Digital Scarcity and the Crypto Mindset

Why I believe the Bitcoin mindset is better.

Introduction

The real innovation Satoshi Nakamoto brought upon this earth in 2009 was true Digital Scarcity. Before that point there wasn’t a real way of having a scarce form of ownership of any data. If I have an MP4 film, I can send it to Alice for no cost, and now we both own the film. There’s no limit to how much this could be propagated.

The Innovation

Through the blockchain, the proof of work consensus mechanism and a reasonable issuance schedule, Bitcoin achieved this scarcity. I can’t send you Bitcoin and also still keep the Bitcoin, the network makes sure that you can’t have more BTC in a transaction’s output than its input. This is enforced by thousands of nodes all around the world. If a node tries cheating, the other nodes cut it off. If a miner tries cheating, the nodes reject their block.

This property of true scarcity along with the speed, ease and programmability due to being digital makes it an amazing form of money. Being able to send a store of value across the world in an instant is a real innovation.

The trouble is that the technology alone isn’t enough to truly keep this scarcity. So long as we have a crypto mindset we’re opening ourselves up to potentially infinite backdoor monetary inflation.

Crypto Mindset

“Crypto mindset? What are you talking about?!” The crypto mindset I speak of is essentially a view that all (or most) (or more than about 1-3) cryptocurrencies/tokens are valid and should be taken seriously. Sure, perhaps each individual token has ‘amazing tokenomics’ which you think will make the token scarce over time and will take your wallet to the moooon. But what if there are dozens, hundreds or thousands of these and there are constantly more being released?

The price of these tokens are determined by supply and demand. With the crypto mindset lens you can look at this a couple of ways. The conventional way is perhaps: if a new token comes along, the demand for the old token will probably drop which will lower the price of the old token and raise the price of the new one. Another way of looking at this is that all the distinctions are a little irrelevant or at best the cryptos are put in categories where the buyers want A crypto but they like trying different flavours, seeing what’s new. It’s like being at an ice cream shop, if a new flavour comes out, the supply of ice cream increases. so in the overall ice cream / crypto market there is enormous inflation.

The Solution

So what is needed to maintain digital scarcity if the technology by itself isn’t enough? A cultural enforcement of certain cryptocurrencies, in my case I’m extremely pro Bitcoin (not to say I’m extremely anti all other cryptos, I intend on one day to try and wrap my head around the ever increasing complexity of Ethereum). If someone is looking for a cryptocurrency that specialises in being good, solid money there’s no point giving an ever increasing list of all of the projects that on paper have a good security model and good issuance schedule. This is because the list itself removes these properties of scarcity. Just say Bitcoin, MAYBE Monero if they need privacy but Bitcoin is probably best to say 99% of the time.

Conclusion

My worry is that like the universe, crypto could just keep expanding (supply), with the heat (demand) dissipating along with it until we reach the heat death of the universe. Let’s not do that.