The Power to Mint Money.
The philosophy behind it, how it is reflected in crypto, and what it means.
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I came across this episode of Bankless talking about what crypto is really enabling, and why it is a double-edged sword. Great perspective, great food for thought.
Those of you who’ve been reading my articles know how much I enjoy the philosophy and foundation behind crypto.
I’m leaving the full video below, but if you don’t want to go through over an hour of conversation, let me summarize the key themes and takeaways for you! (All credits to the Bankless Podcast team).
The philosophy behind it all.
First - What is money?
Most people take the meaning of value for granted, but what really is money?
“The story of money is more important to the evolution of society than religion, corporations, and a host of other human imagined institutions. Money is probably the most successful story ever told, it has no objective value, but it has these master storytellers (the big bankers, the finance ministers) and they come and tell a very convincing story ‘look at this piece of paper, it’s actually worth 10 bananas!’. Try telling that story to a chimpanzee, it won’t work”, Yuval Noah Harari (Sapiens).
This quote from the book Sapiens clearly outlines the argument that money is nothing more than a very well-told story. It is a shared belief we all collectively agree on and therefore will give a piece of paper, the digits in the bank account, or any other asset, a particular value.
This is a powerful argument. It is saying that money is created through the figment of our imagination. If you can tell a good story about future growth, then you can end up influencing the valuation of these assets. Isn’t this what investment is all about? The market speculates around sentiments and feelings.
Second - What is crypto doing?
Following this thread of thoughts... What is the role of crypto in this whole construct?
Clearly, crypto enables a lot of things. But what the Bankless team argues is that, if we focus on the current story of money, which is the fiat currency system (USD, EURO, etc), what we are looking at is a new technology that is challenging the current paradigm.
Crypto is shattering the current fiat money system. However, it is important to highlight that crypto is not replacing and/or giving us a new money. Instead, it is giving us a new ability: the ability to tell any story about money.
We can now make a new blockchain, mint a new token and launch it.
So crypto is democratizing an ability that was previously concentrated in the hands of a very few, and lets the decision of what money becomes adopted to the free market.
To drive this home… Before the internet, we used to only have a handful of news broadcasting players, but with the internet, thousands if not millions of bloggers and influencers came to provide news/content.
When new technology comes, it enables the mass to access what was previously centralized and controlled by certain elites.
New ability applied - Crypto bull markets, and the role of human greed.
The Bankless team argues that this new power to mint money/tokens/assets, and the story told around it, has a critical role in each of the bull markets throughout the history of crypto.
The thesis is that every bull market was caused by unblocking new ways of creating value. Then it becomes THE sh*t, scammers come in, and eventually everything collapses.
Let’s take a look at each bull market:
2013 - FIRST CRYPTO BULL MARKET: this is the PoW fork and fair launch era. Basically, peole realized it was possible to fork Bitcoin (copy it) and make a new coin with the same underlying code. The classic example of this is Litecoin - and even Dogecoin came out of this era, as a fork of a fork of Bitcoin.
To give you a sense, during April 2013 there were 7 coins listed in CoinMarketCap. By the end of 2014, there were 514 - 500 new cryptocurrencies were created.2017/2018 ICO MANIA: this is the era of the tokens and ICOs ( initial coin offerings), enabled by Layer 1 blockchains. People have realized that they can mint tokens and sell them for money in order to build something, and the standard was quite low… if you had a whitepaper, or a webpage, there were enough buyers. Tokens were being mint left right and center.
Start of 2017, there were around 790 cryptocurrencies. By the end of 2018, we are looking at over 2000 cryptos.2020-2021 DEFI SUMMER: the famous yield farming and liquidity pools became available. So essentially, you can now put your tokens to work to gain interest rate, and voilà, the appetite for crypto sky rocketed again.
This is where similar with NFTs come in as well, with a brand new audience.
Start of 2020, there were around 3,000 cryptocurrencies, and by end of year, over 5500 cryptocurrencies were listed in CoinMarketCap.
How did all these bear markets end, you ask? Well - the ability to “create value” via crypto is democratized to everyone, which includes not just the good, but also the bad. In every bull market, people get greedy, scammers came in, and eventually, the bubble would explode and worthless projects and tokens would go to zero.
Full Bankless Video
Final Thoughts
Bottom line, crypto unblocks a new ability for us, which is the ability to tell our own stories around money (or any other asset). It doesn’t replace the existing fiat money system, it simply democratizes the ability to create a new asset, tell a story, and build a belief around its value. Then the behavior of people and the market will eventually determine what stays relevant.
But this option, this alternative that crypto creates is fundamentally what resonates with me. Knowing that there is an alternative, and having the autonomy to choose, is what is empowering.
Yes, there are risks
. When you democratize an ability, you open the gate to the good, and to the bad.
However, the technology is neutral. The underlying common denominator is who is using it, aka us, humans.
Yes, there is also more responsibility.
As a nascent space, we still need to build the right check and balances, and dare I say “regulation”, or maybe self-regulation, to prevent scammers from harming.
And from a personal standpoint, if you get back the ownership of your assets, you will have to manage them, nobody will do it for you. But it is yours.
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