Cryptocurrency: A Mistaken Identity
Warning: This article has nothing to do with predictions of market price and doesn’t touch much of the technical details surrounding cryptocurrencies. It is expected that the reader already has basic knowledge of the field and of the dynamics we observe. You may also notice how I jump from one subject to another, but in the end I hope you see how everything is connected.
How I “got in”
My first introduction to Bitcoin was around 2012-2013 in the midst of the first ASICs coming out. It was a time filled by hope and dreams. The first “major” iteration of promised riches and change for the anarchist/cypherpunk/divergent/freedom/libertarian minded individuals who were exposed to this new truth.
Bitcoin was going to be something real. Not that it wasn't before, the math and the concept were here already, but this was the first time that this concept and those ideas “bleed” over to less technical folks.
Over the years, we've had quite a ride. Alternating ATHs and crashes, we've also seen human nature re-engineer the same schemes as with any other market: pumps/dumps/manipulations/fud/make-believe and more importantly the birth of a new breed of thought leaders and influencers.
This is also probably the first sign that made me realize this space was not what it appeared to be. Some may not like the depiction “thought leaders”. It may seem harsh, but it's important to realize that this is normal and has nothing to do with cryptocurrencies to begin with.
Since the dawn of time, humans have been conditioned to group as tribes, religions, countries, as a way of survival, and people will self-organize in various social structures. Of course, things have changed quite a bit since we battled for a stick. However, the profound nature of our very soul is still largely engraved by our past and we should not close eyes on those behaviors and what they actually mean.
Cryptocurrencies are not cryptocurrencies.
I have a background in engineering, but before anything, I've always been an observer, taking pleasure in mapping what I see and attempting to understand the forces at play. I couldn't tell if this viewpoint has anything special to do with how I've observed this space over the years, but I've come to the realization that cryptocurrencies exists in multiple layers.
“Money” is in one of them; constantly in the spotlight, what most people refer to when you hear about Bitcoin or any of its siblings. This is a fact that Bitcoin has value and can be traded, however ask any enthusiast and they'll tell you how Bitcoin is a revolution, and idea, a movement! At this moment you should realize that Bitcoin isn't just money, it's something more. Something strong enough to carry a message and ideals. What is even more puzzling to me, is that most of those who present Bitcoin as money or “sound money”, are also the most vocal about these ideals, the change or the “revolution”, which simply aren't properties or functions of money.
Look back in history and you will see that “money”, even as a fundamental component in our evolution, has never in itself, been a conduit for such strong emotions and beliefs. This distinction is something entirely new to our current time/technology and it makes me feel uneasy... Did we just assume altogether that cryptocurrencies are merely money? Or are there forces at work, preventing us from seeing it otherwise? (More on that later)
So, what are cryptocurrencies? For now, the closest thing I can point to, “in a broad sense”, would be societies. Because cryptocurrencies organize pretty much the same way as societies do:
- People assemble with like-minded individuals around ideas and projects
- Rules are chosen for desired behavior, permitted actions (wealth exchange), etc.
- Incentives are put in place to encourage contributions in the society
- Rules are enforced by consensus within the society.
Disclaimer: There are many properties of traditional societies that would not fit cryptocurrencies. In this article, I'm mainly focusing on identifying similar traits and will not delve in counterpoints and differences. For the sake of keeping this discussion going, let's go with the previous list as our “minimal” definition for a society, in this specific context. So please keep in mind that I will be using the term quite liberally from now on.
By that definition, even a school is a society, and grades are a form of currency that can be paid as reward under specific rules and used as “proof of achievement” in pursuit of employment. A Household is a small society where members do “proof of work” contributions in order to keep the house clean and fulfill the needs of family members, and where adults enforce rules from a rather loose consensus.
We see that not all societies have currencies. Some do, but none of them are solely defined by a currency itself. Individuals can be part of multiple societies, some of which do not interact with each other at all. Societies can easily spawn thoughts leaders and influencers, money in itself, not quite.
