I wrote in my first post about money being power, and how ancient rulers had an absolute monopoly on minting money where they used violence to control the money supply. That is until now. Cryptocurrencies have the power to disrupt established currencies, nations, and perhaps even establish a new world order.
The Money Pyramid
Currently, fiat currency (i.e. money) is created by governments and flows down to everyone else. Think of it as a pyramid. Similar to the one we find on the U.S. dollar.
One of the biggest arguments against cryptocurrency is that it’s a “pyramid” scheme, where you recruit members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products or services. Eventually you run out of people to con, and the whole things collapses. A Ponzi scheme is similar, where you scam the original investors with fake returns on their initial investment (e.g. Bernie Madoff), and then get them to rope in more suckers because they’re so happy by the huge returns.
The irony is that fiat currency is closer to a pyramid scheme than Bitcoin because it’s minted at the top of the pyramid by central banks and then “trickled down” to everyone else.
But it doesn’t trickle down all that well.
It moves out to a few big banks, who either lend it to people or give it to people for their labor. So having a job or getting a loan are the primary methods that people at the bottom of the pyramid get any of the money, but their time is a limited resource and they can only trade so much of it before it runs out.
Think back to my previous post on gamification. And now think of economics as a game, where everyone in the system is a player looking to maximize their advantage and the advantage of their team (a company, their family and friends, etc.) to get more money. But to start the game you need to initially distribute the money or nobody can play. Distributing money sets the playing field.
If you were in charge of the money, you’d probably want to keep as much of it for yourself as possible, duh! So you’d set the rules to maximize your own personal advantage. That’s exactly what the kings and queens of the ancient world did, and that’s what nation states do today.
Unfortunately, that means most of us never see this money, where it remains at the top of the pyramid as unrealized opportunity. There is very little incentive for the money to move. Since money is power, hoarding it is literally hoarding more power and nobody would willingly give up that power.
BREAKING NEWS! The game is rigged. And we need a way to reset the game.
One ideas is to pass a law like a Universal Basic Income (UBI). That would give everyone a steady income, pushing it out across the entire playing field and giving more people a chance to participate in the system. If more people can participate, we unlock all kinds of hidden and untapped value.
Think about the thousands of potential inventors who never developed their ideas because they were stuck doing construction seven days a week to feed their family, with no hope of getting out of debt? How many great writers went to their graves never having written their great novel? How many aspiring scientists never discovered the cure to cancer or heart disease?
I’m personally not a fan of UBI, because it’s a lot like socialism (i.e. high taxes on the rich to spread the wealth around) where it’s nearly impossible to redistribute the money after it’s already been distributed. Rich people tend to resist redistribution, with the wealthy often leaving the U.S. for other countries who have more advantageous tax laws.
But what if the money is NOT already distributed?
What if we don’t have to take it from anyone at all?
The inevitable outcome of all fractional reserve lending booms is bust.
That’s the missed opportunity of all of today’s cryptocurrencies. Cryptocurrencies are creating new money. And unlike credit markets, which only pretend to expand the money supply, by lending it out 10x with fractional reserve lending, cryptocurrencies are literally printing money. And they aren’t loaning it to people, they’re giving it to them for their service to the network.
It’s like microloans, without the loans.
As Naval said: “Society gives you money for giving society what it wants, blockchains give you coins for giving the network what it wants.”
So instead of giving all the money to a small group of miners, what if we could do better? A lot better?
We can. We’ll talk about that more later.
Decentralized Systems are Impossible to Destroy
There is no head of the snake in decentralized systems (i.e. hydra). Cut off one head and two more take its place.
In 2008, an anonymous programmer, working in secret, figured out the solution to the violence hack once and for all when he wrote: “Governments are good at cutting off the heads of centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own.”
And the first decentralized system of money was born: Bitcoin.
It was explicitly designed to resist coercion and control by centralized powers.
Daniel Jeffries, a prominent cryptocurrency author, wrote that “Satoshi wisely remained anonymous for that very reason. He knew they would come after him because he was the symbolic head of Bitcoin.
That’s what’s happened every time someone has come forward claiming to be Satoshi or when someone has been “outed” by the news media as Bitcoin’s mysterious creator. When fake Satoshi Craig Wright came out, Australian authorities immediately raided his house. The official reason is always spurious. The real reason is to cut off the head of the snake.
As Bitcoin rises in value, the hunt for Satoshi will only intensify. He controls at least a million coins that have never moved from his original wallets. If VC Chris Dixon is right and Bitcoin rocket to $100,000 a coin, those million coins will shoot up to $100 billion. If it goes even higher, say a $1 million a coin, that would make him the world’s first trillionaire. And that will only bring the hammer down harder and faster on him. You can be 100% sure that black ops units would be gunning for him around the clock.
Wherever he is, my advice to Satoshi is this: Stay anonymous until your death bed.”
Bitcoin has a ton of amazing features, including the resistance to censorship and violence. Which are also found in other cryptocurrencies and decentralized app projects that utilize blockchains, or distributed ledgers, known as the third entry in the world’s first triple-entry accounting system. These incredible breakthroughs in accounting have always led to extraordinary innovations and major economic growth.
However, these major breakthroughs are not the true power of cryptocurrencies, they are merely the mechanisms of the system, or the way it survives and thrives, bringing new capabilities to the human race.
The Truly Disruptive Feature of Cryptocurrencies
The ultimate feature is one that current cryptocurrencies have only hinted at so far, a latent feature.
Daniel Jefferies wrote that “The true power of cryptocurrencies is the power to print and distribute money without a central power.
Maybe that seems obvious, but I assure you, it’s not. Especially the second part.
That power has always rested with the divine right of kings and nation-states.
Now that right returns to its rightful owners: The people.
And that will blow open the doors of world commerce, sowing the seeds for Star Trek like abundance economics, leaving the Old World Order of pure scarcity economics in the pages of history books.”
There’s just one problem.
The cryptocurrency we actually need hasn’t been created yet.
You see, Satoshi understood the first part of the maxim, the power to print money.
What he missed was the power to distribute that money.
The second part is actually the most crucial part of the puzzle. Missing it created a critical flaw in the Bitcoin ecosystem. Instead of distributing the money far and wide, it traded central bankers for an un-elected group of miners.
These miners play havoc with the system, holding back much needed software upgrades like SegWit for years and threatening pointless hard forks in order to drive down the price with FUD and scoop up more coins at a depressed price.
But what if there was a different way?
What if you could design a system that would completely alter the economic landscape of the world forever?
The key is how you distribute the money at the moment of creation.
And the first group to recognize this opportunity and put it into action will change the world.
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