My sincere gratitude to Gigi and allen farrington for review and feedback.
When two tribes go to trade
Bitcoin is it’s own jurisdiction. It cares not for the laws of man. It cares not for other currencies. And it is so distributed, responsive, and resilient as to render it ‘anti-fragile’ in a now widely regretted homage to Taleb. Some have likened Bitcoin to the first form of synthetic life. The Honey Badger metaphor is appropriate in that sense. It is hard to kill the Honey Badger.
Yet the Honey Badger is highly dependent on its environment. While the Honey Badger acts like it doesn’t care, it actually does care. It needs to eat, it needs to mate and reproduce, and nurture its young. It needs shelter. So does Bitcoin. And this is where Bitcoin’s weakness is exposed. The network property gives it greater resilience. Much like there is greater resilience at the species level of the honey badger. Bitcoin is the code, but its digital manifestation is by virtue of the execution of the code by tens of thousands of nodes, their communication via the internet, and finally by its value to man. This provides would-be enemies an attack vector.
Yes, Bitcoin is its own jurisdiction. A jurisdiction with transparent and unassailable rules written into the source code. However, the entire bitcoin ecosystem operates in a different jurisdiction. The jurisdiction of the nation state.
An analogy to describe the situation is one of neighboring countries. In a time of peace, cross-border trade grows in volume and in value, delivering wealth to the populations of both countries. Capital investment is made in both countries to ramp agricultural and industrial production and provision of services to further specialize their economies. In this way they continue to meet the growing needs of their own economies and those of their trading partners.
In this analogy, Bitcoin is one country, and its ecosystem resides in other countries.
The Bitcoin country is newly formed, the others larger and more established. The Bitcoin economy is growing, and the economy of it’s ecosystems is growing with it. New companies are forming — specialized miners, mining pools, exchanges, and custodial services providers. The list goes on. The incentive structure is clear, and compelling. In essence, Bitcoin exports a monetary commodity that is secure, censorship resistant and appreciating. The country with the ecosystem exports energy and services to build, maintain and grow the network.
The jurisdiction of Bitcoin is still small. It is not yet self-sufficient. It does not have its own energy facilities, its own mines. Yes, it does run its own nodes. It has a legion of fervent followers that share its values of financial inclusion, of fairness, and a rules-based monetary system outside the control of man. Not beholden to the whims, personal motives, and frail psyche inherent to man and woman. While these fervent followers live in a nation state, and are beholden to its laws, they think and act more like citizens of the Bitcoin network.
The main point of the preceding paragraphs is to recognize that Bitcoin, while unto itself an anti-fragile entity, is dependent on actors that are not anti-fragile. A war-time general would look at the situation and deduce that the enemy’s supply lines are traversing territory he controls. And while there is peace between the neighboring countries right now, and there has been for 12 years except for a few border skirmishes, there comes a time when a relationship escalates. Relationships sour for all sorts of reasons, and the greater the culture and values differ between two countries, the greater the chance. To be prepared for the inevitable escalation is a critical part of remaining anti-fragile.
Incompatible systems
“If you know the enemy and know yourself, your victory will not stand in doubt” — Sun Tzu
The incompatibility of the current monetary system and Bitcoin is clear to all. But rather than focus on the various properties and attributes to compare the systems there is only one meta-trait to distinguish. The fundamental incompatibility lies in the core, in the ethos, of both systems: the degree of centralization. On any spectrum, one is on the far right, the other on the far left.
The central control and governance of monetary policy is an important part of a nation state’s sovereignty status. You could argue for a nation state to adopt bitcoin is to accept its own redundancy. In any case redundancy of its current form, from which it draws much of its power.
In today’s world, to separate money and state is quite possibly an order of magnitude more disruptive than separating monarch and state or separating church and state. Why? Because in most countries when monarchy was abolished or modified many democratic processes were already in place and parliaments existed. Because when church and state were separated the law was already of men, not of God.
Monetary policy however is woven into the fabric of government, of trade, of society and into humanity’s mental state that has grown more and more oriented to consumerism. Beyond borders it seeps into geopolitics, and it has done so for decades in ever increasing ways.
El Salvador was the first country to adopt Bitcoin as legal tender. At the time of writing it is just a few days ago the bill was signed into law. Important to note is that it has had no control of its own monetary system for over 20 years, counting on the US dollar system. Hence, the decision was not as difficult to make, except for the obvious strain the move puts on its relationship with the IMF and the US. For them, it was a calculated hedge in the face of a clearly declining dollar system. Whether they continue down the path remains to be seen. Bitcoin and its community are pawns in a game of geopolitical chess. A pawn can be sacrificed.
