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Bitcoin Maximalists’ Impossible Dream

Bitcoin maximalists never give up. Bitcoin’s price has crashed from over $19,000 a year ago to under $4,000 today, and there are no signs that the price is going to rise again any time soon. But maximalists don’t care. They are in this for the long haul. Their belief? Eventually, Bitcoin will replace all government-issued money. So all they have to do is HODL on to large amounts of the future world currency, and they will become the next generation of fantastically rich elites. Or so they think.

A bitcoin token sits next to the image of George Washington on a U.S. one dollar bill.   Photographer: Chris Ratcliffe/Bloomberg© 2018 Bloomberg Finance LP

Of course, what we mean by “Bitcoin” is disputed. The Bitcoin community resisted hard forks for a long time, but eventually Bitcoin was forked, creating Bitcoin Cash, whose advocates claimed that it was the “true Bitcoin” as defined in Satoshi Nakamoto’s original white paper. Bitcoiners who held to the “one true faith” firmly expected Bitcoin Cash to die. But if there is one thing that the cryptocurrency forkfest of the last two years has taught us, it is that old coins don’t die. Both the new chain and the old one continued to be mined, often by the same miners, who rather enjoyed the arbitrage opportunities that two versions of the same coin create. Exchanges eventually listed both versions of Bitcoin. Bitcoin Cash was never worth as much as Bitcoin, but it certainly didn’t die.

Old coins also keep forking on. Bitcoin has now forked multiple times. Hard forks don’t just create new coins, they also create new tribes: each version of Bitcoin has its tribe of fervent advocates. So, we now have proliferating tribes of ardent Bitcoiners, each claiming that its version of Bitcoin is the “true Bitcoin.” Some of them appear to be willing to fight to the death to defend their coins, too: recent price falls have been partly blamed on a “hash war” between two versions of Bitcoin Cash.

So what would replace government-issued currency is not exactly clear. However, most Bitcoin maximalists are supporters of the version of Bitcoin that remained after the first hard fork, now known as Bitcoin Core or simply “Bitcoin” (BTC). It is also sometimes called “digital gold.” It is this version that maximalists believe will become the base unit of account for a new worldwide payments system which will eventually replace all government-issued currencies.

Here is Bitcoin Magazine predicting what will be in the history books of the future:

Bitcoin Magazine tweetTwitter

Bitcoin maximalist philosophy in a single tweet. However, this is the last in a series of tweets, so to understand the context, we need to look at the other tweets.

The first tweet in the series is about this article from Time magazine. The article argues that for an estimated four billion people worldwide, Bitcoin could be a useful way of protecting their wealth from predatory governments and hyperinflation. “For people living under authoritarian governments,” it says, “Bitcoin can be a valuable financial tool as a censorship-resistant medium of exchange.” And it highlights four countries:

  • Venezuela, whose collapsing economy is overseen by an increasingly authoritarian government. Exchange rate controls have failed, which as I predicted four years ago, has triggered hyperinflation. Its currency, the bolivar, is currently hyperinflating at a rate of over one million percent per year;
  • Zimbabwe, which has a long history of political corruption, economic lunacy and hyperinflation. Its citizens will use any currency other than the country’s official currency, the Zimbabwean dollar;
  • Russia, which has a predatory government and is subject to international sanctions, both of which are making it difficult for people to remove their money from the country;
  • China, which has an authoritarian government and capital controls.

Time’s article is well-argued and reasonable. There are indeed very good reasons for people in these countries, and some others, to use Bitcoin as an alternative to government-issued currency, though personally I doubt that Bitcoin would become the main currency in any of these countries. But nowhere in the article does Time suggest that Bitcoin might replace government-issued currencies for anyone other than the four billion, who are slightly more than half the world’s population and disproportionately concentrated in China. So how did this lead to Bitcoin Magazine’s claim that all government-issued currencies would eventually disappear?

Tweeting the link to Time’s article, Adam Back said it discusses using Bitcoin to protect against government “cashless and negative rate policies”. But it doesn’t. Time’s article is about authoritarian governments and economic basket cases, not democratically-elected governments in stable developed countries using negative rates to counter deflation and recession. True, it warns against the dangers of a cashless society, and cites Sweden briefly in this context. But it doesn’t even mention negative rates, which are currently used not only by Sweden but also by the Eurozone, Switzerland and Japan.

It seems that Adam Back deliberately misrepresented Time’s article to promote Bitcoin as an alternative to government-issued currencies in stable Western democracies. Samson Mow, a paid apologist for Bitcoin Core, then went further. According to him, far more than four billion people can’t trust their governments:

The total population of the world is only about 7.7 billion. Mow is in effect saying that no government in the world can be trusted. This is full-on libertarian “destroy the State” thinking.

From here, it is only a short step to “all government-issued currencies will disappear.” It’s not just government-issued currencies that would disappear, though. After all, if no-one trusts government, democratic government can’t exist. In Bitcoin Magazine’s brave new world, therefore, democratically-elected governments would also disappear, presumably replaced with technological superstructures automatically executing code written by unaccountable elites, blind and deaf to the horrible consequences of applying rigid rules to the messy lives of real people. We have already gone too far down this road. The resurgence of nationalism around the world is a reaction to the dominance of unelected, unaccountable, supranational elites. Replacing one set of elites with another is no solution.

Fortunately, Bitcoin Magazine’s terrible forecast may never come to pass. History is littered with attempts to replace national currencies with undemocratic and unaccountable international currencies. They have all failed, except for (so far) the Euro and its African offshoot, the CFA franc (though the CFA franc is under growing political pressure because of its colonial origins.) There is no particular reason why Bitcoin should be different, or the Euro, for that matter. I predict that history books of the future will contain interesting discussions of the reasons why some crazy people thought they could replace government-issued currencies, and why they failed.

Sadly, though, this will not be the last such attempt. Humans have short memories and long beliefs; ideological belief in a single world currency has proved extraordinarily resilient despite overwhelming historical evidence that supranational currencies either become national currencies (e.g. U.S. dollar and British pound) or are eventually torn apart by massive political and economic forces.

But perhaps Bitcoin has something to teach us  – if we are able to listen. The forking of Bitcoin has demonstrated beyond all reasonable doubt that a currency is fundamentally an expression of tribal identity. This is true regardless of who or what issues it. Just as the various versions of Bitcoin have their own “tribes,” so too do government-issued currencies. If a government issues a currency, and the people accept it, the currency expresses their national identity. History shows us that currencies issued by governments that have lost all credibility with their own people fail – indeed, Venezuela is showing us this right now. So too do currencies that are not anchored by a stable tribal identity; this is why the currencies of states that lose wars often hyperinflate. The reason why we have multiple versions of Bitcoin is that someone still believes in every single one of those versions. So Bitcoin does at least have a tribal identity or twenty. But it’s not exactly stable, is it?

If currencies are fundamentally tribal, how can Bitcoin possibly become the “new gold standard”, as maximalists dream? Humans don’t take kindly to attempts by other tribes to eliminate their tribal symbols and impose those of another tribe. They have to be persuaded, not coerced. Currently, Bitcoin maximalists can’t even persuade other Bitcoiners to support their coin. The idea that they could persuade all the people of the world to throw away their tribal currencies and adopt their version of Bitcoin is laughable. When’s the next fork, by the way?

Bitcoin has shown us the tribal nature of currencies. For that, we should be grateful. But Bitcoin becoming the One True Currency for the whole world? No, that is an impossible dream.


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