This post was written 6 months ago, but I never published it because I never quite felt like it was “ready.” The post is inspired by my quest over the past three years to value Bitcoin from a first principles approach. As you can see, I'm still lost.
Sometimes I tell people that I think of Bitcoin as religion. They laugh because they think I'm poking fun at Bitcoin "maximalists." I smile so that they don't think I'm crazy.
But I think you should take the idea of Bitcoin as religion very seriously. If you prefer the phrasing "ideological movement", go with that. The point is all the same.
I used to believe that Bitcoin, in its strictest form, was doomed to fail because of its fixed money supply; which is, in my view, extremely sub-optimal. I no longer believe this. I do still believe that Bitcoin's monetary policy is inherently flawed, but I no longer believe that this flaw guarantees that it cannot win in the end.
Why did I change my mind? I came to this conclusion by taking the idea of Bitcoin as religion very seriously. I see now that Bitcoin is very much a religious/ideological movement. Religions are very real things and have real world consequences, and it is important to understand them even if you yourself are secular.
Money's Natural Ideology / Satoshi as Prophet / The Whitepaper as Sacred Text
Money is pure network effect. A collective myth, in the words of Yuval Harari. Or what Ben Graham calls a Class 2 truth. It matters what other people think it’s worth. In fact, it only matters what other people think it's worth. This is the natural ideology that all money has. Such a natural ideology is attached to money—any successful money—because no money without such ideology would ever have been successful and become deserving of the name money. If that sounds tautological, that’s because it is. And that’s because, as I've said, it is a pure network effect — a Class 2 truth. People think money is money because people think money is money. Once you fully grasp this, it should not be surprising that a large ideological movement would form around money—successful money. Money is about the spread of ideas as much as anything else.
If you follow the Bitcoin community, you will often hear Satoshi Nakamoto referred to in near-prophet status. I don't even want to cherry pick examples here because that would be extremely unfair to those I quote. Just go and look for yourself (have you ever even read a Bitcoin forum?). The fact that no one really knows who Satoshi Nakamoto is, is just perfect for perpetuating the prophet idea.
And if Satoshi is prophet, then the Bitcoin whitepaper is sacred text. And believers will want to carry the sacred text with them wherever they go.
And of course, there is more than just the "main" sacred text. Any words ever uttered by the Prophet should be thoroughly reviewed for direction, clarification, wisdom, and insight.
The Spread of Religions / The Spread of Viruses / The Spread of Bitcoin
If Bitcoin is indeed religious, then we might expect it to propagate in a way similar to other religions. What can we learn from the success (and failure) of other ideologies?
Here, for example, is the early spread of Christianity (325-600AD):
You can see that early Christianity spread along trade routes — seeding at port towns.
But trade routes are not the only way for religions to spread. Early Islam spread mostly through military conquest (622-750AD):
Here is the early spread of Buddhism (600-300BC), which also followed major trade routes:
Buddhist monks were/are very frugal which makes them very adept at travelling long journeys.
We can keep going. Here is the spread of Communism in the 20th century:
The spread of early Communism was less about trade and more about military conquest (in Europe in WW2). During the Cold War, mass media and telecommunications allowed Communism to pop up on the other side of the globe.
And for fun, here's the spread of ebola from January 2014 to December 2015:
Now here is the spread of Bitcoin since 2013:
The map is showing the number of locations that "accept" Bitcoin. Of course, this is all wrong. It is probably not the right way to measure the "spread" of Bitcoin — especially as a religion.
The question remains. What does the spread of Bitcoin look like? How is it spreading? What, yes what, is the topology over which Bitcoin is spreading? This is not a rhetorical question.
Ideologies take on a life of their own. The next question is: why do successful ideologies succeed? Why do failed ideologies fail? Bitcoin is, indeed, a very powerful idea: hard money through cryptography and game theory. The politics around it are very compelling to a lot of people.
The Great Schism / Heretical Chains / Ideology-Backed Money
Like all religions, Bitcoin has warring factions within it with opposing ideological beliefs. And these disputes eventually result in schisms.
In 2017, Bitcoin forked into two major branches: Bitcoin Core and Bitcoin Cash. (Of course, there have been Bitcoin forks before—but not like this.)
I have affectionately called this fork the Great Bitcoin Schism.
The schism revolved around how exactly Bitcoin should be scaled. Bitcoin Core pointed to the coming of Layer 2 solutions like Lightning. Bitcoin Cash thinks scaling should happen on-chain. Fights over what is the "real Bitcoin" ensued. I'm exhausted just talking about it.
The one important thing to understand about schisms is: they are irreversible. This does not end in reconciliation.
Instead, you have to ask: which blockchain has the best ideology? This is another serious question.
One point I will make is that I get the sense that the Bitcoin Cash folks are underestimating how important a strong, seductive ideology is. How can you back your pure network effect money without some sort of strong, seductive ideology?
