Although it is on the cutting edge of technology bitcoin might be more closely aligned with nature than we think. This series of 3 articles compares how bitcoin and the legacy financial systems stack up against the laws of nature. In this first piece, we cover survival of the fittest, along with the concepts of CANI and being anti-fragile.
Survival of the Fittest
The essence of survival of the fittest is competition. Nature does not care how long you have been the top dog. If a better competitor comes along you are toast. Bitcoin succeeds or fails on its merits. It is 100% voluntary and competes openly against all forms of exchange, including government issued currencies (fiat) as well as the many alternatives to bitcoin fighting for a piece of the action. Bitcoin will survive as long as a market believes it has value. If it can’t demonstrate value or adapt to serve its environment, it will die.
Fiat money is basically money created and administered by a government like the US dollar, Euro, Aussie Dollar, Yen etc. Although you could argue that fiat does compete with other currencies on a global scale, it effectively holds a monopoly within its own country. It has value mainly because citizens are forced to use it. So, as far as most people on earth are concerned, there is no competition for their national currencies.
An interesting point to note is that the average life of a fiat currency is 27 years before it collapses! Gold, on the other hand, has been used as currency for over 5000 years. The oldest fiat currency in existence is the pound sterling. The pound has been around for 322 years but has been off the gold standard since 1931. Even though bitcoin has been declared dead many times, it has not missed a beat for almost 8 years.
In nature, this fight for survival promotes constant and never-ending improvement (CANI). CANI is basically the ability to continually do more with the same resources than you could do before. In 1903 the Wright brothers took to flight and now we humans are working to colonize Mars. More practically, a company only stays in business by selling products which offer more value than their competitors.
Bitcoin is designed to obtain more purchasing power over time. This is achieved by the fact that there will only ever be 21 million bitcoins. The money we use today, however, is printed at will by whichever government holds the key to the printing press and is designed to become less effective over time. Governments continue this practice despite the fact there are no examples in nature where a system survives by becoming less effective. When you think about it, “becoming less effective over time” is actually a definition of dying.
Governments have their own agenda but many classically trained economists will argue that money needs to become less effective (in the form of inflation) to encourage spending and spur the economy. If this was true, no one would ever buy a computer because we know it will be cheaper next year. Furthermore, if these economists were anywhere near accurate in their “professional opinion”, AAPL, GOOG, and MSFT wouldn’t be the 3 highest market cap stocks on the NYSE.
What doesn’t kill us makes us stronger. When we get sick, our immune system attacks the virus and builds up a defense. The next time we catch the same virus, it doesn’t affect us as much. This is what is meant to be antifragile. Being programmable money, bitcoin is antifragile as well. The bitcoin of 2009 is vastly different from the one we see today.
Bitcoin effectively has a $14 billion bounty on its head and is attacked every day and the attackers have never succeeded. Even though it is technically “possible” that bitcoin will be hacked, many believe you would have more chance of internally combusting within the next 2 seconds. (Note: bitcoin exchanges like Mt Gox and Bitfinex have been hacked but this is akin to a bank robbery not hacking the Federal Reserve)
The US financial system is not antifragile. Actually, the Federal Reserve has been successfully hacked over 50 times in the last 5 years. SWIFT, an international banking network which transfers over $5 trillion worth of payments a day has been hacked 3 times in last few months! These attacks are succeeding at an increased rate. This tells us hackers are getting better at breaking into these systems faster than the legacy system can keep up.
Having a look at the discussion so far, bitcoin is certainly more in line with nature than the legacy financial systems. Stay tuned for Part 2 of this mini-series where we look at the differences in how innovation is accomplished in nature when compared to bitcoin and the legacy system.
|Survival of the fittest|
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