Digital assets… a threat?

Tribes, revolution, engagement, philosophy, and more.

As time passes, people are becoming to get involved with the digital asset space and are beginning to understand the different narratives that drive it.

Some people think that the narratives in the space are behind the times from the world of 2017 when the adoption of Bitcoin was just taking hold and every other digital currency was a threat.

We have already seen the crypto winter when the entire space fell nearly 90%. A lot of people made a lot of money and many people lost a lot of money in 2018 and 2019.

Crypto Tribes.

In the bitcoin space, tribalism is most fierce. It is so fierce that it has its name: Bitcoin Maximalism.

The beliefs in this group are that all other crypto assets are inferior to bitcoin and that bitcoin is the only possible winner in a winner-takes-all world.

The end state is “hyperbitcoinization” where the entire global system of money, transfer of value, and trusted ownership all occur on the bitcoin blockchain and its various layers.

The idea is that bitcoin is more than an asset, it is the only monetary asset that survives and thrives. The cockroach in the financial nuclear winter of money printing, societal collapse, and government intrusion.

It is a future world where inflation is not driven by central banks but just by cyclical demand and supply, and where you are your bank, and the entire financial industry disappears as everything gets done with bitcoin and on the bitcoin blockchain in a decentralized world.

It is like the chance to start a revolution for many. To get in on the ground floor and own something scarce that early holders will become obscenely rich. It offers people the ability to control their own lives.

This is also somehow a theme of societal discord driven by the massive relative wage deflation of the last forty years that led to massive debts, all driven by demographics, globalization, fiat money, and technology.

For some, this hyperbitcoinization could happen in the next thirty years.

Bitcoin is a truly amazing breakthrough for the financial architecture of the world.

For this core group of bitcoin maximalists, everything that is not bitcoin is a scam. They strongly reject any other cryptocurrencies, protocol, digital asset, or project that is not built on bitcoin. They usually offer the advice of “having fun staying poor” if you don´t agree.

You might be asking yourselves: why the deep tribalism in bitcoin?

Raoul Pal, Real Vision´s CEO has an answer:

“If you were to design an experiment in creating optimal network effects, you could not create a more robust system that a network-based around a new form of money.”

The more the network grew, the more the participants will make money. Bitcoin is the greatest behavioral economics-based network of all time. Every time someone joins it and buys bitcoin, it goes up in value due to the restricted supply.

All money is a trust-based system and this is no different, but it´s the supply dynamics and the narrative that makes it so compelling to humans. It pays to our basic behavioral instincts.

Metcalfe´s law

Bitcoin is a natural extension of the behavioral economics revolution that drove the network effects on the social networks.

As it appears on Wikipedia:

Metcalfe’s law states that the effect of a telecommunications network is proportional to the square of the number of connected users of the system (n2). First formulated in this form by George Gilder in 1993, and attributed to Robert Metcalfe regarding Ethernet, Metcalfe’s law was originally presented, c. 1980, not in terms of users, but rather of “compatible communicating devices” (e.g., fax machines, telephones).

Only later with the globalization of the Internet did this law carry over to users and networks as its original intent was to describe Ethernet purchases and connections.

Then, a big breakthrough in Silicon Valley came with Daniel Kahneman´s lecture in 2007 where he taught all the Silicon Valley players about behavioral economics and how to affect behavior via nudges and other tricks.

Out of this lecture came the modified “like” buttons that allowed people to express the key emotions to drive engagement. Out of this also came the cognitive bias functions of YouTube algorithms and the sales techniques of Amazon´s marketplace.

Therefore, the more people joining any network and engaged in them, the more valuable the companies became. It was nothing short of a revolution that has now spun into politics and is spreading into finance with cryptocurrencies and the rise of central bank digital currencies.

It is all about behavioral incentive systems. And if you can drive more incentive to your platform, you capture the value.

In cryptocurrencies, the owners of the currencies are the ones that get rich in a distributed system. Some people become evangelical about their chosen cryptocurrency and they start persuading people that only their system has value, and if they succeed, they will capture all the value.

That is the power of behavioural economics…