In order to understand what cryptocurrency is first requires a definition of crypto and currency. Crypto stands for cryptography, which is a complex math problem that protects information. Currency stands for circulation, which is a form of movement, or current. Cryptocurrency is therefore a complex math problem that protects information in circulation. A current has a charge, which is why we “charge” our credit cards. Cryptocurrency distilled is digital money. But what is money?
Money is an instrument which people agree to focus attention on. So basically whether it was sea shells in some exotic culture, coins made of silver, gold, copper, or some alloy thereof, or cigarettes in prison, money is this instrument that an ‘in-group’ agrees to focus attention on, and use as a medium of exchange. Point being: many things could be money. However, as an instrument money works best if the object is small, scarce in quantity, and generally similar or the same. Hence shells, coins, paper notes, cigarettes and the like. The digital version of this is smaller, with a determinable quantity, and of the same kind (unless designed not to be like an NFT).
But why should money become cryptocurrency? In other words, why would or should we as a people agree to focus attention on it?
Well, there are a few problems with analogue versions of money. For one, the US dollar used to be backed by gold. A dollar was a promissory note. Promissory notes were pledges for redemption of actual gold. Then along came Nixon, “I am not a crook”, All the Presidents Men, and Watergate and by 1971 that gold-standard was removed.
Dollars weren’t promissory notes any more. The terms of the contract changed. Once the US left the gold standard, the others quickly following suit, and from then on fiat currency became what could be considered paper fictions, which still worked because, “everyone agreed to pay attention to it.”
The US dollar is currently indispensable. Oil is pegged to dollars, which means dollars are required to buy and sell oil. Also, eurodollars (which is US fiat used outside the US) far surpasses the amount of regular dollars. What that means is that more US dollars are used outside the USA than inside it. There’s a huge market for the US dollar. None-the-less, a little less than half the US money ever printed was printed in 2020. But due to the world-wide attention focused on the US dollar, despite hyper inflation in other countries (See Venezuela and Zimbabwe), it doesn’t seem to be going anywhere. As mentioned money is an instrument which people agree to focus attention on. So first it was shells and stuff, then it was metals, then fiat, now it’s mostly digital.
Think about how often we use our credit and debit cards. Think about how most money is stored in account information on computers in banks. We’re already well into a flow-blown digital money system. As you can see over time this attention has shifted. Money at any time, in any moment, like some sort of temporary autonomous zone, can become whatever is in fact the simplest and most utilitarian asset amidst a set of parameters: current socio-cultural-behavior, agreed upon value, usability, scarcity, security, and staying power.
A good example of the fungibility of money within an in-group preference, was in a Pomp podcast with Bitcoin Vegan, where they discussed postage stamps acting as currency in a prison yard. Within the constraints of that system, people agreed to focus attention on a new instrument, and a new form of currency emerged. Here’s the important part: as a matter of necessity.
As far as digital currency is concerned, we’ve been gradually digitizing the economy since the 50’s. VISA, as BankAmericard, launched a CC in 58', went international with it in 74', and debuted the debit card in 75'. Ever since then it’s just snowballed. Today, we are in a complete flurry of digital transactions. The final straw came on March 29th, 2021, when VISA opted to settle transactions in USDC. USDC is a blockchain based stable coin that is pegged to the US Dollar.
Paypal accepts and transacts in crypto, Cash App sends and receives Bitcoin, and Venmo will be doing so soon as well. What this means in simple speak is what was dubbed “The Mullet Theory” on a Bankless episode, short and simple: UX/UI in the front, and blockchain in the back. People keep swiping, but eventually (because it’s more secure, transparent, and “trustless” — means verifiable by anyone) that swipe will be backended entirely by blockchain. After that happens, we’ll be tapping coins to Starbucks’ blockchain at the counter with USDC or DAI, just like we shoot money around after a dinner party on Venmo.
The point is nobody has to understand crypto for it to take over as the predominantly used medium of exchange. Everyone will be focusing their attention on it, but it won’t require an awareness of how it works. Most people don’t really know how their cars work, but they can drive them just fine. Ten years hence, everything will be on blockchain. Institutions are rolling in. Goldman Sachs. JP Morgan Chase. Main stream accessible Bitcoin and Ethereum ETFs. Microstrategy. Galaxy Digital. Big moves are afoot. So what will happen as attention agrees to focus on cryptocurrency?
Well, much like the dot com boom, there will certainly be some Myspaces amidst the cryptocurrency world. But a half a dozen or so will have staying power. Much like Youtube was first out the gate for the “individual celebrity”, Bitcoin was the first out the gate for the “unlikely millionaire”. Ethereum, on the other hand, is to all business what Uber was to the taxi industry. Anything that’s not happening in a trustless secure manner in real time is a dinosaur. It’s like Moneyball but Vitalik Buterin is Brad Pitt. However, being second through the door, Ethereum was spared a lot of heat, ridicule, and shame that Bitcoin went through. In some ways, it’s sort of like Bitcoin’s plus one. Smart money on these two making it through the bearish winters. Why?
BTC is a secure store of value, a sort of digital gold. It has a limited amount of coins (21 Million), and cannot be manipulated unless there is a 51% attack, which is unlikely for a decentralize currency. Keep in mind during the 2017 bull run, ~60% of the Bitcoin in circulation simply didn’t sell despite the fact that it retraced from a then all-time-high of around 20K back down to 4K. Early bitcoin hodlers dealt with huge swings all the way up the ladder, and in short, “these hodlers are loyal”. Bitcoin has ‘in-group’ socio-cultural-behavior, widely agreed upon value, scarcity, security, and staying power.
As for Ethereum it is easily programmable and has high usability. The ethereum blockchain, and the ETH that moves information around on it, are like a playground where the jungle gym, slides, and monkey bars of tomorrows blockchain functionality can be constructed, beta-tested, refined, and deployed. This second major cryptocurrency could grow and scale like an organism, and it is deployable in more ways than we know yet. Ethereums’ programmability are its “smart contracts”. They are intelligent because of transparent self-executing code that is known and specified before said contract is “deployed”, or published. Everything that is in that contract is demonstrable and known to both parties before it occurs. The legal ramifications that flow out of contracts caked with fuzzy terms are absent. What do “to the best of ones ability” “in good faith” and “reasonable” really even mean? Of course, they approximate accuracy, but cannot guarantee it.
A smart contract says this instrument will do A and B, if C and D occur. There aren’t subjective terms in code. This instrument executes absolutely and immediately once the conditions are met. Period. End of story. Full stop. Like the subdivisions of sections in a circle these “if then” statements are infinitely mutable. For example, so long as A and B occur within X time frame, C and D will occur otherwise they will not, and instead E and F will occur, and so on.
This programmable blockchain allows for trustless agreements between parties based on instruments which can be coded to execute everything from trading futures options to managing shipping operations, from home owner housing collateralization to real-time royalty dispensation, from unhidden healthcare policies to accurate voting systems, and on and on... Not to mention decentralized finance, and 24/7 access to our own economies.
Blockchain is a cultural invention on par with the steam engine and electricity. Just as the steam engine shrunk the earth, and electricity opened the night, blockchain has begun to chart the heights of our day.
Bitcoin, Crypto, Blockchain, Ethereum, Smart Contracts, Digital Money, Digital Gold, Currency, Fiat, Inflation, NFT, Securitization, Philosophy