Scott Rosenberg is an editor at Backchannel.
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Understanding of Bitcoin’s mechanics remains in short supply. Even the most enlightened laypeople treat Bitcoin and its relations like the “here be monsters” zones on antique maps. Weird shit is happening out there! But the intricacies of the system elude even insiders. I’d wager that only a fraction of the people who currently own a collective $50 billion-plus worth of the digital currency could intelligibly explain what happened last week, when Bitcoin spun off a kind of mutated clone of itself called Bitcoin Cash.
Warren Buffett famously advised us never to invest in anything that we don’t understand. Bitcoin investors are paying Buffett no mind.
Of course, it’s not as if the workings of regular currency (what cryptocurrency devotees refer to as “ fiat money ”) are universally comprehended, either. How many people who spend their lives acquiring and spending US dollars fathom the logic of the Federal Reserve’s interest policies or the dynamics of interbank exchange rates?
The deeper you peer into the Bitcoin realm, the more viscerally you come to grips with the essential fragility of all money—the “consensual hallucination” that sits at civilization’s foundations. Money stores value only because other human beings agree to treat it that way. (You precious metals believers who are about to chime in, don’t crow—gold has no intrinsic value, either, beyond how much others covet it.) If the agreement shatters, so does the value.
But people who are betting their wallets—and, in many cases, their hearts—on cryptocurrency aren’t just wagering that confidence in these assets will solidify over time. They are also gambling that it’s 1994 all over again—that the slow mainstreaming of the internet will repeat itself with Bitcoin, Ethereum, and the rest of the cryptocurrency cavalcade, releasing a torrent of creative energy, innovation, and new investment that will make Bitcoin’s investors as wealthy as Web 1.0’s visionary entrepreneurs.
Maybe it will. Nonetheless, all the 1990s nostalgia that Bitcoin’s rise has kicked up conveniently ignores one giant difference between the era of Netscape and today. At the dawn of the internet era, it, too, was dismissed as “too complex for mere mortals,” and getting connected could sometimes be a technical obstacle course. But once you were there, it was relatively easy to join in the web’s fun. You could learn HTML code by reading a few pages of instructions and using “view source.” You could build your own web page in the time it took to drink a mug of coffee. That sparked a wave of popular participation whose impact we’re still feeling today.
Bitcoin and its blockchain-based underpinnings aren’t like that. They resemble the early web in that anyone can play and no one owns or runs the shop. But their daunting complexity limits participation. Their populist, decentralizing tendencies are outweighed by their concentration of power in a cadre of technical experts. “View source” only works if you can understand the source.
Cryptocurrency believers tout the “trustlessness” of their systems—the way they don’t rely on your willingness to put your faith in someone else. But they really just move the need for trust down the institutional stack, from the banks and governments that undergird old-fashioned finance to the wallet companies, developers, and miners who keep Bitcoin functioning today.
For a lot of enthusiasts, that’s enough: They’re happy that the new model is relatively open, and they prefer technocracy to bureaucracy. But there’s no guarantee that such ardor will be enough to carry Bitcoin over the hurdle of inscrutability and into popular acceptance. When events like last week’s fork remind people just how little they comprehend when it comes to how Bitcoin actually works, Bitcoin doesn’t have a lot to fall back on. The spirit of 1994 may not console investors facing losses they can’t even understand.
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