In the crypto space, we shouldn't trick ourselves, nothing has changed yet: influencers and leaders are not advocating “money”, they are merely representatives of special interest groups. whether it's a business or loosely organized communities. We should see payment processors, crypto exchanges, service providers, influencers for what they are: re-creation of the same power structures from our current monetary system but in a different space.
Will Cryptocurrencies replace traditional money (fiat)?
No, and yes! We are now getting close to the core part of my observations and why I decided to write this article. I now strongly believe that if cryptocurrencies attempt to replace traditional (FIAT) money they could very much succeed, but in the end, it would be a total failure in their initial goal of promoting new ideals and changing the system. The main reason I say so, is because cryptocurrencies presented as “money”, have very little room for growth and benefit a really small group of people. In that model, all the pressure for success resides on gaining value from a volatile and speculative market, rather than creating new value by leveraging the interests and skills of each user/member towards common goals, like most societies tend to do (or attempt at least).
I also had dreams in the early days about Bitcoin overthrowing the banks and a corrupt system, and for a new free economy being born from their ashes, changing governments altogether... until I realized it's the other way around.
Cryptocurrencies have the potential to change and replace societies. THIS is the target. And the only one that should matter if we want these ideals and beliefs to evolve in something more than dreams. I sincerely believe that advocates searching users for their cryptocurrency of choice are largely mistaken, in the sense that they should be searching for “citizens”. Money in a cryptocurrency is but one of the many branches forming these societies and defining their structures, rules and models. More precisely, you can see money as part of the information layer of a society, which defines the nature and types of data transiting between citizens and structures. Of course, there can be multiple types of data other than money, as we’ll see later. Before going further let's also introduce the legislation layer defining rules, roles and political structures in a society. And finally, the constituent layer which identifies the various members and actors within a society. I won't refer directly to the 2 last layers from now on, but you will probably recognize which elements would fit each of them.
In the next section I'll touch on the various implications of considering cryptocurrencies as societies, how it should affect our views and goals for the future, and how I believe the current trend of recruiting users and identifying use cases for cryptocurrencies is flawed.
Societies or not why should I care?
Of course, at this point if you do not subscribe to my assertion that cryptocurrencies and societies share a lot of common ground, I don't see how I could convince you and I will not attempt to any further. However, I would recommend that you at least consider how cryptocurrencies display at minimum, some society-like properties in addition to the “money” purpose currently leading the main narrative.
When I look at cryptocurrencies as societies, I can't help but feel that we're in a theater right now, and that there's a play going on, unnoticed, in front of our eyes. Almost everyone in the space will speak of how cryptocurrencies will challenge banks and the broken economy and replace it with something better. However, there's one major issue with what we hear from those companies, enterprises and vocal leaders.
Defining cryptocurrencies as “Money” would probably be the best way to topple a single branch of the system as if to attempt replacing the current actors with new ones (themselves). It reads as a simple, greed-motivated initiative in which cryptocurrencies exchanges, service providers and thought leaders, would replace the banks, money services, regulators and deciders of our current system without changing much of the underlying structure.
Like I proposed earlier, currencies themselves are not moral or ideological vectors for change. You can try to force it all you want, societies will always revert to using the most appropriate currency in any context. If an employer requires you to possess a given degree for a job, that's the currency you'll use. If the coffee shop allows you to pay with some Credit Card app on your phone in less than 2 seconds, that's fast enough. If Bitcoin allows you to transfer a million$ trustlessly and securely with close to no fees, that's something you may consider.
In any of those previous cases, there is no moral decision nor a special intent behind each action, and you should never expect a user to act differently. The choice is purely motivated from finding the most simple, efficient and appropriate method in the context defined by the underlying society at a specific moment in time.
Desires of change or revolution should not be pushed on users based on the ideological/political motivations of a few, by promoting a currency; it doesn’t make any sense. It artificially creates a population of uneducated users whose job, is fighting someone else's war. It also limits drastically their contribution and influence in the society because they are unaware of their citizenship.
