Why Crypto Matters
I studied history for 4 years in college and I focused on revolutions. I learned to identify and distinguish the different characteristics of revolutions from each other. Many revolutions at the end of the colonial period were nationalist, in that they were shedding colonial rule and reverting to or inventing a national identity. This was the case in the United States of America, India, Mexico, and many of the nations in South America and Africa.
In contrast to nationalist revolutions, political or ideological revolutions are aimed at overthrowing an old order and replacing it with a new system of government and a new way of life. The revolution in France, and the Communist revolutions in Russia, Cuba, and China were characterized by a new political order as well as a cultural revolution, replacing the old way of life and standard of behavior with a new way of life, and a new standard of behavior.
What interested me most about ideological revolutions was the speed at which change would occur. I distinctly remember showing up to my French Revolution class each week, only to learn that, “the last group of people in power all got guillotined. Now a new group is in power.”
What I realized about ideological revolutions is that while some are characterized by swift victory or defeat (as in the American Revolution), in many cases, they are characterized by wild swings to the left and right, as revolution is parried by counter-revolution, and then an opponent to the counter-revolution emerges in the form of a more extreme version of the initial revolution, and so it continues. It is a rare occurrence in history that the group that starts the fight, finishes it.
When I first learned about cryptocurrency and I understood it for the first time, I realized that what I was looking at was an Anarchist revolution. The word “Anarchist” has a long and complex history and puts a sour taste in many people’s mouths, so for good reason “Anarchy” has been re-branded as “De-centralization.”
While some would contest this claim, the reality is that they behave the same. “Anarchism” is the absence of any central authority, based upon the free grouping and interaction of individuals as they choose. “De-centralization” is the absence of any central authority, based upon the open peer to peer interactions of individuals with no monetary middlemen.
“De-centralization” is “Anarchism” updated for the 21st century and it is the philosophical foundation that cryptocurrency is built on. What enables this philosophy to take action is the second level, the technology.
Cryptocurrency utilizes internet-enabled blockchain technology to facilitate rapid, global, peer-to-peer transactions, validated by an international network of “miners.”
Here is the metaphor for blockchain technology that I use in my class:
Imagine that we all sat down to play Monopoly, but we didn’t have the Monopoly money. In order to play the game we need to keep a record of how much money each player has. We need to add and subtract as they pass Go, land on each other, buy houses and hotels, and get penalized or rewarded by Chance and Community Chest. Someone has to break out a piece of paper and a pen and keep an updated ledger of everyone’s balance.
However, we can’t trust any one person to do this. So, we all break out a piece of paper and a pen and we keep a “distributed ledger.” Essentially, we all keep track of every single transaction simultaneously, so that we can check each other’s ledgers and make sure no one is cheating. Additionally, every single ledger is open. We can all see each other's records to make sure they’re updated and correct.
This is how blockchain technology works. In simple terms, what this means is that there are average people and organizations all over the world, keeping an open digital record of every single transaction that occurs on the network. Everyone can see the network transactions, so it is easy to validate every digital ledger. That is how crypto works.
If I send you one Ethereum, every miner (record keeper) on the Ethereum network will add that transaction to their digital ledger simultaneously. That is what makes cryptocurrency “decentralized.” There is no central authority. No one is in charge of it. Everyone runs it together, but no one is in charge. Just like if we all sat around a Monopoly board with notebooks and pens, no one is running the bank because we are all keeping track together.
Hopefully I succeeded in simplifying that for you. In a way, it is a very simple idea, but its implementation is incredibly complicated. Bitcoin, the first cryptocurrency appeared on the internet in 2009, and it had to solve a very difficult computer program, cryptography, just to exist. The interesting thing about Bitcoin is, no one knows where it came from. “Satoshi Nakamoto” is the name of the anonymous individual or group that programmed the Bitcoin network and released it into the world. No one knows who it was, which adds a fun mystery to one of the most revolutionary technologies since the internet.
The final layer of cryptocurrency is the monetary or financial component. This is what incentivizes people to actually use it. Cryptocurrency has been called a pyramid scheme because the more people that use it, the more value it gains. It is simple supply and demand. Just like with gold or food or anything else, as the supply of Bitcoins decreases, the value of each Bitcoin rises. This incentivizes people to become “early adopters” and buy in as early as possible (preferably 10 years ago).
