Resonate into the Future

A Little Bit of Money

Thought Experiments on Cross-Border Payments - Of Couriers, Bankers, and Bitcoiners

Series 26: Resonate into the Future

Snapshots in the Community

I argue that the only way to forecast the evolution of Bitcoin is intuition, which requires resonance. If and only if we are aware of what resonates within the network, we will get a sense of what is currently going on. One needs to monitor the constant changes carefully and stay in touch with the people in the community to understand cause and effect. Looking at resonance is a vibrant quality that allows us to better understand the impact of Bitcoin technology. 

A New Form of Money Resonating All Over

Of course, resonance is only a snapshot that indicates trends, and there is no guarantee of future outcomes. What I see as a guiding principle that resonates throughout the network now is this: There are millions of smart people who believe in the crypto ecosystem. That vibe is going to change the future of money, no matter what.

What if the correlation between Bitcoin and Fiat falls?

What we can say with certainty today is that crypto resonates with the traditional markets. Every time when Wall Street crashes, so does bitcoin. The secret behind this correlation is easy to guess. It means that the people with a lot of fiat money also have a lot of crypto money and thus dominate the course of the game. So the question is whether this correlation will fall at some point. There is no clever answer to that. 

Decentralized Stablecoins emerging from the Shadows

History tells us that fiat reserve currencies devalue drastically every 50 years. At least, that`s what we know about the dollar. Assuming, the post-millennial generation around the globe would lose trust in centralized fiat money at such an occasion and switch their transactions over to a decentralized stablecoin such as TerraSDR, what would happen? Then, the correlation could fall. This view resonates with many of the tech-savvy people out there, especially those in emerging markets. 

Decentralized Stablecoins and Central Bank Digital Currency are like Dog and Cat

Looking at the world’s unbanked population many are waiting for financial inclusion. In their eyes, it is time for decentralized stablecoins to emerge from the shadows, as they promise far greater economic opportunities than the prospect of eventually using a Central Bank Digital Currency (CBDC). In fact, decentralized stablecoins and CBDCs behave quite differently, like cats and dogs. The leading thinkers in the crypto community see CBDCs as digitized fiat money that comes with the same or even more centralized restrictions. Of course, they are very much in favor of using a more flexible form of money like decentralized stablecoins.

A counter-intuitive statement: trustless technology

The paradigm in the crypto economy is that Bitcoin technology is "trustless," which is a counter-intuitive statement. Essentially, the distributed ledger of the Bitcoin protocol works by removing traditional trust in institutions. Peer-to-peer transactions do not require a middleman; there is a network of machines that do just that. So users have less trust in the treasuries and remittance systems of centralized institutions. They also have less faith in the people who run the traditional banking system and the governments that oversee fiat finance. Instead, users prefer to trust the security of their own computers and blockchain-based currency systems. In this sense, Bitcoin technology is trustless towards institutions, but "trustful" towards machines.

Money is a matter of trust

In Bitcoin technology, there is no need to require a third-party to verify and execute transactions. But, you still need to trust the technology and your transaction partner when doing business. This feature of a typical P2P-transfer can be seen as a disadvantage – especially when a business deal goes south and nobody provides you with a refund. The blockchain, functioning as the network`s transparent trust machine, does not resolve this issue.

Handling Warranty in the Age of Crypto

At the end of the day, in a commercial transaction, the counterparty must be trusted. Some common understanding is required, and the parties need to mean what they say and warranties get honored regardless if the payment method supports reversing transactions or not. Consequently, when using irreversible payment systems like decentralized stablecoins, resonance is required, or to be clearer, empathy is helpful to understand the other party and find a solid agreement where the payer can trust that the payee delivers at the end of the day. Until now, humans have used trustees, meaning institutions to mitigate fraud. The crypto community is still struggling with this problem, as technology is not the magic bullet to solve trust issues for once and for all.

The Money-Empathy Gap

They say money makes you mean. There are a number of studies confirming the "Money-Empathy Gap." Theory shows how money changes one`s compassion for others. Psychologist Paul Piff has concluded that as an individual's wealth increases, compassion for others decreases. But this result is not the be-all and end-all. Jeremy Bailenson from Stanford University is conducting a research project examining ways to use virtual reality technology to teach empathy. He is behind “The Machine to Be Another”, a performance art piece. It allows performers to walk in the shoes of another person and experience their reality. „Afterwards, you now know someone in an intimate way that helps you connect,” says Bertrand. Based on these findings, it is fair to say that the simulation of human trust is probably a good start to further developing decentralized payment systems and translate trust into code.

To be continued. Further Reading:

What is Money? A Discussion Featuring Joseph Beuys. Clairview Books Ltd; Reprint Edition (2012), Joseph Beuys, Ulrich Rosch.

A. Hayes. The Q trap.

Raulo. “Optimal pool abuse strategy.” Research paper, Feb. 4, 2011.

R. Nakamoto. “Abusing Bitcoin cooperative mining pools: strategies for egoistical but honest miners.” Research paper, 2011.

Blockchains: The great chain of being sure about things.” In The Economist (Print Edition), Oct. 31, 2015.

A. Blundell-Wignall. “The Bitcoin Question: Currency Versus Trust-less Transfer Technology.” OECD Working Papers on Finance, Insurance and Private Pensions, no. 37, 2014.

C. Milk. “How Virtual Reality Can Create the Ultimate Empathy Machine.” TED talk. 

J. Bailenson. “Experience on demand: What virtual reality is, how it works, and what it can do. “ W.W. Norton & Company, New York, 2018.