Imagine the DeLorean was just invented and you got to take a ride in it.
And you traveled back in time to 1751.
At that time, Benjamin Franklin (supposedly) hadn’t yet harnessed the power of electricity and candle sales were still booming.
So after being there for a few days, you might decide to try explaining electricity to those mid-18th Century folks.
And how would you do that?
You could explain…
You could explain all of that. But in the first two instances, it’s not very interesting to most people. They simply won’t care about (or perhaps even understand) the underlying physics.
And in the second instance, computers and phones also aren’t going to be as interesting as you might think. After all, people living in 1800 usually had very little need to talk to people far away, and the inventions you’re talking about are so far away that it just won’t matter to them.
I’ve heard a lot of conversations and read a lot of articles where people attempt to explain cryptocurrency.
And they usually proceed in about the same way as the conversation above about electricity.
Someone explaining “what is cryptocurrency” will usually start by telling you about a few different things:
And to be fair, I sometimes also talk about those things.
But it’s hard to find those things interesting if you don’t first understand the basic promise of cryptocurrency.
This season on Curious, we’re exploring cryptocurrency from pretty much every angle.
But – and stick with me here for a moment, because I’m jumping ahead – what’s perhaps most intriguing about cryptocurrency is the ways that it might change how we interact and perhaps even the ways that we relate to ourselves.
Seriously… It will likely alter the ways in which we think about community, transaction, and even ourselves.
To explain, let’s think about cryptocurrency for now just as a medium of exchange – which is the primary function of money – and why cryptocurrency matters for that function.
And generally, the potential power of cryptocurrency comes down primarily to one thing:
Money as a medium of exchange has always required a certain level of trust.
At first, you needed to trust a person on a first-hand basis in order to accept an IOU from them (a precursor to money).
Beyond that, you likely needed to have a trusted third-party vouch for them or else you needed a lot of untrusted third-parties to vouch for them (reputation).
Eventually, the government and nations got involved in money, which led to slightly different trust requirements.
Generally, there are 2 levels of trust required for money issued by a nation or government:
These are very expensive types of trust to maintain. They require a lot of time, energy, and resources.
Policing and military are the most tangible and obvious costs, but there are also ongoing costs in terms of fighting for national identities, trust in the economy, and more.
These costs get passed down the chain to the users of a money in various forms of taxes and transaction costs.
Recently (within the past decade), several digital companies have been able to partially digitize trust.
Airbnb has digitized a level of reputational trust that allows you to trust staying in someone’s home. And Uber has done the same for riding in a stranger’s car.
Prior to these innovations, you likely would have been somewhat hesitant to trust a stranger for either a homestay or car ride.
Cryptocurrency may very well do the same for currency, but to an even greater degree. In this case, it won’t be reputation that’s digitized.
Rather, trust itself will be digitized, as all or nearly all security, stability, and shared belief will be placed the public ledger (the blockchain) and the algorithms on top if it (the protocol).
At this point in time, trust in cryptocurrency is growing but not yet solidified on a broader scale. It’s not surprising, though.
Countries and governments usually take decades or centuries to build up the trust necessary to issue good currency. And even Airbnb/Uber took many years.
So any broader level of trust currently placed in cryptocurrency can still be lost easily at the moment. And if we apply Gartner’s Hype Cycle to cryptocurrency, then it’s very likely that cryptocurrency still needs to hit a trough of despair before fully emerging into its own.
However, with all of that in mind…
If you take the costs of trust – of shared belief and security – down to or near zero, then that changes and disrupts everything.
On the one hand, if those costs are near zero, there’s no reason to keep paying those costs – to governments or any of the other organizations involved. And this is not about being pro- or anti-government, although that’s how it often plays out.
In the example of newspapers, you might prefer having a physical paper, you might prefer that business model because you’re involved or invested in it, or otherwise. But in the end, it doesn’t make sense to limit content – journalism, reporting, etc. to a physical paper format. The digitization of written content allows you and I to access infinitely more content without paying for the costs of printing, delivery, etc.
In the same way, we all bear the costs of sustaining trust in currency. Anti-counterfeiting measures, security, etc.
Cryptocurrency may well have implications beyond monetary and financial ones. Distributed Apps might prove to be beneficial, and perhaps the blockchain will eventually be used for records of all sorts (real property, licensing, etc.).
But even if none of that ever happens, the strong likelihood is that cryptocurrency will eventually change the ways in which we trust and transact. And that’s huge.
Trust and shared beliefs are what community and civilizations are built upon.
Other animals have packs or small groups, but they’re limited by the ability to essentially know every other member of the group. Or else – like ants – you’re talking about a group where the lack of cognizance limits autonomy.
With humans, it’s the ability to tell stories and to share beliefs that allows us to work together and create together.
As I write here in 2017, those shared beliefs and that trust is thinner than it’s been in a while.
And I’m not about to say that cryptocurrency is going to save us in any way.
But what’s so fascinating is that cryptocurrency – by its very nature – may allow or demand different relations among us. It might open up possibilities not just for transacting with lower costs but for re-examining how we relate to and trust each other.
Jeremy Hendon grew up in Georgia, practiced law for a while, and then built several companies - from food manufacturing to magazines to digital events. Jeremy has also developed apps with 500,000+ downloads, co-authored multiple books, had his products featured on national TV, and has lived in 9 different countries over the last 4 years.
S01E03 - How Does Cryptocurrency Work? (Part 2) - with Bernard Golden & Arvind Narayanan
S01E02 - How Does Cryptocurrency Work? (Part 1)
S01E04 - How Cryptocurrency Will Be Used in the Future (Bernard Golden)
S01E05 - Privacy, Security, and the Blockchain (Arvind Narayanan)