Few books have done as much damage to human understanding in recent times as the book by Yuval Harari called Sapiens. The idea that phenomena as complex as money and religion can be boiled down to the explanation “they are just stories we tell ourselves in order to organize better,” is as catchy as it is wrong. At this point I need to profusely apologize to all the people to whom I once recommended the book, for I too got caught in this author’s story about stories dressed as science. You live and you learn I guess… or hope.
The idea that money has value because ‘we share a belief that it has value’ is simply too simplistic and quite simply, wrong. So, I’m going to take bitcoin as an example of money and make everything behind money… even simpler.
Before we get to bitcoin, let’s talk about the history of money. Or, at least, let’s read what those who have studied the history of money have to say. Once you’ve read that, and dug further into the subject like a good do-your-own-researcher, I will venture to summarize what the main thing was that I took out of studying it myself. Done? Good! Let’s go.
When I look at the history of money, all the way from beads, to shells, to gold, to fiat, to bitcoin, I, like many millions before me (except Yuval Harari), see some characteristics that these forms of money had in common.
Since millions have seen this long before I ever did, I’m going to crib the work of those before me without contributing anything myself. The main characteristics of money, there might be more that I don’t mention, are as follows:
- Durable – The good must not be perishable or easily destroyed
- Portable – The good must easy to transport
- Fungible – One specimen of the good should be interchangeable with another of equal quantity
- Verifiable – The good must be quick and easy to identify and verify as authentic
- Divisible – The good must be easy to subdivide
- Scarce – The good must have “unforgeable costliness.” In other words the good should not be abundant or easy to obtain or produce
- Established history – The longer the good is perceived to have been valuable by society, the greater its appeal as a store of value.
Go through this incomplete list with each of the historic forms of money and you will see that they share these characteristics to a larger or lesser degree.
How profoundly strange that all these forms of money that “only have value because we tell ourselves they have value” actually share certain characteristics independent of the stories we tell ourselves about them? Could it be that maybe money is not simply a lie we as humans tell ourselves in order to organize better but is rather something more concrete than that?
So, here is my overly simplistic way to look at bitcoin that will help you answer some of the questions that seem to trip up people still new to the concept of bitcoin: money is, simply, a technology or tool human beings use.
As examples of how this change of framework of looking at money changes the entire conversation, I’ll answer to questions/objections people seem to always ask/state when trying to prove that bitcoin won’t work:
- Bitcoin isn’t backed by anything.
- Bitcoin’s processing is too slow, and it won’t be able to scale.
Simple answers based on new simple framework:
- Yes, it is. It’s backed by the characteristics of money which have been essential to all prior forms of money throughout human history.
- Yes, it is too slow… at the moment. But since you are looking at bitcoin in the framework of a technology, how much easier is it to explain to people that human beings are profoundly good at improving technology and solving engineering problems. Just look at the internet from 1994 compared to the one you have before you today.
So, there you go, money is not some story we tell ourselves. Rather it is a tool that we have used over millennia and it has certain characteristics that make it better or worse to use as a money.
Not too bad for a technology that has been in existence for merely 11 years?
So, there you go, go out and do further damage to human understanding with this new overly simplistic explanation of what money is. You have my approval.
Is this good for bitcoin? Yes.