Commentary
Many people, including fans of Bitcoin, think of crypto as a magic money-making token that serves no useful purpose other than to fatten portfolios. Not one holding in a million could give you a standing-on-one-leg description of precisely why it is valuable or why anyone should care about the technology other than as a 21st-century scheme for boosting income.
People buy it because other people buy it, which is precisely why so many are skeptical. And they are right to be. The whole thing seems fishy.
Let’s take a step back and examine the underlying technology and its purpose. The start of the problem with comprehension is to exaggerate the newness of crypto, as if it were a technology never before imagined or experienced, meeting needs that were heretofore never felt.
This is not true.
For so long as humanity has existed, there has been a need to have some method of knowing of and/or documenting ownership claims. You can hold your property (that you claim is yours) and defend it against invaders. Or you can go one better and develop a social consensus technology to record who owns what. This improves life for you and everyone.
This documentation can take place on stones, clay, papyrus, parchment, vellum, or databases. The problem with all of these methods is the same: centralization. If there is only one record and one recordkeeper, there is always uncertainty over fraud, manipulation, or decay in the record itself.
This is where blockchain technology provides a remarkable improvement. Ownership claims live on a ledger in the cloud. Rights are moved by proof of work and proof of authority. When the ledger is changed, everyone can observe the results. Algorithms rather than human discretion drive the system, thus eliminating the possibility of ambiguity and fraud.
This is a technical innovation. But it is not an innovation in how we aspire to live. There is a big difference. The blockchain allows people to achieve something we have always wanted to do but haven’t been able to do until now.
As I was reading about this place and its people, I kept thinking of the movie “Moana” and the struggles of these island people. The Disney movie didn’t feature any money in the community; for all we knew the people live in a happy communism of some sort. I knew there had to be something wrong. Everyone needs property rights. Everyone needs money if only for purposes of accounting. Therefore, everyone needs a way to keep track of who owns what.
It turns out that the island of Yap provides an amazing example of blockchain technology … of sorts. The authors of the Fed paper state that the monetary system of Yap relies on a form of this very thing. And this has been true for thousands of years, and remains true today. It is known the world over as the Island of Stone Money.
But if these rare objects serve as money, how is trade conducted? This is where it gets extremely interesting. They do not move physical stones. All stones stay where they are. They are revered and protected. What changes hands is an understanding of who owns what. You bargain with others and communicate the results.
All reports say that there are about 5,000 people on the island with a stable population. The people involved in trading with money are a small minority. The key here is that everyone with a stake in the system shares information about changes and truly remembers how rights in the stones are allocated. Apparently at some point in history, marks were made on the stones but once the system grew to a certain level of sophistication, this was no longer necessary.
This knowledge persists and lives throughout the community. You can call it a blockchain of the mind. If all of this sounds crazy, remember that such “primitive” communities can exhibit a ridiculously high level of intelligence in ways that people of the “developed” world cannot even imagine. That everyone can share knowledge of ownership rights in a particular kind of money, with full clearing and no counterparty risk, requires a high level of trust. The people of this island evidently have exactly that.
I appreciate this example because it illustrates that while blockchain is new technology, it solves a universal human problem. In this sense, it is like every great innovation in history. We’ve always wanted to communicate, travel, light our rooms with a switch, fly through the air, stay warm in winter, and so on. Railroads, electricity, flight, and indoor temperature control did not create new needs; they solved old ones.
It is the same with blockchain. That we have a glimpse of a more secure way of changing and tracking ownership rights, making deals possible, facilitating trade and other forms of human engagement, is mighty impressive. This technology exists.
Nothing government can do to regulate it is going to cause it to un-exist. Our lives will be disintermediated and different. We will love the results. Maybe someday we too can be as “primitive” as life on the island of Yap.
This is the underlying basis of the value of Bitcoin, Ethereum, Dogecoin, and all the rest. They all trace to the same technology of improving the way we allocate and understand ownership titles. The lack of such a thing is why all earlier attempts at a purely digital currency failed and why Bitcoin succeeded.
Does the industry today understand this or do we have a case of entrepreneurs merely following profitability signals? My guess is the latter and that’s fine. In fact, I’m guessing that most holders of crypto today would have no clue about what I’ve written above, which is probably fine. This is how innovation works in history.
Sometimes when I’m flying in the air on an aluminum tube and typing on my computer connected to the internet, I suddenly freeze in awe and think: how in the world does all this stuff work? I don’t really know but I’m glad for it.
It’s the same way with blockchain technology today. We don’t need to understand it to use it, and thank goodness.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
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