This meta trait of pure decentralization/distribution is the one aspect that larger sovereignties and geopolitical powers will not be able to accept in Bitcoin. Ultimately, the only way for nation states to continue to exist in their current form is by subjugating bitcoin to their control.
This will not be done with violence, in fact cannot be done with violence, but it will surely involve coercion.
Control of the Brains or Control of the Limbs
In the eyes of the establishment, a term broadly used to define institutions of government and monetary authorities, there is only one way for Bitcoin to exist within the current system: it needs to be governed. Governance is control, control is the crux.
But let’s make a distinction here that goes back to our neighboring countries analogy. What do we specifically mean by control?
The looming question is whether authorities accept that they are only able to control and regulate Bitcoin’s ecosystem service providers — the fiat on- and off-ramps or the exchanges, the miners, the mining pools, the custodial services providers, etc. As well as control of how the commodity is regulated — as property, a security, legal tender, or an entirely separate asset class.
Or, that ultimately their quest for control goes beyond that. Will they target the coding of the Bitcoin network and with it the monetary rules and its very nature? Will the authorities go after the sovereignty of Bitcoin itself?
What is unique about Bitcoin is that it is not owned or governed by any party. Bitcoin is the high seas. It is Antarctica. Bitcoin is the commons. There is no precedent for any commons — physical or digital — to exist, and sustain itself, at scale, in modern times. Human nature generally prevails, although successful experiments such as Wikipedia, Mongolian grasslands or Nepalese forests offer a glimmer of hope. Even Garrett Hardin, author of the somewhat misguided 1968 article ‘Tragedy of the Commons’, claimed that perhaps private property ownership protects a resource from overuse. Yet he concedes that irresponsible use does occur. With any monetary property irresponsible use is guaranteed. That is why Bitcoin. The birth of Bitcoin in the aftermath of the global financial crisis is no coincidence.
The term ‘ultimately’ was used in a previous paragraph. If we set our time horizon to 1 year, there may be no serious attempt to seek control of Bitcoin itself. But how long can they restrain themselves? The next few chapters will focus on what strategies and tactics the establishment is likely to employ over the next few years.
Establishment Strategy and Tactics
An array of strategic options are available to the establishment we’ll focus on here — predominantly the US, Europe and the IMF collectively: the Washington consensus. Laissez-faire is not in a government’s lexicon and the option to suffocate Bitcoin out of existence with regulation is no longer available. Given the vested and established interests, what approach would benefit the state?
If his forces are united, separate them. If sovereign and subject are in accord, put division between them. Attack him where he is unprepared, appear where you are not expected. The supreme art of war is to subdue the enemy without fighting. — Sun Tzu
It is likely that a range of measures will be put in place that impact on the ecosystem in a carefully crafted balance of incentives and concessions. Firstly, to make the dependence on the state higher, secondly to align to overarching policies such as climate change and equality, and thirdly to bring revenues into state coffers.
Fiscal — assorted tax regulations can be put in place to dampen the momentum of Bitcoin. This may include classifying it as a separate asset class and charging a wealth tax over holdings vs capital gains. While this is novel for the US, it is already prevalent in Europe.
Commerce — special taxes on mining operations and the potential for royalty type agreements as is common in commodity mining.
Foreign policy — it is likely those countries that have sizable debt to or dependency on either the IMF, EU or the US will be pressured to agree to stringent controls of Bitcoin. This may extend to free trade agreements.
SEC & JD — tighter regulation of exchanges and financial services companies that offer custodial services, especially in the area of reporting and exchange of information with the IRS. All under the guise of fighting tax evasion and cybercrime/ransomware attacks.
Environment — Renewables mandates, carbon credit mandates and grid availability assurances for energy producers and miners.
Of course all this policy making will be coupled with waves of mainstream media propaganda campaigns to influence the public. As the needs of the establishment changes, the narrative will pivot; from Bitcoin is used by criminals to Bitcoin helps us trace criminal money flows; from Bitcoin is bad for the environment to government intervention has ensured we now have the cleanest Bitcoin on earth; from Bitcoin is bad and a speculative asset to Bitcoin is a helpful tool for the great monetary reset; from Bitcoin is a bubble to Bitcoin will help us manage inflation.