(I have no horse in this race. Don't message me to tell me which of Core or Cash is better. I'm not joining your religion.)
The Endurance of Institutions / Political and Social Capital / The Canonical Chain
We can't stop there: Bitcoin isn't spreading in a vacuum. Institutions linger.
Here is the border of Austro-Hungarian Empire (1867-1918) overlapping the results of the 2014 presidential elections in Romania.
And here is a similar map showing the border of the Second Polish Republic (1918–1939) superimposed on the electoral results in Ukraine (south) and Lithuania (north).
Ideologies and religions are closely tied to law, politics, and institutions. There was a time, and there are many people today, that don’t distinguish between the law and religion: Religion is law; that’s what religion means.
Politics, of course, is closely tied to war. It is not surprising that many religions (and not just early Islam) spread through war and conquest, and not mere friendly missionaries.
It is no wonder that Bitcoin has a religious component attached to it. Religion has always been tied to the hip of the law.
I have always argued that a central bank has the power to create its own cryptocurrency, if it is willing, by merely enforcing a canonical chain. Enforce how? With mere announcements, of course. The central bank does 90% of what it does by sheer force of will by spending its institutional/political/social capital. There is no need for central banks to develop blockchain technology. Central banks have no business in cryptography (god help us if they try to). This here is a war of ideology, and what central banks have is the advantage of institutional, political, and social capital.
The point is: institutions linger. They are not very liquid. And central banks are not going anywhere. Other institutions aren’t going anywhere anytime soon. If Bitcoin fulfills its dream, there is going to have to be a struggle. Some might say a war.
This is a Serious Question
Where does this all leave us? This is a serious question.
I used to think that, because Bitcoin's monetary policy is (in my view) sub-optimal to what currently exists, it would not win in the end. But I no longer believe this. I now believe that these two things are independent: Bitcoin might win despite having inferior monetary policy. I mean, why not? Money is more than just monetary policy.
In the ultra long-run, this thinking might be right: civilizations with superior monetary policy should be more likely to thrive, survive, and expand. But that may take a long time and, worse, be an overly simplistic assessment for such a complex adaptive system.
If Bitcoin wins and maintains its fixed money supply, the world is going to become a much more volatile place. (Why? Because that is what central banks do: they stabilize.) And if you can predict how that plays out — that is, who wins the religious wars — you can make a lot of money.
What are the best models for predicting the spread and competition of religions? I'm not making fun of Bitcoin here. I take the idea of Bitcoin as religion very seriously, and I think you should too.
To close, here are some questions worth thinking about:
What are the best models for predicting the spread of ideas?
What are the best ways to assess competition between ideas?
How strong is Bitcoin’s ideology?
How much institutional, political and social capital do central banks really have?
How easy/difficult would it be for a central bank to fork Bitcoin and set its own block reward monetary policy? (i.e. Do they have the social capital?)
How sticky/entrenched is Bitcoin’s monetary policy? (Remember, it can change.)
Are the institutions of money and law strong enough to survive in their current form? What will change and, just as important, what won't change?
Answering these questions can tell you the future.
Addendium: The Spread of Language
Like money, the value of a language comes from its network effect: a language is only valuable if other people use it. Language, however, is not a pure network effect: a language that only you know would still be valuable for your own note taking or record keeping, for example. But, importantly, a network effect around language is much stronger than a network effect around value (i.e. money).
The spread of languages is similar to the spread of ideologies. Languages are ideas, of course, but they are not seductive, contagious, and virulent like ideologies. This means that languages travel much less easily than ideologies. Typically, languages require entire populations to migrate in order to spread (unlike ideologies which can be spread with mere missionaries). More so than ideologies, languages need a vacuum to spread, and it is very hard for a region's main language to be displaced without some sort of powerful enforcement (like armies). This is also why so many isolated language dialects form, persist, and then become languages in their own right (every Romance language is just vulgar Latin). In other words, languages mutate more quickly than they spread, and become distinguishable from their mother languages (which have also mutated) by the time they reach a new destination.
The most widely studied family of language is Indo-European. There are several theories as to where the Indo-European mother language originated and then spread. According to the most popular theory, the Kurgan Hypothesis, the language originated in the Ukraine and spread like this (4000-1000BC):
Alternatively, according to the Anatolian Hypothesis, the language originated in modern day Turkey and spread like this (8500-500BC):
(The authors of the Anatolian Hypothesis have a wonderful website with wonderful, wonderful images and animations: http://language.cs.auckland.ac.nz/. Warning: Better animations do not imply a better theory.)
I would like to point out that every theory agrees (assumes?) that the Indo-European languages spread through migration. That's important.
Which brings us back to the question: what is the topology over which Bitcoin is spreading?
Thanks for reading. Tell your friends.