Rather than attempting to weaponize money using uninformed users, I firmly believe we should be transforming the societies at their roots, by including users (citizen) from the start and insisting on the fact that they are active contributors instead of passive “Hodlers” or speculators. Changing parameters and creating a new context that way, would be a much more efficient, inclusive and coherent way of injecting new ideals and providing an environment where money could take a renewed form.
This method however, would not ensure a clear pathing for wealth, change and power during the transition from old to new within these societies, because if the new structure is modeled iteratively as societies evolve, past references lose their usefulness for potential profit. So, you may understand why some actors would prefer limiting change to only the element which can present them a clear path to acquire the power they desire. (a mere seat switch for money and power is no revolution)
Cryptocurrencies as societies (cryptosocieties?)
Once you take that step, a few implications should jump at you. First, societies come in various models and sizes. They offer different purposes and ideological structures. But there is one major difference between traditional societies and cryptocurrencies. Most notably, none of them are delimited by physical boundaries and exclusive to the place you are born or some other inherited right. Their open nature in general makes them free to join and participate on various levels. This also makes them easy to leave and switch between, which is in stark contrast from nation states societies who enforce frontiers among other way of controlling membership.
This kind of freedom brings an entirely new perspective on what being a citizen means in these cryptosocieties. Basic concepts known from traditional societies like communism, plutocracy, democracy, capitalism, anarchism take entirely different meanings when anyone in the society possess absolute freedom to participate, join or leave on their own terms, and with no risk to their well being.
This enables those new societies to explore an extremely wide range of policies (new and past) in a completely new light and space. Citizens can now choose which of those policies they are comfortable with and this whole process creates new dynamics that will (I hope) affect, change and displace old and traditional societies in the years to come.
A first example of cryptosociety:
Bitcoin: The original movement, born from cypherpunk ideology.
It's a society with multiple ideals and values ranging from respect of privacy, security, up to complex economic philosophy. In this specific society, most rules were chosen by the anonymous creator(s) Satoshi Nakamoto. These rules are accepted as a starting point and mostly a continuity (long-lasting truth).
Like any society, these rules are enforced by consensus (governance). And although many advocates like to refer to the anarchist model of Bitcoin as “non-governance”, it still serves the same purpose as any other governance model. In the end, the incentives in place make sure that rules are enforced within society. Even the loose process which enables rule changes and the addition of new methods by forking, is a form of governance, and the ultimate test for maintaining or restoring consensus.
In this model a minority fork is the creation of a sub-group (deviants) within the society. And the consensus is restored based on roughly 4 possible outcomes. The divergent group can:
- Rally to the majority (abandon divergence)
- Leave and create a new society where the divergence become a new consensus
- Accept both societies as distinct and be part of both.
- Rally enough citizen from the initial society to gain majority and replace it
Based on the dynamics at play, these choices can also lead to one of the society dying (not enough citizens to function).
Maximalisim and hyperbitcoinization (they feed on your soul while you dream)
In money theory, some would tell you that it's inevitable that the “best” currency will dominate, and all other form of money will disappear. They are right! In a society it's exactly what would happen... (emphasis on in a society...) Because if you consider Bitcoin itself to be a society, maximalism takes a much darker and sinister meaning.
If you recall, Bitcoin was sparked into existence by a small group of “deviants” who decided to go against consensus and “fork” what we could arguably call “fiat society”, in hopes of creating a better one. If you accept maximalism as an inevitable end for the crypto world or the economy, this would imply that deviance would no longer be possible, and that consensus will be unquestionable. For me personally, that “truth” is a description of a totalitarian society with no freedom of thought nor freedom of association outside consensus.
The idealist and pioneer Nakamoto and the cypherpunk movement, would never exist in such a society, as they would be unable to foster deviant ideas and fork society. From a society perspective, if Bitcoin ever becomes the only and final cryptosociety, consensus will be no different than slavery (War Is Peace, Freedom Is Slavery, and Ignorance Is Strength).