Crypto is a period scheme, but only if everything else is too. For example, Apple stock. There are a limited number of shares, and the higher the demand for those shares, the greater the value of each single stock. Crypto is as much of a pyramid scheme as the stock market. Early adopters of Apple stock were rewarded just like early adopters of Bitcoin, although not nearly as much.
The primary thing that gives Bitcoin its value is its limited supply. There will only ever be 21 million Bitcoins. That’s it. There are currently only about 19.5 million Bitcoins in circulation, and the last Bitcoin will be mined around the year 2140.
The reason this certainty is so attractive to investors is that nearly every country printed record levels of currency during the Covid 19 Pandemic. In a post-Covid world, the fallout of that money printing has been record levels of inflation. In the United States, the Federal Reserve had inflation peaking at 9% in 2022, but in other countries around the world it was far worse. In Turkey, inflation exceeded 70% during the years following the pandemic. In Argentina inflation soared over 150%.
What that means is that the cost of goods and services rose by that much in each of those countries. In simple terms, life got a lot harder for everyone. Why? Because the value of the national currency dropped. By printing more money, they increased the supply. When you increase the supply, you decrease the value of each one. Each dollar became worth less than it was worth the year before.
The reason that makes Bitcoin so attractive is that unlike the Federal Reserve or the Bank of Turkey that print money whenever they want, Bitcoin has a limited supply, set in stone, hard wired into the network programming. There will only ever be 21 million Bitcoins. Ever. National currencies can’t make that promise. When there’s another crisis, they’ll print more money to solve it. Currently there are 2.33 Trillion dollars in global circulation. If the senate passes a 1 Trillion dollar spending bill, they’ll print a Trillion new dollars that they can spend (probably at their own companies) and the total dollars in circulation will increase to 3.33 Trillion dollars in circulation. This will cause a minimum of 30% inflation. Meaning, every single dollar will be able to buy 30% less than it did before the spending bill. The number on the bill won’t change. Instead, the cost of everything will go up. Instead of $15 for a meal, you’ll need $20-25.
This is why Andrew Tytler stated in 1790, long before our modern problems, that:
“A democracy is always temporary in nature. I simply cannot exist as a permanent form of government. A democracy will continue to exist until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidate who promises the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.”
Historians and economists have witnessed this cycle time and time again. On average, great civilizations and empires flourish for around 200 years, before they enter a period of stagnation, self interest, and decline. Once a country goes bankrupt, it’s game over. Chaos erupts and a dictator rises to power by promising to restore order and stability.
De-centralization is an attempt to remedy this curse. Bitcoin has existed for nearly 15 years at the time of writing. It hasn’t been banned (except in China and India), it hasn’t been hacked, and it hasn’t changed. It has stuck to the supply schedule it was programmed with since its creation. Over that same 15 years, governments worldwide have done whatever suited them at the time. They have not stuck to any semblance of a supply schedule with their national currency, and by printing money recklessly they have only made the fixed supply of Bitcoin more attractive.
Tytler knew about the philosophy of decentralization because there were plenty of Anarchists in his time. What he never could have imagined is a technology as revolutionary as the internet and blockchain that could effectively render the government’s role in money obsolete. He never could have imagined Vitalik Buterin’s claim that, “money is just something any community can make for itself whenever it wants.”
Vitalik understood the revolutionary capabilities of blockchain technology better than anyone else who knew about Bitcoin in the 2010’s, which prompted him to create Ethereum. He realized, before anyone else, that Bitcoin was limited in its functionality. He realized it could do much, much, more. He realized that it could erase middlemen from every interaction, and revolutionize entire industries.
Vitalik was the first to conceptualize smart contracts, which are digitally enforceable peer-to-peer agreements. What that means, is that using Ethereum, you will be able to get a ride from a stranger, without using Uber. Stay in someone else’s home, without using Airbnb. Stream an artist’s music, without using Spotify. Get a loan from someone without using a bank. Buy someone’s house without a real estate agent or loan officer. No more middlemen. All of these transactions will be as simple as, “Hey I like that. Here’s a fair amount of Ethereum for it, locked up in a smart contract.” They would enter the deed for the house, the agreement to give you a ride, the agreement to let you stay in their house, or the ability to listen to their music, and when you both click “Agree” on the smart contract, your Ethereum will go to them, and their service or property will go to you.
