03/22/2024, Till Musshoff
Imagining A Hyperbitconized World - What Is Hyperbitcoinization And How We Get There
Hyperbitcoinization - the concept where Bitcoin overtakes fiat currencies as the global standard. What are the impacts on nation-states, privacy, and individual financial behavior?
Hyperbitcoinization is the idea of a demonitization event of all fiat currencies in parallel to the black hole of Bitcoin sucking up the monetary premium of all asset classes. In simple terms: Bitcoin winning big time. How can it happen and what does a hyberbitcoinized future look like? Let's find out.
This article is based on my video about Hyperbitcoinization
The Bitcoin Black Hole
Bitcoin has been described as a black hole. And this comparison is quite fitting. Black holes have a so called event horizon - a point of no return. Anything that reaches this event horizon is unable to escape the gravitational forces of the black hole and gets sucked to the center of it with.
Hyperbitcoinization is reached at Bitcoins event horizon. At this point the gravitational forces of Bitcoin are so strong that you can't do anything but capitulate and use bitcoin, no matter how much of a critic you are.
This is a historical lesson of immense significance, and should be kept in mind by anyone who thinks his refusal of Bitcoin means he doesn't have to deal with it. History shows it is not possible to insulate yourself from the consequences of others holding money that is harder than yours. - Saifedean Ammous
Hyperbitcoinization means people abandoning all fiat currencies in the presence of Bitcoin. This demonitization of fiat through Hyperbitcoinization functions similarly compared to a demonitization through hyperinflation. The key difference is that the first one starts and ends with a voluntary transition from individuals and that the second one is state controlled. Daniel Krawisz, who wrote about Hyperbitcoinization in 2014, explained it as follows:
Hyperinflation is an entrepreneurial act on the part of government, in the sense that it involves a continually changing intervention that prevents an equilibrium from forming. The government must continually alter its own behavior to stay ahead of its people's. The moment they begin to anticipate its future policy, the government must change the policy by increasing the rate of inflation. Hyperbitcoinization is a voluntary transition from an inferior currency to a superior one, and its adoption is a series of individual acts of entrepreneurship rather than a single monopolist that games the system. - Daniel Krawisz
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Now the question is, have we already passed this event horizon? You could argue for and against it. You could even make the case that the genesis block in 2009 was the event horizon. At this point in time bitcoin was "turned on" and never ever got turned off again.
Or maybe the critical point was the release of the white paper? After all Bitcoin is an idea and
Nothing is more powerful than an idea whose time has come. - Victor Hugo
Bitcoin has proven to be bulletproof. It has been declared dead hundreds of times, but it's still here, creating a new block every 10 minutes on average.
There’s no flesh or blood within this cloak to kill. There’s only an idea. Ideas are bulletproof. - Alan Moore, V for Vendetta
The event horizon of bitcoins adoption could also be described as a tipping point from early adopters to mainstream users as I explained in a former video about crossing the chasm and supercycle.
The future is already here - it's just not very evenly distributed. - William Gibson
The chasm is used in S-curve adoption of technologies- It's bridging the early adopters and early majority of users. The phenomenon of gradually, then suddenly. And adoption of new technologies is getting faster and faster. Bitcoin and Lightning are growing more rapidly than the internet did. The huge advantage is that the physical infrastructure for the network to operate is already in place.
The path to hyperbitcoinization is driven by incentives and game theory.
Transitioning to a world in which Bitcoin is your medium of exchange and unit of account is, as explained before, a voluntary process of all the actors involved. It's a free market choice of many individuals, which, guess what, is the only way to have an ethical, natural money.
The historical selection of gold, silver, and copper was not made through some sort of a social contract or convention. Rather, it resulted from the spontaneous convergence of many individual choices. - The Ethics of money production, Jörg Guido Hülsmann
We may call any kind of money that comes into use by the voluntary cooperation of acting persons “natural money”. - The Ethics of money production, Jörg Guido Hülsmann
Unsurprisingly:
In no period of human history, has paper money spontaneously emerged on the free market. - The Ethics of money production, Jörg Guido Hülsmann
Luckily no monetary system stays forever and no reserve currency for eternity. Especially not a fiat currency since they have a 100% failure rate throughout history. So maybe it's time for a new monetary standard? The Bitcoin Standard.
In my opinion there are four crucial elements to get to a Bitcoin Standard.
1) Number Go Up Technology, which is the incentive to get involved. Wether you are an individual, a cooperation or a state. You simply don't want to be the last one to adopt Bitcoin, because you miss all the appreciation and the applications of the open network. It's Game Theory 101 - NGU and the existing network effects turn Bitcoin into the Schelling Point of money.