The Mission or the Money
“My principles are more important than the money or my title.” — Muhammad Ali
There is no conceivable path for any sizable sovereign nation to sign up for a larger role of bitcoin without the bitcoin code becoming part of the global governance of monetary affairs. You hear the central bankers and monetary officials thinking: “It cannot be that a multi trillion-dollar asset sitting in my reserves is coded and maintained by geeks funded by private enterprise.” For an institution like the IMF or any central bank with a mission to govern over and facilitate stability, cooperation, and economic growth, that is unacceptable.
Simply, Bitcoin can be accepted by the establishment, even in its current form, as long as it has a role in the governance of the bitcoin source code. While many stakeholders — both nation states as well as ecosystem participants — can be represented, nation states will aim to create a body that governs the characteristics of the Bitcoin software and the network. It may be called the International Monetary Union and operate under the auspices of the IMF. Potentially Bitcoin will be part of a basket of currencies that back their SDRs.
Assuming this comes to pass, a series of moral dilemmas will soon be thrust on Bitcoiners the world over.
When people try to affect change in any environment they invariably run into walls and hurdles that prove very difficult to overcome. The binary decision that one can make in that situation is ‘am I going to change myself, my beliefs, or change the system?’. We know what government will try to do: change the system. What will Bitcoin market participants do?
Through the strategy and tactics described previously, the aim of government is to increase the control of the ecosystem participants to the point where they are both completely beholden and vested. It is feeding an addiction, facilitating the addiction, and then threatening to take the substance away. The substance is provided in return for ever more concessions.
In practical terms, hereby two examples of dilemmas that may, or may not, come to pass:
- A proposal will be made by the IMF and the EU/US central banks whereby Bitcoin will be made legal tender, but only if a council is formed whereby the IMF, EU and US have an active role in governing Bitcoin core code, including veto rights. Moral dilemma #1.
- A proposal will be made to add Bitcoin to the reserves of the EU and the US and added to the basket of currencies that make up SDRs, but only if a KYC identifier will be added to every Bitcoin transaction. Moral dilemma #2.
These are just examples of what moral dilemmas could be faced by Bitcoiners. How much dilution of Bitcoin’s values, it’s ethos, are you willing to accept to retain or build your wealth?
In all likelihood it won’t be a single decision point. There will be lots of little moral dilemmas that need to be made in the on-going governance of Bitcoin. And this is how an actor with a vision and a long-term plan can bend Bitcoin. By carefully planning incentives to coincide with small concessions from market participants. Carrot and stick.
From the block-size wars we know that commercial enterprises will follow the money. Marathon, Coinbase, and all listed or private entities will abide by laws and regulations. Obviously, they will aim to influence the regulations through an active lobbying arm, but ultimately whatever regulation is passed, they will abide by. Their shareholders are in the business of growing capital, not in the business of defending ideals.
There is no published breakdown of the numbers but given bitcoin is still early in its adoption curve, it is reasonable to assume that the majority of investors in Bitcoin are believers in the cause, not just investors or speculators in an appreciating asset class. Not least because the volatility and the risk is such that without resolve and belief it is difficult to stay invested for long periods of time.
That said, if you read this and you have considerable wealth tied up in Bitcoin, what would you do? Does your family and generational wealth come first, or the principles of Bitcoin and its everlasting positive impact on society?
Get ready for your true principles to be tested.
Apocalypse
“I think dystopian futures are also a reflection of current fears.” — Lauren Oliver
The most dystopian endgame is the peaceful yet violent take-over of Bitcoin through a hard fork. After years or decades of wrangling with various participants in the community of stakeholders represented on the Bitcoin council (yes, a council will be formed, you can bet on that), and after a variety of staged and real events that threatened the stability of economies, the IMF will decide it has had enough. It will create a hard fork called Bitcoin.gov. It will be entirely managed by the IMF, and it will as part of the fork instantly generate a lumpsum of additional coins to provide targeted liquidity to help the global economy get back on its feet.
All merchants, financial institutions, governmental agencies henceforth will comply and switch to sole use of Bitcoin.gov. All these commercial and government entities will verify transactions with a list of whitelisted accounts. Whitelisting will be granted to those account holders that send their entire Bitcoin holdings to an IMF held account. Private keys will be lost in boating accidents en masse, but with the burden of proof on you, it will be hard to escape the yoke. The government won’t trust, and will verify.
The playbook will be a classic — and the propaganda will be second to none, having carefully prepared the public for what is to come for months and years prior — fighting for equality, fighting for your jobs. For a brighter future.
