- >Does Bitcoin Represent the Natural Evolution of Money?
Does Bitcoin Represent the Natural Evolution of Money?
Change is the only universal constant. Nothing remains the same. Everything changes. From the fluctuations of subatomic particles, to the vast galactic networks that spawn the universe, change is the sacrosanct truth of material reality. In biology, change is at the heart of evolution. As a phenomenological fact, Darwin’s model of living systems brought forth deeply impactful ideas that influenced almost every aspect of the human world.
Human evolution itself became a narrative of change that was (and continues to be) driven by innovations and inventions in every sphere of anthropological and societal realities. Amongst these inventions are major systems of thought such as language and mathematics, as well as technological innovations such as the wheel or the steam engine. It is not surprising therefore that financial systems have also naturally manifested this evolutionary trend.
Ankur Dnyanmote | Jan 20, 2021
Money is Technology, and Technology Evolves
As has been pointed out repeatedly in introductory discussions around money (and particularly cryptocurrency) the evolution of modern money from older systems of barter and trade, are the basic foundation of economic theory in the context of human societies. A character in Don DeLillo’s 1985 novel White Noise makes the following comment on technology:
“This is the whole point of technology: It creates an appetite for immortality on the one hand. It threatens universal extinction on the other. Technology is lust removed from nature.”
It appears that the evolution of technology is, at least to some extent, guided by the impetus to deal with the inevitable reality of change by attempting to control it through technological ingenuity and invention. It is thus interesting to note that technologies themselves compete with each other and evolve over time. This is true in politics but is also certainly observable in social, cultural and financial systems.
Survival of the Fittest Money
Consider an oversimplified example illustrating an evolutionary aspect from the perspective of economics: the ongoing competition between two different models of money today. One is the widely accepted FIAT currency while the other is cryptocurrency.
The former is a traditional financial system, which is far more sophisticated than the now antiquated barter system from which it evolved.
On the other hand, cryptocurrency is a very recent development predicated on computational technologies and network paradigms that have branched out new lineages of monetary systems in the modern world.
It is worth remembering that the barter system, although long outdated, is still quite sophisticated when compared with more rudimentary trading behaviors seen in other animals. This is particularly relevant because economics is fundamentally based on studying human behavior and understanding what makes it different from other animal behaviors. In his book, The Wealth of Nations, the father of economics, Adam Smith rightly observed that:
“Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog.”
Economics in the Animal Kingdom
This obvious, yet poignant observation underlies the evolutionary significance and philosophical intrigue associated with economics as a study of human behavior.
For instance, researchers at Georgia State University’s Language Research Center have described economic behavior in chimpanzees and have noted that these primates do not spontaneously establish relationships involving trading or exchange of commodities such as food. They can however be programmed to learn these behaviors through conditioning by their human experimenters!
Such studies establish that trading behaviors do indeed form the basis of social organization in other species of life. Chimpanzees trade services such as grooming in exchange for food. But these transactions are restricted to close partners in most cases. This suggests that risk and trust are crucial factors in their case as well.
Another example is of dominant female wasps that offer “childcare” to helper wasps in exchange for their services to build nests. Moreover, such transactional behaviors are ultimately based on basic principles like supply and demand. If there is no demand for building nests, then the female wasps don’t offer their babysitting services to the helper wasps. These research findings certainly indicate that commerce and market are phenomena that exist even in rudimentary forms of collective biological organizations.
Competition Between FIAT and Cryptocurrency
Returning back to the competition for adoption between cryptocurrency and FIAT money, such research provides crucial insights for understanding complex economic systems designed by human beings.
At least some enthusiasts who study blockchain and cryptocurrencies appear to view this new kind of economic system as an improvement over traditional fiat money. Nevertheless, whether the new paradigm of cryptocurrency will successfully address the more basic concerns associated with human economic behavior remains to be seen.
I recently came across a tweet by one of the Winklevoss twins who said something that endorsed Bitcoin. The responses in the comments predictably included those who agreed with him and those who didn’t. Some comments that particularly stood out were from proponents of alternatives to Bitcoin. They were clearly exasperated that their favorite cryptocurrency was not endorsed by the founder of the digital currency exchange called the Gemini Trust Company.
Interestingly, these twitter responses also had their own cadre of supporters versus those who dismissed a particular cryptocurrency as a “shit-coin” — a common derogatory term for crypto coins that are thought to be overhyped and of inferior value. Observing such patterns of tweet wars in the crypto-sphere certainly offer some intriguing insights into the zeitgeist of the world of socio economics.
The Growth of a Belief in Cryptocurrencies
It is clear that at the moment, the number of people who believe in cryptocurrencies is less in proportion to those who believe in FIAT currency. The fact that this ratio is constantly changing brings forth the evolutionary dynamics of this phenomenon.
The pace at which cryptocurrencies are being adopted has certainly accelerated in the past decade. This trend is also matched by the steady rise in the price of established cryptocurrencies like Bitcoin in terms of traditional FIAT money like the US dollar.
The recent investment moves orchestrated by MicroStrategy’s CEO Micheal J. Saylor serve as a good example of the changing dynamics of financial strategies involving Bitcoin.
Curb Your Exponential Growth Bias
Ironically, one of the key ideas that people outside the cryptocurrency ecosystem struggle to appreciate is the exponential rate at which technological evolutions happen.
This kind of “exponential growth bias” is not uncommon as evidenced, for example, by certain people’s tendency to underestimate the COVID-19 pandemic, leading them to abandon precautionary measures like social distancing and face masks.
When we examine the exponential rate at which technologies have evolved, such exponential growth bias can stultify even the most meticulous thinkers.
For instance, modern generations have only just begun to cash in on the deeper implications of the Gutenberg press, almost 600 years after its invention in 1450.
Historians who study technological milestones point out that the time period separating the conception of an idea and its full-fledged adoption by the masses continues to decrease as we approach the twenty-first century.
It has been speculated that this is because each new invention down the timeline bootstraps on past innovations that precede it. This accelerates the pace at which new technologies (or their corresponding conceptual models) penetrate society and eventually lead to their mass adoption.
Consequently, prediction of any future possibilities becomes staggeringly complex because of the various permutations and combinations that are possible in terms of potential new inventions.
Such exponential growth bias might also explain why the adoption of cryptocurrency as a new model of economic organization of society is occurring at a gradual speed. The concept is still relatively quite new.
Forever Evolving Economies
In the end, I must admit that my perspective on these issues related to change and evolution in economic systems and technology is somewhat optimistic. I have certainly not made up my mind about how the future will look like because that would be a logical fallacy.
Nevertheless, I find it quite intriguing to imagine the fate of future economies as a thought experiment. For instance, if Bitcoin is incontrovertibly proven to be a failed project, what would it say about humanity and its future? And even if it succeeds, would it necessarily give us a utopia? The answer to the second question is most probably no, because one of the basic rules in evolution is that the rules keep changing.