Why Bitcoin?
A mental model, that can help you to decide what to work on and what to not work on.
I assume, if you read me, you have already made your mind and you have already decided you want to work in finance, because this is where you can make the most difference in the world, at least compared to your other option: building another fucking media player application that nobody will ever use.
While, in this article I will focus on a question that I often get: “Why work on Bitcoin privacy instead of a privacy altcoin?”- this should not deter you from applying the exact same logical thinking to your field of expertise.
For starter: you cannot work on everything at once. You do not have the brainspace to do so and your time is valuable, so you must choose one field you want to concentrate your efforts, where you can make the largest impact.
Thus you must figure out if you want to work on Bitcoin, an altcoin like the dollar or Ethereum or if you are completely clueless you might choose to work on the mysterious “blockchain” and waste the next one year of your life building a blockchain based media player application. But, do not worry, you can always come back and read this post later. You are just not ready yet.
This is the point where many people fail. They ask themselves: what do I care about the most? Privacy? I’ll work on Monero. Security? I’ll work on Bitcoin. My beloved government? I’ll work on fiat. Personal wealth? I’ll work on all of them at once: I’ll be a trader.
While you can do this, I propose you to consider adding another step before you involve your personal interests into the decision making. You can further narrow the field to one coin. I propose you to choose your project based on your interest, but choose your field based on your intuition and logical reasoning on what currency can have the largest impact in the world. Because if you fail to get it right, your work may fade into oblivion.
Quick Tangent: Geometry
Euclid’s Elements has seen the second most number of editions published in the world. Right after the Bible. What was the marketing strategy of this book?
You only have to accept and remember 5 simple axioms and with those, you can deduct the rest of the 600 pages of the book by yourself.
You can draw a straight line from any point to any point.
This is one of the axiom. If we would change this a bit it would have far reaching consequences. And indeed, Boyai Janos changed another one, and what happened? A new geometry was born.
Another Tangent: Hats
For the sake of the argument this guy is me and I have this hat. I can sell you for $1 in Bitcoin: “would you buy it?” Yes, you would, it is a steal.
What if I ask you: “how much money do you have?” Would you answer to that question, too? I do not think so.
Here is the catch. You can either answer both of those questions no or both of those questions yes.
Of course it is very simplistic, but good enough to illustrate my point. If I would want to be slightly more accurate, I would say: if you have most of your wealth in Bitcoin, if your answer is yes to the first question, if you are not using Wasabi Wallet and if I am motivated enough, chances are I can figure out the answer to the second question, too.
This was another example of changing one axiom slightly that had far reaching consequences. What is the axiom? To answer this question, let’s go back to the ancient Greeks.
Third Tangent: Aristotle
Aristotle was not my favorite ancient Greek thinker. He dealt with a diverse set of important questions, and he provided answers to them. But his answers, solutions and models were always slightly wrong. Not wrong enough to not call him a genius, but wrong enough to mislead thousands of philosophers, mathematicians and physicists coming after him.
Such example was when he described the properties of good money. For this reason I only present you a more up to date list, on which economists are somewhat in consensus today and I will omit his original list.
Durability, Portability, Divisibility, Scarcity, Acceptability and Fungibility
I Lied, They Weren’t Tangents
The properties of good money is a somewhat axiomatic knowledge. Of course economics is not a real science, so during the rest of this article bear this in mind and do not take my conclusions too seriously, but we humans must come up with mental models those are at least good enough to describe the real world and I believe we may have such here.
Of course what I am trying to do is to draw some similarities between Euclid’s geometric axioms and Aristotle’s properties of good money. One thing to note though: we are not living in a perfect world, therefore you may have noticed that it is pretty hard to build a money that achieves all these goals, but let’s not forget, these are what we are thriving for.
Bitcoin performs pretty damn well in durability, divisibility and scarcity. Did you notice that decentralization is just a means to achieve stronger scarcity property? Note that, it also has some role in portability though, but arguably less.
However Bitcoin somewhat lacks in portability, acceptability and fungibility. And in fact, if you look at it that way, most Bitcoin companies are based around the idea of improving on one or multiple of those. Often in expense of others. For example a Bitcoin exchange typically helps the portability with its internal order books, and acceptability due to providing an entrance and exit to the currency itself, but their centralized nature is a risk to Bitcoin’s scarcity and their KYC/AML requirements are detrimental to fungibility.
Similarly the idea of all cryptocurrency can be derived from an idea to improve upon one or multiple of these properties. While a successful design or idea to do so is great marketing, this usually comes in expense of other properties.
The takeaway here is that balance is important, because we cannot create a perfect currency, not now anyway.
Why Bitcoin? Or why not?
And this is the point where our judgement may differ. I do not work on fiat, because I believe Bitcoin improves upon it in many of those properties, it is because I believe Bitcoin found a more reasonable sweet spot, than fiat. I could even accept an argument that some altcoins found even better balance than Bitcoin if we do not count acceptability. Unfortunately I am not an economist, but a scientist, so I cannot afford to just dismiss facts if I don’t like them. Acceptability comes from the size of the infrastructure, the created knowledge, and the network network effect, which feels like an insurmountable obstacle for the altcoins. For example you must perform extremely well in all the other properties for me to even consider to re-educate myself in your system. If you only do fungibility well, that won’t do it for me.
Similarly how Bitcoin traded off its fungibility, resulting in a far reaching consequence: me able to figure out your financial background just because I sold you a stupid hat, if you trade off another property in order to achieve greater fungibility that will have just as far reaching consequences.
Let that be my final advice for non-wasabikas, but for Wasabi users, let me hijack the end of this article to shred light to something they may have already noticed: I figured improving Bitcoin’s fungibility is important, but to considerably improve that we had to also introduce great complexity. Despite this Wasabi most likely provides the best user experience among all the Bitcoin wallets out there and today, with sufficient user feedback I can confidently claim that our users find it “crazy easy” to use Wasabi. However, it is not a coincidence, but it is our deliberate and careful attempt to offset the complexity we had to introduce for the sake of privacy. In other words, we cannot completely dismiss the rest of the properties of good money, thus we must pay and we are paying almost as much attention to UX and user workflow as to privacy.