2) Education - In which I hopefully play a part. A basic understanding of the why, what and how of Bitcoin is mandatory for adoption that goes further than speculation. I stated before that those who understand and believe set the lower floor of bitcoins price. This floor keeps rising during the microbubbles we experienced, because more and more people join the space, educate themselves and never leave again.
3) UX improvements - I remember a quote and I don't know who said it, but it goes like "We are marketing Bitcoin as if it is the iPhone of money, when in fact it's the Linux of money at best". And this is very true, but at the same time changing in front of our eyes. Compare lightweight wallets like Phoenix, Bluewallet or Muun from today to those from 10 years ago. For mainstream users (compared to early adopters), a product has to work frictionless and foolproof, otherwise they are not interested.
4) Fostering a circular economy - What does it mean? More and more people actually earning bitcoin, to then spend it. This is necessary, because no one would buy a product with bitcoin if before that they need to change their dollars into bitcoin, pay a fee and have a waiting time, before doing the purchase. So the circular economy is vital for Bitcoin to be a Medium of Exchange.
A Hyperbitcoinized World
Let's assume we get all of these things done and Hyperbitcoinization actually happens. What do I believe a world will look like on a Bitcoin Standard?
Nation States will shrink. Saifedean Ammous calls this the Swissification of the world. Switzerland has a small, and not even central government, and a small central bank. They sticked with the gold standard much longer than the rest of Europe and ended up being in the top 5 of the richest countries in the world.
Privacy will just get better and many transactions will be taking place over cyberspace without a jurisdiction getting a share. Wether you like that or not, think taxes are good or not, this is quite inevitable and was thoroughly predicted in 1997 in The Sovereign Individual.
You cannot tax unless you can compile records and issue receipts. - James Dale Davidson
When technology is mobile, and transactions occur in cyberspace, as they increasingly will do, governments will no longer be able to charge more for their services than they are worth to the people who pay for them. - James Dale Davidson
This is more of an effect of the internet itself, but gets reinforced stronger through bitcoin. To me that's extremely positive, because it forces governments to become efficient.
Reducing a government's ability to finance itself also results in making war expensive and bitcoin obsoletes the military protection of the petrodollar.
Like counterfeit aggry beads and panos, counterfeit dollars are also used to mobilize military efforts, which (before fiat) required explicit taxation or borrowing to finance. Socialistic money is the stealth funding source of evil: it has been used to finance every dictator, world war, and internment camp in human history. In the 20th century alone, fiat-currency-funded-governments murdered over 169M people — a modern mega-atrocity called democide. - Robert Breedlove
The most import change is happening on an individual rather than nation state level. Low time preference instead of high time preference. A fully adopted sound money like bitcoin creates a less uncertain future which makes it easier to plan for the future instead of discounting the future through high time preference thats fostered by inflation of Fiat currencies.
Here a common misconception is that people stop spending all together, because of this lower time preference, which is kind of ridiculous if you think about it. There is no point in hoarding money forever until you die. Of course you still buy things, that's what money is for. You buy food to eat and products and services you want.
A sound money also enables accurate pricing mechanism, as free market money doesn't manipulate price signals like central banks do through their mandate for stability. Functioning pricing mechanisms are absolutely key as they are the information system of capitalism.
This inevitably also leads to less moral hazard induced by inflation.
Honest money encourages righteous action, and dishonest money induces moral hazard. - Robert Breedlove
I also really like the idea of Bitcoin becoming the 8th base unit of the world. The unit for value. After all it's the first and only time we have an unchangeable, verifiable amount of money. And money is how we store and transfer value across space and time.
An interesting question is what the price of a bitcoin would be in case it becomes the dominant monetary force. However predicting the price of bitcoin in a Hyperbitcoinized world is not really possible, because in the suddenly phase of Hyperbitcoinization all fiat currencies would rapidly devalue as less and less people want to hold and use them. So if you say a bitcoin is worth a billion dollars that wouldn't mean much, because what is a billion dollars in terms of goods and services at that point? I've seen calculations between 1M and 100M per Bitcoin for the event horizon of Bitcoins black hole.
How realistic is hyperbitcoinization and the end of fiat? I think it's not completely unrealistic with a long enough time frame, but there are many other ways how things could play out.
One way would be a multicurrency hierachy with Central Bank Digital Currencies, some backed by bitcoin like described in Nik Bhatias excellent book Layered Money. In the first step Governments could still use their own currency locally, but settle with BTC globally instead of using the US Dollar, Yuan or gold.
I don't have a final opinion about how it's all going to happen. Humans are pretty awful at predicting big events anyway, so I'm just gonna wait and watch. Imagining and speculating what could happen is fun though.
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