Cryptos and our society

Published in

Coinmonks

10 min readFeb 25, 2022

Crypto and related techs are promising huge changes in economy/society and political structures .

Central idea is to remove the inter mediatory third parties with an immutable chain of digital signatures combined the “hard” math problem solving (Proof of work) .Block chain effectively solves the double spend issue common with digital assets .

Blockchain has lot of high value use cases and has the potential to bring in fundamental changes in many industries .

This article is about crypto as replacement to traditional money and assets .

Money

Money is said to be one of the biggest inventions of human kind after fire .It has facilitated large scale co-operation and economic prosperity .The paper currency was first introduced in china around 1100 AD by Song Dynasty .Interestingly it vanished from china after end of mongol rule (Around 1300 AD)

Marco Polo visited china around 1300 AD took the paper currency idea to europe .He landed up in jail after the return and he narrated the paper currency story to the jail officials.The officials and intellectuals during that time found it hard to accept the fact that a paper can be used as currency . It took almost 800 years after Marco Polo’s death for US to transform from gold/silver and array of bank promissory notes to single unified dollar as we see today .

Today’s paper money is a shared myth that exist in its users mind .It can be a worth less piece of paper in no time .One of the best example is how India gov made 1000/500 Rs notes worthless in one single announcement which resulted in endless sufferings (even economic slowdown) .

Money can be defined as am interim storage of value for future use.

Vision

Crypto evangelists and many social media influencers claim that the crypto currencies can

Replace the traditional currency .
End of centralised institutions like banks.
End of stock exchanges ( Shares can be issued as an initial coin offer in crypto world)
More power /privacy/anonymity to individuals .

All of these are extremely idealistic and virtuous.The question is, will this revolution turn the tide against the traditional institutions and the nation-state concept .

Crypto as a replacement to traditional currency

Governments and crypto.

Governments and policy makers were slow to react and most of them were unaware of the bitcoin and its growth.The technology remained in hands of few elite programmers and university students .

“Crypto is Libertarian ,AI is communist “ Peter Theil

Authoritarian governments

China being a communist dictatorship has banned all types of crypto currencies .There is no doubt that the authoritarian centralised states hates bitcoin/cryptos . [ They all love AI/Ml and use it “effectively” to monitor its own citizens ,silence critics ..etc ]

Democracies

Most of the democratic governments allows crypto to function .The policy makers are dealing with a very something which they have never encountered earlier .There is a lack of clarity and many agencies are making contradictory statements .

Government has full control over the money in all the countries .Monetary polices are used by all governments to control the inflation ,trade deficit etc .This gave raise to an inflation based economy.An inflation based economy is required to sustain the credit system that modern economies follow.

If a farmer takes 1000 Rs loan at 10% rate then at the end of the year he may have to pay 1100 Rs back to the back .He may have to increase the price of his produce to meet the bank’s rate or he may have to invest in technology to minimise the production cost.

This brings up a bigger question about inflation based economy model .Will improvements in technology make things cheaper and he may never be able to payback his loan? .Price drop may not increase the demand for many of these items [ In this case elasticity of demand is very low].Future every nations may have to look into the deflation based economic model and adopt the system towards it .

A transition from a traditional currency to a purely digital broader less crypto currency will be highly chaotic .

Crypto asset

Crypto is considered to be an asset .Most of the major currencies are depreciating against crypto and that makes it very attractive for hedge fund companies to move the money from USD/Euro to cryptos.

Liquidity is one of the major concern for any assets .Crypto’s liquidity depends on how fast/easily one can convert the asset to USD or other digital assets .Centralised crypto exchanges requires KYC process and acts like banks .The anonymity promised by crypto is lost in this process .

Many assets provide constant cash flow to the investor .Crypto as asset will not be able to generate any income to the investor .Appreciation of cryptos make it attractive and cash flow may not be an important factor .To keep the momentum the crypto has keep going up else people find something more attractive and will move the money out of crypto world .Bit coin’s supply is capped at 21 Millon coins .This might help in sustaining the appreciation rate of bitcoin

Monetary polices adopted by central banks can create liquidity crunches .This can eventually result outflow of funds from crypto world to traditional currencies . This can result in massive loss for investors .

Extreme fear rules the crypto world .There is always risk of massive loss .

Black swan events and other factors

There can be some unforeseen events which can dilute the power of nation states and bring in radical changes to society .Following events can create unpredictable changes

