Conclusion

The Greatest Asymmetry

Asymmetry simply describes anything that lacks symmetry. From a financial perspective, the term is typically used to describe outcomes of disproportionate risk skews. Great upside relative to downside or great downside relative to upside. For example, an asymmetric opportunity might have an upside of 10x or 100x, but you could also lose 100%—10x or 100x up vs. 1x or 100% down. On the other hand, asymmetry can also describe scenarios where there is limited upside and 100% downside. A venture investment in a startup company is positively asymmetric. A startup might fail, resulting in complete loss, but those that are successful typically return orders of magnitude in return. Hyperinflation of a currency is negatively symmetric, with limited upside to holding a depreciating currency and great downside should a currency collapse. Importantly, asymmetry does not in itself have anything to do with the probabilities of individual outcomes, but probabilities remain relevant to risk-­taking calculus.

Bitcoin represents the greatest asymmetry that has ever or could ever exist for three principal reasons. The entire world would benefit from a sound form of money that reliably stores value into the future. If bitcoin can credibly enforce its fixed supply, it will be demanded by virtually every individual and business in the world. Eight billion people competing for a finitely scarce resource is massively asymmetric for the early adopters of the currency. Nothing could be more asymmetric than global adoption of bitcoin as money. Second, most asymmetric opportunities are naturally low probability, whereas global bitcoin adoption is increasingly probable. Bitcoin has a known and finite surface area to evaluate. It is binary. Either it can or cannot enforce its fixed supply. As more people adopt bitcoin and as the network becomes more decentralized, the outcome becomes more probable. Third and last, there is inherent negative asymmetry to a currency such as the dollar hyperinflating, which is the other side of the same coin.

The dollar’s failure will not be caused by bitcoin, but the two are inextricably linked. To be clear, the problems of printing money are wholly independent from bitcoin. The consequence of printing massive amounts of money out of thin air is hyperinflation. Humans cannot trade their finitely scarce time for something created without any cost or proof-­of-­work. At the same time, bitcoin was created as a solution to the problem of printing money. Choosing to save in bitcoin is a path to opt out of endless currency debasement. Whatever value is saved in bitcoin cannot simultaneously be saved in dollars or similar depreciating currencies. It is ultimately a choice between one or the other, even if an individual is not 100% exposed to either. Bitcoin is not about making money. Bitcoin is money. And when it comes to any perceived possibility or probability of its ultimate success, the only winning move is to play—an observation Michael Goldstein helped me understand. Given the positive and negative asymmetry on each side, it is not really whether anyone is right but instead, whether you can afford to be wrong.

That is the risk calculus at least, but bitcoin is being adopted as money for very objective reasons. Yes, not everyone that buys bitcoin is adopting it as money. There are people buying bitcoin for irrational reasons or for speculative purposes, without an appreciation for its fundamental bases as money. Both can be true. However, over time, knowledge distributes and fundamentals win out. Cold, hard economic facts dictate human action. Humans need good money to survive. Really, to help fulfill the basic necessities of life through trade. The world is converging on bitcoin because it is finitely scarce and capable of facilitating direct commerce by and between the largest number of people relative to any other currency system given its permissionless nature. Each individual is a domino. As more dominoes fall, the emergent consensus already forming will become more obvious to more people. In hindsight, the shift to a bitcoin standard will have been obvious. Through the process of mass adoption, bitcoin will transition from a nascent and volatile store of value to a stable form of money used ubiquitously as a medium of exchange and unit of account.

On a Bitcoin Standard

It is fair to say that most people in the world who are conscious of bitcoin think of it as any other speculative financial asset, similar to a stock trading on a computer or TV screen. That is how it appears on CNBC. And the dollar is the current unit of account. It is naturally difficult, if not impossible, not to think of bitcoin in dollar terms as a result. However, as global adoption occurs, this too will change. Rather than thinking about the price of bitcoin in dollar terms, bitcoin will become the pricing mechanism. Everything will be priced in bitcoin. That is what it means to become a unit of account. There will be no observable price on a TV or computer screen. Bitcoin will not be principally traded for dollars. Instead, gas at the gas station will be priced and paid for in bitcoin. The same for electricity, water, food and healthcare. There will not be any bitcoin exchanges. Bitcoin will simply help facilitate direct commerce.

On a bitcoin standard, central banks will not be able to print money. Should any country wish to have a central bank as a lender of last resort, it will actually need to be capitalized with real money—bitcoin. Also, the government will not be able to run massive and endless deficits without obvious and more immediate consequences. Governments will need bitcoin to fund their operations, but to do so, any government would have to tax its citizens to get bitcoin rather than rely on a central bank to print money. Nothing about bitcoin prevents taxes or the establishment of rainy-­day funds. Bitcoin also does not eliminate banks. Everything will just have to be done out in the open, funded with actual money. The government will have to directly seek the transfer of bitcoin from citizens via taxes, which are perennially unpopular, and banks will not be able to be bailed out by politicians with money that does not exist. With a fixed money supply, it will be clear that everything must be paid for by someone.

Ultimately, the government will have to compete with the private sector for a finite amount of capital. When money cannot be printed, every economic calculation and decision will be made with greater scrutiny. At a government level, at a company level, and at a personal level. The right to own a fixed percentage of all the world’s money indefinitely is not oligarchic. When applied to every last human, it is the most equitable and empowering system ever conceived. The incentive to save will create savers. More people will have savings and fewer people will be in debt. The incentives of the money will dictate it. The output will be an economic system with far greater balance and stability. The banking sector will shrink, and the credit system will be a small fraction of its current size. Lending and capital allocation will still exist, but the banking sector will no longer sit at the epicenter. Without a monopoly on money, banks will have to compete for capital based on value actually added, and all other sectors of the economy will be able to facilitate trade directly without needing to route through the banking system.

Humans will flourish on a bitcoin standard, but there is nothing utopian about it. Running businesses will still be hard, risk will still exist, and the future will remain uncertain. The transition to a bitcoin standard will also not be all roses. It is impossible to seamlessly transition away from a world of excess where the system as a whole is heavily indebted and where very few people have savings. Through a combination of endless money printing by central banks and the world’s natural and resulting shift to bitcoin, legacy currencies will eventually hyperinflate. The addict is being taken off the drugs. Society is addicted to debt and money printing as a palliative means to defer the pain. Sound money is the ultimate antidote, but a period of withdrawal is unavoidable. Things will likely get worse before they get better. Bitcoin will likely even be blamed for the instability created by the volatility of the dollar system. Of course, none of it will be true. The only way out is through a transition to bitcoin. If not for bitcoin, the same inevitable pain would have to be felt from the sins of the past, but there would be no currency to transition to as a reliable or viable alternative.

No matter how uncertain the future or how precarious a transition away from the dollar may seem, bitcoin is the light at the end of the tunnel. It will afford practically everyone in the world with a reliable form of money with which to store and transact value. As Friedrich Hayek explained in The Road to Serfdom, “money is one of the greatest instruments of freedom ever invented by man.” When governments destroyed money, free citizens of the world took action to reinvent it in a superior form that not even the government could screw up. In doing so, bitcoin will preserve and help rebuild the vestiges of freedom that remain. Money provides an economic tool and incentive to create value for those around you. It allows for a range of choice and wealth unimaginable just a few hundred years ago. Freedom is the ability to pursue whatever interests you may have in this world, and money provides a medium to be compensated for those interests, in a way that can be carried indefinitely into the future. At its most fundamental core, bitcoin is money, and it is the greatest instrument of freedom ever invented by man.