It is however an incredibly tempting path when you look at the prospective profit and power, that would a single capped “currency” bring to its major holders. Plus, this narrative is an effective marketing tool for selling to uneducated users who contribute to your agenda unknowingly. (It's the truth, it's science! Now, don't look out the windows, just buy a coffee with this Bitcoin mobile app)
I will not deny however, that cryptosocieties/cryptocurrencies really do have the potential for major growth in the monetary space and in the structure of societies in general. But if traditional societies do change because of them, I believe the process will also transform the concepts we currently apply to money, value & power. On that, your guess is as good as mine and speculation will reign, as always.
Back to divergence; societies of the past taught us its a normal phenomenon and that all attempts to prevent or contain it, are prone to much tension and often catastrophic failure. I would argue that instead of wishing for unilateral obedience in the societies we build, we should avoid repeating errors of the past and consider divergence as a healthy occurrence, often required in reaching balance between the size of a society and the needs of individuality. We could also argue that in cryptosocieties, maximalism goes against the very consensus model of Bitcoin which rely on anarchism and divergence to maintain and regain consensus, like described previously. If you accept divergence, you need to accept the eventuality of it leading to a new society with a distinct consensus.
Note 1: Although maximalism being a flawed concept for societies, it is perfectly fine for anyone who desires, to define himself exclusively as citizen in one unique society. One can strive “living” and “operating” only within the Bitcoin society. But it has nothing to do with the occurrence of other sovereign societies, and it doesn't/shouldn't affect the basic rights of citizens or non-citizens.
Note 2: The last section about forks should not be interpreted as a direct endorsement of bitcoin forks (bch, bsv, etc). A society forking in 2 new distinct societies is healthy only as a last-resort mechanism, when no global consensus could be found. There is a time where it's necessary for consensus to be recovered at all cost, or a society could end up paralyzed or just collapse. If a split occurs, for the divergent society being created, the fork is a means to start over with different rules at the cost of sacrificing population size, resources, possibly history, etc... For the majority group, the fork is way to preserve the current consensus for its citizens, at the cost of sacrificing, hopefully a small portion of the society. Any gain from that event by any of these societies would only be marginal, but sometimes there is no other way to survive. Cohesion within a society will always remain a valuable trait. In the Specific case of Bitcoin, the model of governance offers no other method of restoring consensus, so forks should always be expected when a controversial issue arise. In pure anarchist fashion: “Fork first, and let the new consensus emerge on its own”.
A second example of cryptosociety:
Decred: An initiative spawned from devs in the bitcoin space (btcd), in search of formal governance.
I've chosen this other example of cryptosociety first, because I'm familiar with it, but most of all, because it illustrates irreconcilable differences with the Bitcoin society. At the core, members of these 2 societies both share some important values; notably: security, privacy, decentralization. However, where bitcoin relies on anarchy for governance, Decred proposes a more orderly method of determining consensus.
The Decred model although different, is somewhat similar to a company and its shareholders (stakeholders). Each member of this society who decide to participate in governance by “locking” an amount of coins for a period of time, receives a measurable amount of influence in exchange. In the Decred society, the information layer also includes “tickets and votes”, new kinds of data in addition to money, used in its consensus mechanism.
The Decred model also has similarities with a weighted democracy where the level of skin-in-the-game determines the number of votes one can cast. But unlike traditional societies where wealth-based governance would lead to plutocracy, a “company-like” structure, has the side-effect of aligning interests of all stakeholders. If you are a small investor with stocks in Apple, you may not have much say, but as every investor large or small around you, you are at risk of loosing money and highly motivated to see the company take the best decisions and continue to grow. That voluntary and aligned participation is very different from the oppression of plutocracy.