Hyperinflation: USD loosing value and stability
Geo-political issues and re-alignments: Post pandemic world could be very different from the one we have today .There can be three set of nations .First one authoritative countries like China,Russia,North Korea etc .Many countries which has trade links China might join this group .Second group could be the set of liberal nations which has high degree of respect for individual rights like USA and EU .Third could be the BRICS nations(sans Russia and China) .They will collaborate more within their respective groups and crypto might bring them together in their groups.
Clash of generations: Most of the institutions were made by baby boomer generation and maintained by Gen X and Gen Z .The Millennials were born to a world totally different from the previous generations . The entropy has slowly destroyed these institutions and vested interests are using it for their own gains . Many are beyond repair and may require complete rebuild with fresh outlook .Millennials might find these values and institutions incompatible with their values .
“Every generation imagines itself to be more intelligent than the one that went before it, and wiser than the one that comes after it.” : George Orwell
Internet is not a black swan but it is one of the most disruptive forces ever created by man .Most of the old ideologies (like religion) comes to internet to die .In early 1900s people started finding ways to harness the power of electricity .Dynamo and electric motor were invented and made available for public use .Manufacturing companies of those days and their assembly lines were designed to use steam power .The adoption of electricity required radical changes and disrupted the then industrial world.Similarly internet and various technologies around it has not been adopted fully and the adoption of it will require complete overhaul of laws and institutions.DiFi,DAOs ,tokenized web needs complete restructuring or removal of traditional institutions and laws
Death of democracies : Democracies are slow and costly to maintain .Democracy works on checks and balances of multiple institutions .Over the period time the elected executives started getting more powers and this lead to the erosion of values of other institutions . Raise of social media gave raise to populist leaders .Most of these leaders ride on right wing nationalism and religious extremism .To stay in power they need to feed more nationalistic and religious propaganda to the masses .This will eventually lead to facist dictatorship and collapse of society .Collapse of democracies might lead to a liberal singleton government which includes countries with shared values with unified crypto currency

Decentralisation and human society

Human beings evolved from hunter gather society to larger tribes, agrarian societies ,small nations and to the big nations that we see today .Collaborating in large groups is unique to humans (Ants and bees do co-operate in big numbers ,But they will not over throw the queen and establish a political order) . Yuval Harari has described these characteristics of human beings in detail in all his three books .

Is decentralised approach incompatible with human society? or Do we need a new approach for co-operating in large groups through internet ? .This is an open question and there are many scientific (and not so scientific) theories around the formation of proteins and life from simple compounds to a multi cellular organised life forms with large societies .

Hype cycles and final adoption of blockchain.

There is no doubt that the block chain can ultimately transform many process that exist today .Looking back at the history we will find lot of such innovations which created unrealistic expectations which lead to a crash and then the eventual adoption of the technology

1920s combustion engine invention lead to massive flow of funds to every company that had “motors” in its name.The bubble got burst and a handful of them survived .Combustion engine is an extremely useful innovation ( So good that the design has not changed much for almost 100 years) ,But the huge expectation lead to creation of many companies and created a bubble .
1960s innovation in integrated circuits lead to another bubble .Any company with “tronics” in the end got lot of investments and finally that bubble also burst .After the burst Intel,Texas instruments and created a digital and computing revolution
2000s .dot com crash .Crash lead to adoption of internet in a better way (Google,Amazon,PayPal etc) .
2022 and beyond . There are lot of hype around many useful techs like AI/ML ,Mobile apps ,Crypto .Many mobile apps are existing for more than 8–10 years and they are yet to break even .Future income expectation lead to a huge inflow of funds to these companies and there by created multiple asset bubbles .Federal reserves highly controversial monetary polices added fuel to fire .Next crash will help in bringing value to these technologies .

Animal Farm and Crypto revolution

A discussion on change in society is never complete without discussing Orwell and his works.

Animal farm is a satirical novel by George Orwell based on Russian revolution of 1920s .

Animal farm starts with animals in a farm planning to overthrow its cruel masters and establish a rule based on equality .

Pigs were the smartest and they constantly talked about the need for change and revolution (Current world crypto evangelists 😁) .

Beasts of England, Beasts of Ireland,
Beasts of every land and clime,
Hearken to my joyful tidings
Of the Golden future time.Soon or late the day is coming,
Tyrant Man shall be o’erthrown,
And the fruitful fields of England
……
All must toil for freedom’s sake.Beasts of England, Beasts of Ireland,
Beasts of every land and clime,
Hearken well, and spread my tidings
Of the Golden future time

Revolution started with a simple slogan “All animals are equal “ ( I don’t think there is anyone who has not heard this quote ). They overthrew the human masters in an over night revolution and establish their own rule.

Pigs being smart was assigned with the complicated management of farm with the help of dogs .Suddenly they realise that it is difficult to manage the farm without laws .Pigs starts creating the laws and all animals were made to believe that the laws are created to protect them and their rights .Napoleon is the leader among pigs and he establishes his own dictatorship .

Pigs slowly become more powerful and many classes emerge in the animal society .The new social order started looking like the order that they had beofore the revolution .Pigs replaced humans and dogs become slaves to pigs .All the other animals either accepted the fate or silenced by pig-dog elite class .

Pigs amend the constitution and adds a new line into it .

“All animals are equal But some are more than equals “

The society started on a very liberal ideas and equality ended in more cruel and unequal .This repeats over and over again in most of the revolutions (recent example is arab spring . Pharaohs were replaced with another set of pharaohs )

Conclusion

It is difficult to predict the future of crypto and many of my views are contradictory to each other .

On one hand there is a need for immutable ledger which has potential to transform various old practices and institutions and on the other hand the hype and evangelism around it .

Human brain has a unique capability to entertain two opposite views in same time .I think we need to live with this ambiguity for some more time .