Previously I wrote a long article on Bitcoin, but I still did not make clear the two most crucial questions: first, the question people on the internet love to argue about most—whether Bitcoin is really a scam; second, the truly important question: what exactly is the revolution brought about by Bitcoin?
The previous article in fact also touched on these two questions, but because it was so long, they may have been obscured, so let me talk about them separately here.
First, let us discuss this question, which in fact is not even worth refuting: is Bitcoin a scam? Many people like to compare Bitcoin with the notorious tulip bubble, which is of course sheer nonsense. Bitcoin and tulips have one fundamental difference: tulips have real value—people appreciate flowers, give flowers to one another, so cultivating and selling flowers; the value of tulips is tangible and beyond doubt.
The fact that tulips are real is also shown in the fact that they can be carefully cultivated by people, continually growing out of real soil and fertilizer.
Bitcoin, by contrast, is something conjured out of nothing and returning to nothing. It is precisely this fatal difference that determines that the price of tulips cannot increase without limit, whereas Bitcoin perhaps can.
As a real commodity, a rise in the price of tulips must be temporary, because the market will respond to a skyrocketing price. Since tulips have become so valuable, sooner or later more people will join in growing them. If the cost of cultivating tulips does not rise simply because more growers appear, then with the expansion of tulip cultivation the price of tulips will sooner or later fall. In fact, the tulip bubble in European history was related to the guilds’ monopoly on tulip trading at the time, but no hegemony can last forever; monopolies are bound to be broken eventually. Once the laws of the market take effect, the bubble will burst. The price of a real commodity will ultimately be tied to its cost and demand, and can never remain forever “detached from reality.”
But Bitcoin from the very beginning is not a “real” good; its usefulness is its price itself, and its price from the very beginning is “detached from reality.”
That is to say, if a so-called bubble means a price far above real value, then Bitcoin, like all paper money, has from the very beginning been a bubble.
If a Ponzi scheme means an economic activity that is always paying off earlier participants with the money of later ones, and that can keep operating only by relying on a constant inflow of “even dumber fools,” then Bitcoin has from the very beginning been a “scam.”
The question is not whether Bitcoin is a bubble or a scam, but how long this bubble or scam can last.
The “chicken voucher” of Zhang San mentioned above is also a kind of bubble and scam—once it becomes a widely used currency, the value of the chicken voucher will quickly exceed the value of a chicken; what else is this excess but a bubble? At the same time, if people go to visit Zhang San’s chicken farm and discover that Zhang San is no longer raising chickens at all, then shouldn’t they cry out that he is a swindler? If Li Si has gotten hold of a chicken voucher, but cannot find another fool to accept it, then hasn’t the bubble burst?
Exactly so. All currencies are like this, including gold. If you have acquired currency and can no longer find anyone to take it off your hands, then you are the “last fool,” and the whole bubble bursts. Even if gold, like tulips, has a certain practical value and the support of aesthetic fashion, this does not guarantee that it cannot rise and fall violently like the tulip bubble.
Currency itself is nothing but waste paper; using it to write on or wipe your hands with is equally inefficient. Once you can no longer find a next “fool” willing to take this paper in exchange for something, then everything you did to obtain it was for nothing. So why do you dare to take hold of this paper? After taking it, you will find the next fool, persuade him to believe that this useless paper, which can neither be used to draw nor to wipe hands, has considerable value—so how is that done?
The key lies in what exactly sustains this scam, what exactly sustains the confidence of all participants.
In some traditional scams, people believe in the real value of some object (for instance, tulips); once this overestimation of its value is eventually shattered, people’s confidence collapses. But this will not happen with modern currency, because it never had any real value in the first place and never asked people to believe it had any use beyond being passed along to someone else.
As for the currencies before Bitcoin, the government was the guarantor of confidence. But what did the government guarantee? Setting aside the fact that governments may always collapse, even if the government retains its authority forever, at most it can only guarantee that money can keep being printed without end (or, rather, we can guarantee that the government will always be able to find ways to devalue the currency). It can guarantee that 10 yuan will certainly be worth 10 yuan, but as for what those 10 yuan can actually buy, the government has guaranteed nothing.
