Bitcoin and The Stages of Money

Bitcoin skeptics often point to the fact that Bitcoin isn’t widely used/accepted for everyday purchases as an indication of its failure.

“How can bitcoin be ‘worth anything’ if I can’t use it to buy a coffee?” they say. Or “Why would I spend any BTC if it’ll be worth double that amount a day later?”

Reasonable arguments, but what if we just aren’t there yet in the product cycle?

The economist William Stanley Jevons wrote that money evolves through stages:

The use of esteemed articles as a store or medium for conveying value may in some cases precede their employment as currency. Such a generally esteemed substance as gold seems to have served, firstly, as a commodity valuable for ornamental purposes; secondly, as stored wealth; thirdly, as a medium of exchange; and lastly, as a measure of value.

In other words:

1) Collectible
2) Store of value
3) Medium of exchange
4) Measure of value

If we follow this model, Bitcoin is currently in between stages 1 and 2. The wild fluctuations in price, then, are partly due to the fact we are still in the price discovery phase. The market is attempting to value this revolutionary asset with relatively unsophisticated models, infrastructures, and tools. If and when BTC fully reaches stage 2 as a store of value, its volatility will be low enough such that the opportunity cost of spending it will be closer to 0, allowing it to easily transition into a medium of exchange.

It’s important to note that Bitcoin could still be valuable even if it never makes it to the medium of exchange stage. Rare items such as baseball cards, shoes, and of course art are merely collectibles but can be valued in the millions. While I’m hopeful that Bitcoin eventually does become widely usable as a currency, if the market decides it is better served to simply store value akin to gold, its price would still be “justified.” Whether it satisfies Satoshi’s original vision is another debate.

Bitcoin and Adams Law of Slow Moving Disasters

Scott Adams, Dilbert creator, is an innovative thinker. One of his ideas is “The Adams Law of Slow-Moving Disasters.” As he puts it, whenever humanity sees a slow-moving disaster approaching, we find a way to avoid it.

Examples of this include:

  • Thomas Malthus predicting the world would run out of food due to increasing population, and humans everywhere living in poverty. What actually happened was farming technology improved and food became more abundant than ever.
  • Experts claiming oil wells would dry up and global oil supplies running out. Instead, advancements in drilling led to new ways of extracting it from the ground and supply increasing.
  • Everyone anticipating the Y2K computer bug to destroy computer programs and wreak havoc on the economy, as computers then could only display the final two digits of a year (so year 2000 would be indistinguishable from 1900). In reality, fixes were implemented and everything was dandy.

Adams believes we’ll find a way to avoid climate change disasters in the same vein.

What’s interesting to me about Adams Law is how it relates to Bitcoin.

Bitcoin has been locked in a scaling debate for years now over the ideal blockchain size, which is ultimately a debate over what Bitcoin’s intended purpose should be. One faction wants Bitcoin to be a global currency system akin to Visa, so they want bigger block sizes to process more transactions per second at lower fees. The other side wants Bitcoin to be more of a secure store of value and global settlement network for moving large sums of money around with larger transaction fees for greater security.

The culmination of this unending back-and-forth led to various hard deadline dates set this year (2017). Most notably, August 1 is the date Bitcoin’s blockchain potentially splits and hard forks into two.

The uncertainty around all this and worries over Bitcoin’s future recently caused its price to fall from ~$3,000 USD to a low of ~$1,800. It’s since rebounded all the way up to as high as ~$2,800 after Bitcoin miners signaled for BIP 91 and locked it in. Bitcoin’s future still isn’t set in stone yet, though, as miners now have to actually use BIP 91 (not just signal for it), and a fork called Bitcoin Cash seems to be imminent despite despite the first step of the compromise solution (BIP91) locking in already.

Despite all this drama and continued uncertainty, as a holder I’ve pretty much turned a blind eye towards it. I have no intention of liquidating any of my holdings nor felt much panic. The only thing I’ve done is add btc through the ups and downs. I see this whole debate as another example of Adams Law of Slow Moving Disasters playing out, and regardless the outcome – whether Bitcoin soft forks or hard forks or which solution reigns supreme – Bitcoin will continue to be a bigger and bigger part of our world.

