Jonathan Leger
Jonathan Leger 10 minutes reading from Bitcoin

How Bitcoin Will Reshape Nations

How Bitcoin Will Reshape Nations

Large nations need trust proxies, but the current proxies are flawed.

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1/ Imagine that you know somebody who needs a loan for a car. If they don’t get another car, they’ll lose their job. You have the money and are in a comfortable position to make the loan. Walk through the following list of people and ask yourself: Would I lend them the money?

2/ Immediate family member Extended family member Close friend Coworker Associate you see occasionally A neighbor A person you recognize at the grocery store Stranger in a different city Stranger in a different state/province Stranger in another country

3/ The further down the list you get, the more the answer is “no”. Without a relationship to them, there's no reason to trust they will repay you. Esp if they're far away, enforcing any agreement would be difficult. You’re not obligated to help & they’re not your responsibility.

4/ It’s estimated that humans can create and maintain a maximum of around 150 relationships (known as Dunbar’s Number). Our brain has evolved (or was created) for small social groups. Pre-civilization, humans lived in tribes of a few dozen to a hundred people at most.

5/ We live in massive civilizations now but our brains haven't caught up to that growth. Internally we’re wired for tribes. Family, friends, associates, and neighbors gets us to the limit of Dunbar’s Number. Within that group there's some inherent trust. Outside there is none.

6/ In a tribal setting of a few dozen people, cooperation and support were necessary for survival. Any breach of the trust within the group was likely to hurt you as much as it hurt the person you acted against.

7/ Today, with cities and countries of millions of people, we’ve had to come up with proxies for this trust, but these proxies aren’t perfect. For instance, if you want to get a loan for a car, an institution can do a credit check to see whether you’ve got an established record.

8/ The problem with credit scores is they disfavor the most responsible people. If you never noeeded a loan because you were responsible enough to save and pay for everything in cash, you’ll have a low credit score and may not get the loan when you finally need one.

9/ We’ve done the same kind of offloading of trust w/governments. A tribe might have one or more leaders who relied on the tribe for survival so were less likely to make selfish decisions. They would risk losing trust, putting themselves in physical danger if the tribe rebels.

10/ Representative democracies vote for people who live in the city /region to represent us before the govt. The belief is that people who live nearby are incentivized to look out for the interest of those they live around and interact with when they come home.

11/ While this might be true for smaller towns, in very large cities the number of locals a representative actually interacts with is minimal, especially if they are of a far higher economic rank – and they usually are.

12/ The 1 cause of corruption in every facet of human society is unsound money. People are inherently selfish, particularly outside their Dunbar circle. Without a relationship connecting you to those outside individuals, we see them as part of a different “tribe” than our own.

13/ That’s fine if the system we’re all working within is fair, but it isn’t. Fiat money has corrupted the system to favor the people closest to the money printer (known as the Cantillon Effect). Everyone else gets robbed by rising prices caused by inflation.

14/ Sound money fixes this. It can’t be printed out of thin air and must be backed by work. Since money can’t be printed and handed off to political cronies, robbing the citizenry through inflation, the incentive structure for political funders changes dramatically.

15/ This changes the incentive structure of politicians. With less incentive to pour into campaigns due to a lower return on “investment”, funding from industry decreases. Politicians rely on donations from individuals and must do a better job for the people to be reelected.

16/ Incentives change for the citizenry too. With no money printer, the incentive to vote for “free money” in social benefits goes away b/c funds can’t be create out of thin air. All govt programs must be cost-justified, resulting in smaller govt & more personal responsibility.

17/ The economic hamster wheel citizens are on also disappears w/sound money. Today, due to inflation from money printing, your savings loses value every year. This forces ppl to work longer/harder to keep their head above water, since wages have not kept pace with inflation.

18/ W/o inflation, the deflationary effects of technology would bring prices down. The supply chain for coffee beans is 80 times more efficient than it was in 1980, and yet your average cup of black coffee costs four to five times more than it did back then.

19/ Lower prices means money people save is worth more each year, not less. Risky investments are no longer required to offset inflation, so workers can live beneath their means, save their extra , and know that when they’re ready to retire their savings will be worth far more.

20/ There’s still another problem though. Before the 20th century, money was almost always sound money based on a hard asset (usually gold or silver). Why did that change? B/c govts had the ability to change laws and thereby the money, and it was in their own interests to do so.

21/ The solution is removing control of the money from the govt. W/o control, the incentive to change the money evaporates b/c it’s impossible. That removes unjustified wars and "pork projects" since they would never be approved through a vote.

22/ Bitcoin takes the money out of the govt’s hands through decentralization. People who run their own “bank” (nodes), and who mine BTC, must agree on any change to the monetary policy. Unless it’s in everyone’s best interest, the change gets rejected.

23/ These properties of Bitcoin make it a pristine trust proxy for money, and sound, trustable money is the solution to myriad socioeconomic problems in the world today. It’s the ultimate credit score system, only it doesn’t favor the debt-driven economy of current credit scores.

24/ Prior to fiat, people’s wages rose w/productivity, personal wealth grew, & the workweek shortened. Those trends will return, and perhaps in time we’ll discover solutions to the other national problems. First we must fix the money, and Bitcoin fixes that.

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How Bitcoin Will Reshape Nations
This post is based on this twitter thread.

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