Bitcoin will survive. And it will learn. The learning is that in order for Bitcoin to survive it cannot in any way touch the documented economy. It needs to build its roots in the peer to peer barter economy. The experiment of the ’10s and ’20s was flawed for one reason only: the noble ideals were there but were second place to fast wealth creation in the fiat economy. HFSP.
Will the apocalypse happen as described? It could, that is what scares me.
Guerilla warfare
The conventional army loses if it does not win. The guerilla wins if he does not lose. — Henry Kissinger.
The author concedes he is not able to best the description of Guerilla warfare on Wikipedia (a donation has been made). Guerrilla warfare is a type of asymmetric warfare: competition between opponents of unequal strength. It is also a type of irregular warfare: that is, it aims not simply to defeat an enemy, but to win popular support and political influence, to the enemy’s cost. Accordingly, guerrilla strategy aims to magnify the impact of a small, mobile force on a larger, more-cumbersome one. If successful, guerrillas weaken their enemy by attrition, eventually forcing them to withdraw.
If there is one thing everyone must see and recognize, it is that Bitcoiners are religious zealots. Saylor speaks of cyber-hornets. Here we speak of guerilla warriors.
If we want to fight the establishment, we must fight on our terms and on our terrain, with the tactics that will work against the enemy.
Fractionalize
In the book ‘The Sovereign Individual’ authors Rees-Mogg and Davidson hypothesize that in the information age violence no longer generates a meaningful return. If everything is digital, what does violence in the physical realm get you? With this, they hypothesize, nation states and sovereignties will shrink as the benefits for scale in defense no longer apply.
We see Switzerland in Europe. Singapore in South East Asia. Texas and Florida in the US, and even cities like Miami. El Salvador in Latin America. More nimble, faster legislatures see the opportunity for their people and want to act fast to create crypto communities, to attract crypto companies, and to pass laws that are crypto-friendly.
Bitcoiners should capitalize by moving fast, targeting likely jurisdictions by setting up shop, campaigning, and starting the dialogue. Orange pilling the smaller jurisdictions is far more effective to create the change and adoption. Bootstrapping is the name of the game.
Geopolitics
We know that China is possibly even less disposed to a decentralized monetary system than the West. And while it is good for Bitcoin to decentralize mining away from China, China itself is needed as a counterbalance to the Washington consensus. Peter Thiel’s cryptic comments at the Nixon Foundation about Bitcoin and China were made with the express aim to both get China and the US more interested in Bitcoin. Also, ultimately China and Russia cannot afford to forego Bitcoin. Both China and India suffered lasting repression and colonialism from being on the silver standard when the rest of the world was on the gold standard. The hardest currency wins.
Support China and Russia Bitcoin ecosystems; keep them in the game at any cost.
Propaganda
Sun Tzu spoke of 5 constant factors that govern war. One of those is the moral law. In essence it describes the belief and faith of the people in their sovereign. There is no sovereign in bitcoin but there is a belief system that is stronger than any sovereign can create and sustain. It surfaces on Twitter.
Meme-ing is the one guerilla tactic that will be attributed to Bitcoin for eternity. To combine creativity with humor and incessant, pervasive messaging has to be the most effective set of tactics ever conceived. For every person that claims the toxicity drove them away there will be 10 that saw the zealotry for what it was: a cause, serious intent, only a veneer of toxicity, good hearts, and a deep belief in the first principles of Bitcoin.
Peer-to-peer / Unit of account
With the Bitcoin supply lines traversing enemy territory it is imperative Bitcoin — with the Lightning Network- creates more volume of real economic activity outside of the fiat system. The less dependence there is on fiat conversions, and the less dependence there is on commercial enterprises that play a role in the bitcoin ecosystem, the more resilient Bitcoin will be. Stream those sats for podcasts and good content. Invoice in sats, pay in sats. Hold those coins off exchange in your own wallet, hosted on free open-source software.
Time
Bitcoin has all the time in the world. It doesn’t need to rush. It doesn’t need to go anywhere or be anywhere. It is not ensconced in a citadel running low on supplies. It is out there in small rebellious forces making small incursions into enemy territory changing the hearts and minds of the people it touches. It is a force for good. The goodness grows the network every day. The impact builds around the world. There should be no rush to make concessions for the sake of greater adoption. No rush to embrace Billionaires with agendas. There should be no rush to change anything to the very nature of Bitcoin.
Bitcoin’s enemies are large, slow, and cumbersome. The organic adoption of Bitcoin globally should outpace concerted large-scale strategies of it’s enemies.
Ultimately, time is on Bitcoin’s side.
Time is on my side, yes it is. — Rolling Stones.
Bitcoin will prevail.