Time will tell, of course. Let’s revisit this piece in 5 years and see where we stand.

Fun vs Meaningful

You’ve probably heard the saying “time you enjoy wasting is not time wasted.”

Like most sayings, there’s some truth to it. But if you really believe this you’re probably doing yourself a disservice by having a ready-made excuse to wasting time.

And if you’re like me and try to (somewhat) optimize how you spend time, is there a way to determine how to best spend it, and on what activities to spend it on?

The way I’ve begun to think about it is thinking of activities in terms of fun vs meaningful.

Fun

Fun can mean a lot of things, but to me the gist is that you feel good doing whatever you’re doing in the moment and not necessarily after the fact. It’s a short-term, fleeting feeling without many, if at all, future benefits.

An example is drinking alcohol. Drinking is fun; you feel good while you’re drunk and generally the more you drink the more fun you have. But that fun is fleeting, because the day after you’re groggy, hungover, and regretful (How many times have you said “I’m never drinking so much again”?). And how beneficial is drinking? Not very to your body or health. Sure, you might make a friend or two while doing so, but will those be deep relationships you care about?

Meaningful 

Meaningful, on the other hand, doesn’t necessarily have that same instantaneous short-term enjoyment that fun can have. Meaningful activities can be fun, but they can also be hard, painstaking work in the moment. The payoff for meaningful activities can also be delayed, but also much more enduring.

An example of a meaningful activity is working out. It’s tough in the moment, and few people enjoy the first few times they start a new workout program. But the after effects of a workout – dopamine, testosterone, improved circulation, confidence – are universal: no one has ever regretted exercising more.

Thinking of activities this way helps you avoid the temptation for instant gratification. Think of “fun” activities like playing video games, partying, going out drinking, vacationing, etc. as the dessert, not the main course. The main course is filled with activities like learning new skills, taking interesting classes, playing on a sports league, contributing to a start-up, etc.

Of course, people are going to read this and still think it’s arrogant to label activities as meaningful or not, or a waste of time or not. They’re missing the point. Of course you’re free to spend your time doing whatever you want. But if you’re trying to convince yourself that watching TV or playing video games in all your free time is not a waste of time you’re likely deluding yourself.

I had to learn this the hard way. As a kid, I used to play a ton of video games – hours and hours every day, sometimes even waking up in the middle of the night to put in more hours. I had a ton of fun playing them in the moment, but when I stopped I’d inevitably have this empty hollow-ness inside me. Did I really just spend 3, 4, 5 hours playing this game? What did I really achieve as a result? What could I have done instead with all that time? 

I didn’t understand the concept of fun vs meaningful back then, but I’m sure that had I known I likely would have spent my time wiser.

Thoughts on Perfectionism

The master at anything was once a beginner. Everyone starts somewhere.

The stars will never perfectly align and circumstances will never be optimal. Start before you’re ready.

David Foster Wallace once said, “If your fidelity to perfectionism is too high, you never do anything.” The only way to overcome this inertia is to just dosomething.

Consider the anecdote of the ceramics teacher and the pottery class.

The ceramics teacher announced on opening day that he was dividing the class into two groups.

All those on the left side of the studio, he said, would be graded solely on the quantity of work they produced, all those on the right solely on its quality.

His procedure was simple: on the final day of class he would bring in his bathroom scales and weigh the work of the “quantity” group: 50 pounds of pots rated an “A”, 40 pounds a “B”, and so on.

Those being graded on “quality”, however, needed to produce only one pot — albeit a perfect one — to get an “A”.

Well, came grading time and a curious fact emerged:the works of highest quality were all produced by the group being graded for quantity.

It seems that while the “quantity” group was busily churning out piles of work—and learning from their mistakes — the “quality” group had sat theorizing about perfection, and in the end had little more to show for their efforts than grandiose theories and a pile of dead clay.

Start small and start badly. Then keep working and refining the edges. This is the only way to improve and achieve any semblance of perfection.