If you do not merely hope that 10 yuan are guaranteed to be worth 10 yuan, but at least hope that 10 yuan are guaranteed to buy half a chicken, then you must not only trust the government, but also trust the chicken farmers and chicken sellers; you must trust that all participants in the market maintain a certain order, and at the same time the government must not issue too much currency. Even so, your confidence is extremely short-lived—you may be able to believe that 10 yuan can buy a small half chicken in the next few months, but beyond that the future is unforeseeable. In fact, we know clearly how much the currency in our hands has depreciated in just a little over twenty years since the 1980s and 1990s.
Of course this depreciation is normal, but the question is, why do we still willingly take in currency despite this, despite knowing that currency is bound to depreciate, and even after seeing cases like the gold yuan or the Zimbabwean dollar, which depreciated so rapidly as to be ultimately abandoned by the market?
In fact, we are not trusting some “essence” that transcends history; what we trust is history itself. We believe in the real value of the currency in our hands under such a concrete historical situation as the one with which we are familiar.
Compared with gold and tulips, or the renminbi and the gold yuan, there is no boundary in any “ontological” sense; the difference lies only in their different historical situations.
If we need to maintain confidence in the issuer of currency, then that confidence is also mainly negative in meaning—that is to say, we believe he will not act recklessly. The more crucial confidence is not aimed at the issuer, but at the market, at the users. Even if Zhang San no longer raises chickens, or even if Zhang San dies, if I believe that other people will still be willing to accept Zhang San’s chicken voucher, then I will still take it. Even more, if Zhang San’s withdrawal can ensure that there will be no further worry of reckless issuance of chicken vouchers, then I may trust the value of the chicken voucher even more.
In short, the value of currency is determined neither by some substance or function contained within it, nor merely by the issuer, but by all participants in the market (or rather, the issuer merely determines whether currency will. As long as there are always people willing to participate, then the currency always has value.
So Bitcoin is the most extreme realization of the confidence on which currency as a certificate of trust depends—since we do not dare to trust the issuer not to overissue, then let us simply abolish the issuer; since our trust in currency is based on history and the market, then let us hand over the operation of currency entirely to the market, to the masses.
At times, we are also worried about currency counterfeiting; Bitcoin instead hands the work of anti-counterfeiting over to the entire internet and to mathematics.
Entrusting value to history, authenticity to mathematics—Bitcoin looks like a perfect currency.
What makes Bitcoin superior to economic “bubbles” such as tulips, gold, paper money, and the like is that it has completely broken free of any real-world power, and therefore will not collapse because any person or institution collapses. Whether the people participating in Bitcoin transactions are “fools” or not is simply irrelevant. What matters is that if human history will always contain some portion of “fools,” then if some thing can circulate persistently among fools, then its value is beyond doubt.
The authorities Bitcoin relies on are only three: the market, history, and mathematics. If one day the “market” no longer exists, if everything is distributed according to need in one step, with no transaction required at all, then Bitcoin and all currencies will come to an end; if one day people no longer respect history and tradition, if no descendants continue to maintain Bitcoin’s operation, and Bitcoin’s unique historical status as an epoch-making internet currency is completely ignored, then Bitcoin will also face the danger of being forgotten by people—after all, for amnesiacs, the concept of “credit” has no foothold, and currency as a certificate of credit is naturally not long for this world; or again, if one day the mathematical (cryptographic) laws on which Bitcoin is based are destroyed, then of course it will not be able to continue.
It is obvious that these three great authorities seem far more reliable than any traditional center of power. Thus I may boldly predict: so long as these three pillars do not fall, Bitcoin, no matter how many times it experiences bubble bursts and wild rises and falls, will still be able to continue.
To be continued
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Translated from the Chinese original with AI assistance. The original text is authoritative.
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