There are, of course, many difficulties in removing middlemen in each of these industries. What if this? What if that? All of that will need figuring out by each industry. The revolutionary thing is that it is possible. Peer-to-peer transactions are possible without the involvement of any middlemen. Bartering is back, baby!
The industry that will be hit the swiftest is real estate, because there is no service being performed. It is a simple transaction of cash for property. Currently, middlemen (real estate agents, loan officers, banks) take a slice of every home purchase. A friend of mine works for a startup that is using smart contracts to buy and sell land. In an industry like Airbnb or Uber there is a minefield of “user experience and accountability” issues that will arise when the middlemen are removed and smart contracts take their place. In real estate, it’s very simple. Ethereum locked in the smart contract by the buyer. Digital deed locked in the smart contract by the seller. Both agree. The transaction is logged on the blockchain, and every ledger on the network stamps the record that the house went to the buyer and the currency went to the seller. Done. If there’s any problem, the buyer would call the police and show them the digital deed for the house.
And it isn’t only digital housing deeds that can be stored on the blockchain. All records can be stored on the blockchain. Birth certificates, diplomas, car titles, marriage licenses, criminal records, even medical records. All of it can be stored on the blockchain. Remember in the early 2000’s when all of the paper files in government offices all over the world got digitized and put onto their centralized database? Well, that’s probably about to happen again.
If you are traveling abroad and you end up in the hospital, the doctor in a foreign country will be able to see your health records on the blockchain. If you get a Masters degree at a Swiss University, but live in the United States (like I did), employers will be able to access the digital record of that Masters degree on the blockchain.
The current view of “cryptocurrency” as a pyramid scheme or a risky investment or some form of internet money is only the first phase of its existence. In time, blockchain technology will become as central to our world as the internet itself. Like the ideological revolutions I studied in college, it has the ability to usher in a completely new way of life and a new standard of behavior. There are three main ways that it will change our world, and one way it might.
It will enable global, transparent record keeping. (all records)
It will enable peer-to-peer transactions through Smart contracts. (no more middlemen).
It will provide a fixed, reliable currency (Bitcoin) that has a predictable supply schedule and can therefore function as a predictable and deflationary store of value.
All three of these are changes to the financial system and the way business is done. Banks, institutions, and middlemen companies will try to fight it, but they are already starting to lose that fight, and as with all new technologies, they will switch to the new system to get there before their competitors do. They will give in and use it to stay ahead. All three of these changes are inevitable.
The final way that blockchain technology could change our world is by enabling a real political revolution. The problem that Andrew Tytler diagnosed was a problem of representative democracy. We elect people to make decisions for us, and people are selfish. They put their own interests first, they vote themselves money, and they make deals with private interests to maintain their power. This has been true across cultures and civilizations for the last 4,000 years. Politicians in Ancient Greece behaved the exact same way. So would you and so would I. Absolute power corrupts absolutely. It is human nature.
The truly revolutionary capability of blockchain technology is its potential to enable direct democracy.
Imagine you wake up on a Saturday morning. The year is 2040. You make a cup of coffee and you sit down at your laptop to check the month’s propositions. You log in to the “People’s Senate” and browse the new measures and bills. Most are tedious and boring but there’s one that you feel quite strongly about. You register a “No” vote using your digital blockchain ID. You check the current status of the proposition and see that it is leaning “Yes” with only 24 hours left to vote. You text a few of your friends reminding them to get on and vote.
In this system there is still a government full of public servants that carries out the “will of the people” but there are no representatives to vote on laws. No politicians at all. Rather, the people vote on each bill from home, using the internet and blockchain technology. The government then carries out the results of each vote. Honestly, we could do this right now if they let us. But I don’t think they will. After all, representatives enjoy a lot of wealth and power. They won’t be interested in handing it over.
I’m not necessarily arguing for this, I’m just letting you know that it is completely possible to have a society that functions using direct democracy rather than representative democracy. There are plenty of problems. If each person had the ability to actually influence laws It could make us even more polarized than we already are. Our country could become even more divided. There would also be a headache of logistical issues around proposing laws and implementing them. It would be a lot of work, with many problems to solve, but it could definitely be done.
So, why did I tell you all of this? Why does it matter? Well, it matters, because as an individual it is a lot easier to navigate change if you’re prepared for it. If you read this chapter and you understood most of it, you’ll be a lot less shocked when these scenarios play out. As an investor, you may even be able to make money off of them.