Another major difference with bitcoin is the way in which Decred manage divergence. In this model, as there is formal voting on consensus issues instead of an immediate fork, when/if it does fork, the minority group is well aware of it's minority and is highly incentivized to reunify with the main group. This also provides the society with a clear measure of the “level of deviance” and of possible paths to reconcile different positions at a later vote so that consensus could eventually fully satisfy both parties.
And finally, because votes are deeply integrated with the consensus method, a minority fork would be a lot more difficult to keep alive, because if most of the voting rights are held by a majority group who is no longer part of your society, you may have issues to reach quorum or maintain basic functions of governance without changing the model at its core.
No matter the issues or divergences ahead, the Decred model is constructed to attempt conciliation, and in case everything fails, and a new society is spawned, it would still provide clear distinction from: the majority group, who retain all stakeholders as is; and the minority fork who would need to amend multiple consensus rules and to remove/replace current stakes in order to create a new cryptosociety. This behavior is also more consistent with how companies will less frequently split, than spontaneous groups of friends in high school for example.
As you see, even with common objectives and similar values, a difference in methods and governance can create a major disconnect between 2 cryptosocieties. Citizens of Decred probably joined precisely because of the formal structure in governance, something that would never happen in the Bitcoin cryptosociety. Both governance models present absolute divergence from each other and there is no conceivable way in which they could reconcile.
As such, personally I see them as two lines that will never cross. Which means they are bound to deliver different products and environments for their citizens. (As stated, before there is nothing which prevents me from supporting and being member of both societies for different reasons, unless of course, I was to eventually loose my freedom of thought and association)
Use cases, the network effect, and decentralization as scarecrows
All these terms have become quite important in the crypto space, pseudo-metrics that are rarely used in the context of their meaning. They are rather often, part of a narrative to (dis)credit a project (society). Let's take a closer look at them in the context of cryptosocieties.
“What's the use case?” For real... What is the use case of a society? What would be the use case of a democratic society for example? If you ever had issues trying to answer that question about bitcoin or any other crypto project, that's why. A society doesn't have a purpose easily defined like “you can buy coffee”. It can however, provide a vehicle for morals, values, and methods of reaching consensus for its citizen and methods for creation and exchange of information (data). So, the problem in this case lie primarily on the question. Better metrics than a “use case” to evaluate what a society can provide to you would rather be:
- Which data types are part of the information layer.
- What ideals & values is the society built upon?
- What are the structures and the dynamics at play?
- How does this society evolve?
- What incentives are there to join and participate?
- How does it deal with divergence?
The network effect is a simplistic argument referring to the number of participants in a group as a generalization that, the more people there is in the network, the more those people will themselves bring new people in the group. By this logic, the bigger group always stays bigger and continue growing. Thus, the argument for using the bigger “better” network. In money theory, it makes perfect sense. In the context of societies, you probably have guessed already, this doesn't make as much sense. Sure, societies have the capacity to grow in numbers and big societies often attract a lot of new citizens. But I would argue, that the bigger a society grows, the more pressure there will be for deviant groups to form within. It's not unexpected that the more individuals you have in a group, the more challenging it becomes to reconcile all their individual differences, opinion, values or desires and to form consensus. So better metrics to evaluate the capacity for a cryptosociety to grow would be:
- Does the society possess sufficient size to survive and continue evolving?
- Is the society currently cohesive and well aligned in its values and directions?
- Is the population growing or decreasing? Under which factors?
- Does the society provide room to accommodate new citizens and growth?
- Is the on-boarding process easy?
- Can activity and participation levels of its member be evaluated?
Decentralization is a term that like most people in this space, feels dear to my ideals. However, it’s an extremely complex concept, which is far from being a binary state. The truth is, no cryptocurrency IS decentralized. But all of them reach various level of decentralization on a multitude of aspects. In the context of cryptosocieties, decentralization is also a different beast to tackle. Just evaluating the level of decentralization of a given governance model is a major task, and it's almost impossible to compare different models together. More often, narratives would attempt to evaluate if “miners” or “holders”, are decentralized, which is one small step in the context of societies. What about influencers, citizens, sources of deviance, builders(devs), services, regulators, data producers, paths to enter/exit, and the list goes on and on the more you search for them and the more you analyze each cryptosociety in its very anatomy.
