This is a part of the Bitcoin Infinity Academy course on Knut Svanholm’s book Bitcoin: Independence Reimagined. For more information, check out our Geyser page!

Slowly, Then All At Once

In 1869, Henry Heinz founded the Heinz Company, and a couple of years later, their now iconic (albeit slightly moronic) ketchup bottle was first introduced to the world. The bottle provides a perfect metaphor for how disruptive technologies spread over the globe. In the past, technologies were mainly mechanical and made up of physical stuff. This meant that producing them took time and, more importantly, that it took time for people to realize how their fellow man could improve his life by adopting the technology and thereby developing a personal demand for it. In other words, the process implied by Metcalfe’s Law took a lot longer than it does now, in an era where technological progress is mostly computerized and made up of bits and bytes rather than physical building blocks. Metcalfe’s Law states that the value of a communications network is proportional to its number of users, squared. For example, it took the automobile 62 years to reach 50 million users, while the same process took Facebook only 4 years. The credit card has been around since 1958 and it took 28 years for it to hit 50 million users. Improvements to the monetary system usually take longer for people to adopt than other technologies because they change societies at their very foundation, especially if the technology alters existing power structures and hierarchies since those at the top of the food chain will always try to delay any development that threatens their advantageous positions.

When all the underlying technology needed for a new innovation to take flight is already in place, things can go very fast. The mobile game Pokémon Go, for instance, had been downloaded by 50 million users only 19 days after its release. All the infrastructure needed for the word to spread about the game was already there, in everyone’s pocket. Bitcoin was first introduced to the world on January 3rd, 2009. It is impossible to know exactly how many Bitcoin users there are in the world because of Bitcoin’s pseudonymous nature, but it’s estimated that around 30 million people around the globe have at least some satoshis at the time of writing. Keep in mind that there’s no limit to how many wallets a single person can have and one single wallet could act as a custodial service to multiple different users. It is also impossible to know whether old, seemingly inactive wallets are just made up of lost coins or if their owners are simply hodling and not spending their funds. Eleven years may seem like a long time for an Internet-based technology to spread, but remember that Bitcoin had no marketing behind it whatsoever. It took the mobile phone twelve years to reach 50 million users, and this technology had a multitude of multinational corporations behind it, all pouring vast amounts of resources into marketing their own product more aggressively than their competitors. Bitcoin grows organically, which means that it relies solely on its users to educate their peers and spread the word about it. Some of the infrastructure needed for Bitcoin to flourish, like the Internet, was in place at its conception, but all of the yet-to-be-invented products, like hardware wallets, exchanges, steel tubes for private key protection, and Lightning ATMs, had to be invented by enthusiasts along the way. All of this while being constantly thwarted and opposed by those who stand to lose something from Bitcoin’s existence, namely banks and governments.

The very meta, indeed inter-subjective, world of the in-game virtual goods market has an estimated value of around 50 billion dollars at the time of writing. Compare this to the total market cap of Bitcoin at the time of writing: 130 billion dollars. None of these items have any so-called “intrinsic value” or use case outside the virtual worlds they exist in. This market shows no sign of slowing down either. Just this very niche economy alone is a huge potential use case for Bitcoin in general and the lightning network specifically. Imagine a world in which gamers could stake and earn real Bitcoin for their in-game efforts. The gaming industry moves quickly, and once they realize what this means, those 50 billion dollars will be added to the Bitcoin economy in the blink of an eye. Who in their right mind would prefer lousy Warcraft gold or Linden dollars to real, absolutely scarce satoshis?

Hyperbitcoinization is a concept that is highly theoretical at this point in time, but as the Bitcoin economy continues to grow, the likelihood that hyperbitcoinization will happen sooner or later increases exponentially. The exponentiality stems from Metcalfe’s law primarily, and there are a bunch of domino effects that could trigger such an event. As the domino effects will fuel each other, hyperbitcoinization will probably play out a lot faster than its opposite, hyperinflation, normally does.