Most crypto investors split into two camps. Bitcoin-only investors see the fixed supply of Bitcoin as the only logical choice in the face of monetary mismanagement and record inflation. De-Fi users (Ethereum and alt-coins) are more excited about the potential of smart contracts and the other use cases for blockchain technology. If this interests you, it’s up to you to look into both worlds and decide whether you want to make a technology bet on Ethereum and other Altcoins or a store of value bet on Bitcoin. Personally, I only ever invest in the top 5, because smaller coins can go to zero very suddenly and because most of them will become obsolete as Ethereum develops and makes their existence unnecessary.
Now, if you read this and thought, “there’s no way governments are going to let this happen,” you would be right. However, they aren’t so much fighting the changes as they are taking the technology and using it for their own ends. Institutional power tends to do this with any new technology. It’s what the Catholic church did with Gutenberg's printing press. They denounce the new technology until they realize it could potentially replace them, and then they furiously scramble to try to make sure that they own it and control it.
That is what the governments of the United States, Canada, China, and the European Union are doing with blockchain technology. They are using it to develop Central Bank Digital Currencies, or “CBDC’s” for short. If you go on YouTube and type in “CBDC” you will find thousands upon thousands of videos with paranoid people freaking out. The reason they are freaking out is because CBDC’s are digital programmable money. This is very different from what you have now with US Bank. Your online account with US Bank is not digital programmable money. It’s simply a balance on the bank’s central registry.
When you send money from one bank account to another, the first bank is subtracting from your balance, and the second bank is adding to their balance. What’s coming next is money that is strings of code. And when it’s strings of code, it can be programmed to only be able to do certain things. For example, when the United States government sent out pandemic relief checks in 2020, people cashed those checks and spent them on whatever they wanted. Some people invested it, or bought clothes or bought food. Some people bought booze.
Once money is code it can be programmed to only be able to be spent on certain things. In only a few years, any payment from the government will be programmable, and may only be able to be spent on “approved categories” or with “approved vendors.” Imagine getting your tax return and you can only spend it on food, gas and rent. Or you can only spend it at corporations that contribute to the established politicians. Imagine if you received your paycheck in programmed digital dollars and it couldn’t be spent at local small businesses, only at corporations. Needless to say, many of the fears around CBDC’s are warranted. The potential for control over private finances is terrifying.
After North Korea and possibly Russia, China is probably the most centralized country on earth. The Chinese Communist Party led by Xi Jinping makes all of the important military, economic, political, and social decisions. It is no wonder then that China banned Bitcoin and all decentralized forms of currency and then rolled out their own CBDC, the digital Yuan, in 2021. They have been using it only in select provinces, experimenting with the code and developing its programmable potential. The CCP has made it very clear that there will be no financial transactions in China that the government does not completely control.
Corporations think like the CCP. They also want complete control over as many financial transactions as possible and they are joining the race to dominate money. The top major corporations are all experimenting with their own digital currencies. Imagine the power they would have if you had to first convert your dollars into Amazon cash or Apple dollars before you could purchase anything.
Power over money is power over people and corporations want it as badly as governments. In 2020 Facebook tried to release a Facebook currency called Libra. They were denied by the United States Senate. They were told that, “money is the sovereign power of governments.” Facebook, undeterred, re-branded Libra as “Diem,” and is now trying again.
All other major corporations want in on this. Most people have some form of digital wallet now with PayPal, Apple Pay, or Venmo. Imagine if Starbucks only sold their coffee for digital Star-bucks. You could convert your US Dollars into Star-bucks in the app (for a small fee) and then use the Star-bucks to buy coffee. Venmo and Paypal would be on board because they would charge a conversion fee every time you changed one currency into another. That is the corporate dream. Adding more small, meaningless fees to every transaction by complicating the process so they make more money without providing any extra value at all.
This is the world we are moving into and if your only thought about crypto prior to reading this was “it’s some dumb scam,” you need to revisit that thought. Because the alternative is that the same revolutionary technology gets used by governments and corporations to maximize their control over us. In China the race is over. The government has forced corporations into submission and banned all decentralized currencies. They will program people’s money however they want.
In the West, it is still a 3- way race, between decentralized crypto networks (Bitcoin, Ethereum), Corporate currency (Facebook Diem, Star-bucks) and Central Bank Digital Currencies (digital Dollar, digital Euro). The question isn’t really, “do you like crypto?” The question is which of the 3 do you want to win?”
