A Fairy tale
By: Knut Svanholm
Tags: Human Behavior, History Of Money, Banking, Decentralization, Bitcoin

Once upon a time there was a species of primate who loved to categorize stuff, label it and put it in neat little boxes. They called themselves “humans” and other primates “apes” even though they shared most of their genes. They claimed that they were “alive” and “conscious” even though they didn’t really have any clear definitions of these states. They experienced time and they theorized about its relationship with the other dimensions in space, yet they had no clue what it really was and how to value it properly. Some assumed that they had been given a limited amount of it and acted accordingly. Some didn’t even care to give time a single thought and acted as if it was an abundant resource. None of them knew.

In an early effort to organize time amongst themselves they invented an abstract way of thinking about it. They started to trade time for consumables and thus work was invented. Shortly thereafter someone pointed out that you can’t really divide a cow so they had to invent a way to keep track of what part of the cow belonged to whom. Enter the ledger. Historical findings point to the ledger as being the first writings with numbers in them that humans ever produced. Ledgers enabled early societies to keep track of who owned what and who used to owe who what at what time. We’ll get back to the subject of ledgers later on in the story.

Another, even earlier way that these humans had invented to keep track of who owned what, was to exchange tokens that represented a certain value with each other. These tokens were very local phenomena at first, such as sea shells or precious stones, but were gradually replaced by coins over time. Coins were usually issued by the self-proclaimed ruler of a certain geographical area, i.e. the guy who stole all the land from your ancestors back in the day.

Coins had many advantages over other means of expressing value. They provided a medium of exchange to the people and they kept their value as they were mostly made with precious metals. In addition to this they provided a good unit of account for the issuer. This worked fairly well until someone realized that you could chop off little pieces of a coin to salvage the precious metal and the coin would still maintain its value. It also worked fairly well until the issuer realized that he could replace parts of the preciousness in the coin by using an alloy of different, less expensive metals than the one the coin itself proclaimed to be made of. Despite these flaws coins continued to provide a means of commercial interaction between people for a long time. That is until the bank was invented.

Along with the invention of the bank came the invention of the banknote. Basically a piece of paper that stated what you had deposited to the banks vault i.e. what the bank owed you. You could also lend from the banks and then pay back the loan with a little interest to provide the banker with a way to make a living. Pretty soon these banknotes were traded between people without ever being cashed out at the bank. This worked fine for a little while but then the banker noticed an interesting behavioral pattern in his clients. They never seemed to withdraw their valuables at the same time. This spawned an idea in the mind of the banker — he could lend out more than he actually had in his vaults. As long as the people kept their valuables in the vault the interest from these additional receipts would pay for the whole ordeal and more within an acceptable time frame. The plan worked even better than the banker had first imagined and thus fractional reserve banking was born. This made the banker extremely wealthy.

As these banking system grew larger and more powerful their formula started to creep upwards through human society. When the people realized that they had been cheated, which they did from time to time, they sometimes decided to organize themselves and try to withdraw all their funds at the same time which all to often lead to a collapse of the bank. This in turn lead to the creation of the central bank which operated under the same false premises as the smaller banks. They still do by the way. It was decided that only a central authority could be trusted with the task of issuing new money and, at least initially, this worked remarkably well. Most central banks adopted a policy that stated that every note in circulation was redeemable for an equally valuable amount of gold at any given time. Over time however, these policies were abandoned and replaced by the same fraudulent principles that the banks were founded on in the first place. Most notably they were abandoned by the US Federal Reserve who were in charge of issuing what had become the world’s reserve currency, the US dollar.

Pieces of paper circled around increasing productivity and fueling innovation all across the planet. Computers and the internet were invented and made everybody’s lives better but at the same time they also gave birth to even more powerful financial leeching tools. A couple of dozen people soon owned half the earth while almost every country slowly started to drown in debt. Boom, bust, boom cycles started to emerge, sucking the lifeblood out of the working classes en masse.

But then an idea was born. The idea of a decentralized currency. A currency that couldn’t be inflated. Not by gathering more sea shells and not by quantitative easing. An immutable, censorship resistant ledger, shared on a network of thousands of computers. An anonymous entity called Satoshi Nakamoto published an 8 page white paper in 2008 that described how this could be done. A simple set of consensus rules would ensure that the protocol governing this ledger would remain tamper proof and decentralized. Game theory made sure that the network would only benefit from everyone acting in their own best self interest.

The system worked remarkably fine the first eight years, quickly gaining momentum due to the network effect. This gave the invention a lot of publicity which in turn propelled even faster and more sophisticated innovation. The system also spawned a lot of envy and pretty soon clones of the original invention started to pop up here and there, claiming themselves to be the next big thing. Altcoins, forks, ICO’s and airdrops in a variety of shapes and sizes tried to ride the cryptocurrency buzzwave and steal some of the limelight.

This is where the real story begins. This is where you and I come in. This is now. We get to decide what happens next. Together. We can either embrace the new or cling on to the old. It’s up to us. Bitcoin is already delivering on its promise of sound money and exciting new technologies such as the lightning network will make it even cheaper, more private and more robust in the future. Yes, investing in a relatively new technology is somewhat risky but the potential gains here can’t be overstated. Owning Bitcoin is also a statement. It’s pretty binary. You’re either on board the train or not. You decide.