Five thinking principles I learned from the discovery of Bitcoin as a teenager
The story of a discovery. An intuition that changed how I look at and value things.
Hello! This is Cloud Vertigo, a lifelong learning journey. Welcome to the 20 and something readers that have joined since last week. Feel free to share it with anyone you think might like this. Enjoy the ride!
Last time I left you on the hook for a story. It’s the story of a discovery, but more importantly an intuition that fundamentally changed how I look at things. I bet many will have a similar story to tell. This is where it all has started from…
Things happen where you’d least expect them. It’s over ten years ago. The main character of our story is a nerdy teenager. He spends way too much of his spare time in front of a computer. In the afternoons after school, he endlessly explores the corners of the internet. He browses for hours looking for anything that excites his feverish curiosity. I cannot recount where and when exactly he encounters for the first time two strange electronic payment systems he has never heard of: one is Liberty Reserve, and the other is an obscure “Peer-to-Peer Electronic Cash System” called Bitcoin.
He dives deeper. Liberty Reserve looks like a shady website that does its bookkeeping on a MySQL database. The value of its Liberty Dollars is granted by the belief that its team will not run away with your money. Not unlike fiat dollars, they are only as good as the trust one puts in the issuer’s reserves. Liberty Dollars have a good use case and product-market fit (allowing criminals to launder money around), but are worthless in themselves. Today, it is just a seized domain name.
If one asks around in the streets, the majority of people still will think something along these lines about Bitcoin today, which feels to me incredibly frustrating.
Find an idea that sounds ridiculous enough to be interesting. When the teenager discovers Bitcoin for the first time, it’s immediately clear to him that it’s a whole other story. He digs up the original white paper and skims through it quickly. A broad understanding of the idea of a peer-to-peer currency is sufficient for him to realise he has found something very new and interesting. He does not follow the details of the validity of the argument, his thoughts are already racing.
Unleash your curiosity freely. This way, he began to question the concept of money. What if money wasn't just limited to the central bank-issued currencies we are familiar with? What if digital currencies could exist without an issuer? And what if a trusted third-party was unnecessary in transactions? When he wants to explain the idea to his friends, his excitement is extremely effective in inviting brutal criticisms from all sides. What sounded immediately obvious now lacks a rigorous argument to withstand the trial of his rowdy peers.
Appeal to fundamental intuitions. The most convincing argument he finds online is philosophical in nature (I cannot recall the original source, but this is roughly how I remember it).
It starts by asking: what is fundamentally a currency? It breaks down the concept like it was a mathematical definition. We may take away all the associations we commonly and intuitively have with money and try to look at it “in itself”.
A currency could be defined as a social convention made of three things:
A name. A unit of denomination, a symbol, for example: “Euro”, “GBP”, “$”.
A ledger. A set of accounts with associated balances, representing a distribution of the units across the accounts for each moment in time.
A transaction mechanism. A method to update the account balances from one moment in time to the next that grants each account holder the exclusive possibility to transfer out of it.
To own money is equivalent to having the exclusive possibility to spend it. If somebody else can transfer out of my account without my consent, they better own that account too. That’s it.
Bitcoin solves this puzzles in a decentralised, trustless and permisionless way. It features:
An openly accessible and verifiable ledger distributed to each network’s participant,
The keys for each account. In order to update the ledger, participants sign uniquely the transaction to prove it’s them and only them who control the entry in the ledger.
The conclusion is very simple, if it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck (📚Pierce, the principle of Abduction).
If a digital currency can work just like a currency, what stops us to say it’s a currency?
Allow ideas to fully unfold. The consequence of this argument is that value doesn’t come necessarily from the trust in an institution, but it derives from collective affordances. Money doesn’t need the government or the law; it comes from a consensus among most market participants that the thing works as designed. It’s the reasonable expectation that things will work out as one expects that drives collective action.
It is not just decentralised currencies’ value that is created organically. Trust in someone is just one way to build reasonable expectations. As Liberty Dollars’ value is dependent on its team and databases, the Pound had value in virtue of trust in the King’s army and vaults, and the current banking system trusts its mainframes’ databases’ stability and security.
Recollections
If there is one thing I learned from reviewing this story is that looking at two things and realising they are “in some way” the same thing is one of the most powerful principles we have for creative thought and sourcing investment or strategic ideas. As an aside, this mode of thinking is mentioned in a very enjoyable recent podcast and article by psychologists Selligman and Kellerman Cultivating the Four Kinds of Creativity (Harvard Business Review). The authors call it “Integration” and along it they showcase three other kinds of creative thinking patterns. It’s a very abstract, but highly recommended conversation.
Pick your values. Ultimately it’s focusing on the relevant properties that matter the most. Liberty Dollars are also “in some way” the same thing as United States Dollars: they both depend on trusting their centralised issuer. Does this mean one may rewrite the previous argument to conclude the value of Liberty Dollars? No, the structural and functional properties you focus on must be chosen wisely. The choice of focus is yours and free.
Rejecting traditional authority and making judgments based on what is, rather than what has always been, requires a lot of bravery in the individual and the capacity to think outside of the box. It is always a radical, almost heretical act.
“If you don't believe me or don't get it, I don't have time to try to convince you, sorry” (Satoshi)
To sum up, here are the five takeaways from the story.
🤔 Things happen where you’d least expect them.
💡 Find an idea that sounds ridiculous enough to be interesting.
💭 Appeal to fundamental intuitions.
🚀 Allow ideas to fully unfold.
🔥 Pick your values.
Thanks for reading along! I’d love to hear all of your comments. Send me a message!
In the next chapter, the teenager goes on to pitch his intuition to his uncle, a smart and successful tech executive…