The first of the domino effects is the Fear Of Missing Out, or FOMO, from both people and financial institutions. When prices rise, people think they’ll miss the opportunity if they don’t hop onto the train fast enough, and a bull run ensues. This has happened in Bitcoin many times before, and each time it happens again, attentive market participants notice that this might be a trend rather than a bubble. Sooner or later, some central banker and maybe a finance minister here and there will notice this, too, despite their incompetence in these matters. In a very short period of time, it will be obvious that nation states which embrace this technology will get richer at a much higher pace than those who try to fight it. This will, in turn, trigger a much bigger FOMO cycle. A cycle in which nation states try to out-Bitcoin each other whilst at the same time trying to fight for their own survival, as the by then astronomical Bitcoin price has effectively turned every individual that was ahead of the game and got in early into a sovereign entity of the same financial magnitude as some of the nation-states.

Another domino effect that could trigger hyperbitcoinization is the currency wars currently being fought by the superpowers of the world: the United States, China, and the EU. Their virtual printing presses conjure up more and more dollars, yuan, and euros out of thin air, causing extreme short-term instability and, eventually, significant inflation. This has happened to every other fiat currency that ever existed and it’s just a matter of time before it will happen to the ones in current use as well. Other central-bank-issued currencies might replace them, of course — the Euro is only twenty years old, after all — but every time this happens, the public will be a little more aware of the deceptive nature of fiat monies. There’s only one alternative to inflationary currencies in the digital realm, and as long as it continues to do what it does, people will consider reallocating their wealth to it.

It’s hard to imagine what a Bitcoin-denominated world would look like, but a natural effect of a more well-oiled free market and a more precise division of labor is that more and more people will be able to work less and earn more. It’s easy to underestimate how powerful these mechanisms are because we’ve never truly seen them in action on a global scale before. All we have are historical examples of different eras and places where an almost-free market has been available and the enormous riches that this has brought to the people living there. Hong Kong is one such example.

An inflation-free global economy would make every good extremely cheap but would, at the same time, remove the need for merchants to store a surplus of everything as they do now, as everyone would be less prone to buy frivolous things they don’t need because of the ever-increasing value of saving rather than spending. The velocity of money, which the currently dominant Keynesian economic theory holds as the most important metric in an economy, is only important if the market participants buy goods and services that make them more productive. In other words, it only works if people *invest *their money instead of wasting it on consumable goods. In a Bitcoin-denominated world economy, the total number of transactions per time unit would go down, while the number of unnecessary goods and services sold per time unit would go down drastically. In other words, the world would be a better, more effective, less stressful, and more environmentally friendly place.

Keep in mind that while it is true that Bitcoin is an experiment, the ever increasingly inflating, soon-to-be cashless, digital fiat monetary system is an even bigger experiment. Never before have the banks had such surveillance capabilities as they do now. All of your debit cards, all of your credit cards, and all of your banking apps are being monitored on a scale never seen before in history. Physical cash is being abolished around the globe at an ever-increasing rate. It’s becoming easier and easier for everyone to spend more and more every day. Merchants are increasingly required to implement KYC and AML policies everywhere. Savings accounts have negative interest rates, even if you don’t take inflation into account. Some banks require their customers to spend a certain amount every month in order to keep their checking accounts. The list goes on and on. What this does, apart from building a nightmarish dystopian surveillance machine, is putting up immense barriers for everyone outside the system trying to get in. Good luck getting a decent loan if you’re an ex-con, an undocumented refugee, a political activist, or even if you’re just unemployed at the moment. Even if you believe that your soul belongs to some deity’s supposed offspring, your ass belongs to the system as long as you stay dependent on it for your survival. So, how do we break the spell? How do we make our leaders change their minds and rethink the whole thing? It’s simple — we don’t. Because there is no “we”. It’s not them versus us. It’s you versus everyone trying to control you. It has always been. Are you in the driver’s seat or not? That’s the question. Red pill or blue pill? Your choice.

About the Bitcoin Infinity Academy

The Bitcoin Infinity Academy is an educational project built around Knut Svanholm’s books about Bitcoin and Austrian Economics. Each week, a whole chapter from one of the books is released for free on Nostr, accompanied by a video in which Knut and Luke de Wolf discuss that chapter’s ideas. You can join the discussions by signing up for one of the courses on our Geyser page. Signed books, monthly calls, and lots of other benefits are also available.