This is the second installment in Parker Lewis' essay series Gradually, then Suddenly (originally published 2 Aug 2019). Parker covers why bitcoin cannot be replicated and why those attempting to do so have not understood the problem they’re required to solve.
As kids, we all learn that money doesn’t grow on trees. As a society, on the other hand, we have become conditioned to believe that it’s not only possible but that it’s a normal, necessary, and productive function of our economy.
Before bitcoin, this privilege was reserved for global central banks. Post bitcoin, every Tom, Dick & Harry seems to think that they can create money too.
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Whether by hard-forking out of consensus (bitcoin cash), cloning bitcoin (Litecoin), or creating a new protocol with “better” features (Ethereum), each is an attempt to create a new form of money. If bitcoin could do it, why can’t we?
Everyone wants to get rich quick, and so long as there is money, there will also be alchemists. Those that attempt to copy bitcoin are our modern-day alchemists.
Those that attempt to copy bitcoin fail to understand the properties that make bitcoin valuable or viable as money. Anyone choosing to speculate in a copy of bitcoin is making the irrational decision to voluntarily opt-in to a less liquid, less secure monetary network.
If a very small minority converges on the belief that bitcoin has superior monetary properties and will not accept your form of currency as money, while less convicted market participants accept both bitcoin and other currencies, the intolerant minority wins.
This is exactly what is happening in the global competition for digital currency supremacy. A small minority of market participants has determined that only bitcoin is viable, rejecting the monetary properties of all others..slowly forcing its preference on the majority.
Monetary systems tend toward a single medium because their utility is liquidity rather than consumption or production. Every other fiat currency, commodity money, or cryptocurrency is competing for the exact same use case as bitcoin, whether it is understood or not.
Bitcoin has become money over time only as the bitcoin network developed emergent properties...which are next to impossible to replicate now that bitcoin exists. Many individual economic actors evaluated bitcoin and determined to store a portion of their wealth in it.
As bitcoin’s value increased, it became decentralized and as it became decentralized, it also became increasingly difficult to alter the network’s consensus rules or to invalidate, or prevent, otherwise valid transactions (often referred to as censorship-resistance).
Many individuals creating digital currencies neither accept nor admit that what they are creating has to be money to succeed. (Figure adapted from The Bitcoin Standard by @saifedean)
No other digital currency will likely ever achieve the minimum level of decentralization or censorship-resistance required to have a credibly enforced monetary policy.
Bitcoin is valuable not because of a particular feature, but as a result of having achieved finite, digital scarcity, through which it derives its store-of-value property.
One would likely never come to this conclusion without first developing their own understanding of the above.
In the world of digital currencies...evaluate the trade-offs and consider the minority rule before trading in your hard-earned value for a marketing flyer.
Swipe up to read the full essay. Illustrations by @anilsaidso.