Do Bitcoin and cryptocurrencies have any inherent value?
Are they, as some critics have claimed, just digits on a computer screen? Can they play a positive role in economies besides disrupting currently flawed systems?
To answer these questions, let’s take a slightly unconventional approach to understanding value and the roles that labor, information systems, and language have to play in the way it is stored and transferred.
Money, simply put, facilitates human inter-activity. So, to frame the conversation, it is important to view humanity in the context of its environment. Humans are the undisputed masters of planet earth. It’s a strange fact about us, because we are not the biggest, we are not the strongest, and we are definitely not the fastest. So why do we sit so comfortably at the top of the food chain?
The idiosyncrasy of man and the secret to his success lies in the mystery of his mind, of course. Humans have the most wonderful capacity to think (some more than others), to reason and solve problems, and to build informational systems like languages. The capacity for complex language is particularly relevant to the topic of cryptocurrency for two reasons.
Firstly, language is critical to cumulative development in all areas of society. Isaac Newton once wrote,
“If I have seen further it is by standing on the shoulders of Giants."
What he meant is that his discoveries were built on the work of countless other brilliant scientists…and what I mean is that his foundation was made possible by linguistic information systems which could store and transfer value in the form of information.
How many people can honestly believe that they might have discovered the laws of motion on their own? If we all grew up stranded on an island, how many modern comforts would we each have invented? We are truly the beneficiaries of stored information, passed down through language, which facilitates all forward progress of human society.
Secondly, language is the art of assigning specific meaning or values to arbitrary characters, gestures and sounds.
The evidence that words are arbitrary is that there are so many languages. I can say hello or bonjour and get the same meaning across. I can type words on a computer screen, write them on a piece of paper, speak them or use sign language, but the message is always the same. The information transcends the means of transportation; and if you think about it, words are like currencies: each culture has their own version of ‘hello’ and ‘one dollar’.
The point is this: knowledge and information systems are the fuel that spins the wheel of human progress. The material means by which these immaterial systems are transferred are arbitrary. Currencies are arbitrary. They can and should adapt with technological evolution.
Lao Tsu touched on the same philosophical idea some 2600 years ago in the Tao Te Ching:
“Thirty spokes share the wheel's hub;
It is the center hole that makes it useful.
Shape clay into a bowl;
It is the space within that makes it useful.
Cut doors and windows for a room;
It is the holes which make it useful.
Therefore profit comes from what is there;
Usefulness (value) from what is not there.”
This wisdom may be difficult to grasp for the children of materialistic cultures, but the truth of it is becoming increasingly difficult to ignore as innovation in the realms of business, biology, and economics have shown a spotlight on the power of information systems.
For example, in the business world a very odd trend has been noticed. AirBnB, Uber, Facebook, Google, Alibaba, all share two striking things in common: they are the most profitable companies in the world and yet they have no products. Well, if they have no products, can’t we ask the same thing about Google as we ask about Bitcoin: What is “behind” them?
The question is actually embarrassing when you really examine it, because it’s somewhat analogous to asking, “where is the internet located?”
The physical infrastructure that facilitates the internet and defines its location, or lack thereof, is the same infrastructure ‘behind’ cryptocurrencies like Bitcoin and companies like Google. Uber, Google, and Alibaba channel information to connect buyers with sellers. Cryptocurrencies do something analogous.
Modern revelations in biology have emphasized the inherent value of information as well. From a strictly biological point of view, the only observable difference between organic matter and inorganic matter is genetic information. If you can say that Bitcoin is just numbers on a screen, you might also say that humans are nothing but atoms floating in the air.
Both statements are true in a manner of speaking. Neither quite captures the essence of reality.
The human body itself is a fine metaphor for blockchain and cryptocurrency.
There is no static, physical thing called the body because our cells die all the time. Our physical components are said to be replaced completely every seven years. What’s left to carry on is merely the mind and the genetic code which regenerates us, heals us and provides the plan for the reproduction of our species. Where is that code stored? It is decentralized in every cell of the body, like Bitcoin.
Nature has selected a blockchain to protect its most sensitive data. This is a testament to the resiliency and immutability of the method because genetic information, the equivalent of those “numbers on a screen,” are literally, biologically the difference between life and death.
What does all this have to do with cryptocurrency?
In the final analysis, currencies are a means to an end. They liquidate value and facilitate trade. As such, they penetrate every aspect of human activity. But currencies only function because, like words, humans have agreed to assign them a value. In the past we have assigned that value and defined currencies as various forms of precious metals, land, contracts, paper money, and now digital money. And the future has to be digital, because the world has become interconnected and digital, and no other asset can keep up with the speed of innovation. Only a virtual asset can evolve and adapt with the pace of information technology.
The tipping point will likely depend on the pace at which robotics and artificial intelligence redefine labor as the expression of intellectual effort in binary terms.
If conventional wisdom holds true, and labor is indeed the source of national wealth, what will happen when the physical labor of men gives way to the superior physical labor of machines? What will happen when knowledge-based workers are replaced with knowledge and information systems as the primary source of wealth? How will that wealth and value be protected from piracy and rampant digital replication?
Arguably, blockchain powered cryptocurrencies have already succeeded in creating the solution. They are hyper-available because the information is stored everywhere. They are resilient because no single point of failure can ever take them down. Information stored on a blockchain will likely exist for the duration of civilized humanity. They are secure and private and can be exchanged peer to peer across the world at almost the speed of light. They maintain value because they solve the inherent problem of digital replication by means of irrefutable math and democratic consensus.
This is not a sales pitch for any particular Crypto asset, but a case for their development as a whole. It’s not a criticism of current financial systems, though that would be warranted. Rather, it’s a plea to think differently about how digital money can bring human activity to higher levels of cooperation and efficiency. At its core, economic activity can be described as an agreement between people to trade goods and services. Imagine if these agreements were solidified on an immutable blockchain in the form of a smart contract? It holds the potential for things like total transaction transparency, automation of payments on delivery, visibility into supply chain, and verifiable reviews of services. All are made possible and highly efficient by interoperable blockchain powered currencies.
Perhaps when crypto has reached its full potential, everyone’s DNA will be stored and encrypted on a blockchain somewhere as identification for their digital wallet. Perhaps every cell in the body will function as a multi-factor authentication. Who knows?
Whatever the future holds, the economic and information revolutions are happening now. As Colonel Sanders from Space Balls would say, “We’re at now now.”