Similar questions can apply to countless elements, many of which are not even related to the society itself. If organized crime was to target specific devs or members in a society with bribes, how resilient would the society be to undue influence? In this specific case a society like Decred may be more resilient to influence than a society which rely exclusively on donations because the Decred model reserves 10% of all coins mined in a treasury which is allocated by votes to development and other initiatives, thus providing possible sustainable income for the years to come. Switch bribes with menace to family members, and it's a new issue where the model may not offer the same distinctions. When I think about decentralization in the context of cryptosocieties, I mostly consider these as starting points for reflection:
- Governance: where does power lies?
- What is the path to power? How do you gain influence?
- Are there dynamics at play preventing/promoting centralization of influence over time?
- What is the development structure?
- What motivates development?
- To which extent do citizen have a voice (input)?
- How is divergence perceived? How is it dealt with?
- Who are the main actors in this society? Are they replaceable? How can they be targeted and to what effect?
- Are there different classes of citizens? What are their roles and numbers?
- Is cohesion natural or artificial (induced)?
- Was is the path to entry/participation? (openness)
- What is the path to exit? (freedom)
- What is the path to become builders (devs)?
When considering decentralization, a common mistake is to assume that failure to identify a power structure or the sources of influence at play, are signs of decentralization. Most of the time, it only means that we have partial understanding of the model or that maybe indirect evaluation is required.
Before I wrap up this article, I wanted to briefly touch on this concept which is rather important within the cryptocurrency space. Store of Value (SoV), is probably the most important property of “money”. Before something can effectively be transmitted or exchanged at a larger scale, it's important for an asset to gain/retain value and to inspire confidence for the long term. On the level of a cryptosociety we see that value can be derived from more than the basic money properties of an asset. For example, a vibrant society with various actors and interactions like we see around Decred (stakeholders, miners and contractors) creates a rich ecosystem which derives value from their own interactions and the work they produce. In this context, a sustainable workforce and organized decision making, become valuable traits for longevity.
The road ahead
For now, that's the extent of my thoughts. This process has changed significantly how I view cryptosocieties (or formerly cryptocurrencies), and most specifically how I view the people and various actors in the space. I've just begun applying this concept more globally and I'm amazed, how at every corner, I see new implications and new differences worth looking into. Writing this article in itself was a challenge because each section would spark new ideas and lead to new sections and new paragraphs.
Reading back, I realize I may have been a little harsh against certain groups of people by assuming that they were purposely covering the real nature of cryptocurrencies and manipulating users for power and riches. I concede that there is no doubt a quantity of them are oblivious to the society-like proprieties of cryptocurrencies and have no ill intent in the way they act.
My hope is not either to provide the crypto space with a new “truth” for replacing maximalism, but rather to spark new discussions about how to go forward. And hopefully, maybe some cryptosocieties will develop a better understanding of what they are, where their power lies, and how people interact with them. In my opinion it would go a long way for adoption, growing “use cases”, and actually changing “the system”.
One last purely speculative thought on cryptosocieties: I imagine a path for change that is a lot less radical than “hyperbitcoinization”, but also a lot more inclusive of citizens, business and structures in general. I expect cryptosocieties, at first to grow in a way similar to interest groups (i.e.: animal rights, environment, etc..), eventually reaching “union like” influence on businesses, governments and political structures, and gradually start transforming traditional societies from within...
Thank you for taking the time to read this article, it is my first time writing and taking the time to structure my thoughts in something I believe is worth sharing. If you've stayed with me to the end, I appreciate the attention. You can contribute to my efforts, simply by keeping an open mind and letting your thoughts flourish and evolve freely.