more often than not, they do not create valuable content.
Take Youtube as an example. Nerds built the infrastructure. You provide the content. Is it free to create the content? No. YouTube will make money advertising. You will make nothing, unless you make something that gets millions of views, and even then you will get a fraction of what Youtube does.
Is that fair? Is that the world we want to live in? Everything is free, except massive amount of advertising that is presented to you by the end user. That’s fundamentally wrong, it’s counter to the idea of flow, and the idea that the people who contribute to the success of a platform should share in the success later on.
One powerful new idiom that is emerging via cryptocurrency is micropayments. The costs of transacting in a digital currency are already extremely low compared to existing payment solutions. Through third party APIs (including that which we provide at Evergreen) they can be literally nothing. This allows the easy monetization of any digital content, a conceptual shift we are already seeing with the tipping culture of Bitcoin and DogeCoin. It’s recognizing that economic streams need to be just that, streams that flow from high places to low places, filling in the places where there is need and providing the irrigation that leads to long term growth.
Perhaps there is something we can learn from ditching the quarterly earnings reports of contemporary post-modern economics and cycling back to the seasonal approach of agricultural society. Water rains, things grow.
Here there is time, but it is not the moment that is privileged, nor the expectation of an immediate return. What is privilege is the concept of flow, a harmony that is attained by a deep appreciation of nature.
Did I say we need governance? We do, but it must be governance that facilitates human freedom rather than constrains it, that facilitates flow rather than erects blockades and toll collection booths, that inspires us to create new realities instead of forcing us to live in fear.
That’s still “for us, by us,” but it’s no longer a small group of technical people trying to create an alternate reality, it’s a new global paradigm re-inventing and bringing flow to money. That’s a revolution and it’s happening right now on the Blockchain.
Modified image from ollyy @ shutterstock