The Bitcoin Experiment


The PreludePosted by Stan Chang Khin Boon on January 15, 2015

We techies are infamous for our obnoxiousness and it’s not hard to see why. We detest existing solutions and claim to have better ones for everything. We felt we could and should disrupt everything; Tearing everything down and building everything from scratch. It’s our way or the high way.

Bitcoin in a lot of way is the embodiment of this attitude. It’s novel yet naive in many ways.

In the past 2 years, we’ve saw Bitcoin astronomical rise to a peak of US$1,242 in November 2013 and then fallen freely to the bottom of US$172 as of yesterday. If Bitcoin is a roller coaster ride, it’s easily the world’s scariest.

Technically speaking, Bitcoin definitely an innovations. Regardless of what happen in the future, I believe it’s impact will be felt for many years to come. It is a great experiment, probably the greatest economical and social experiment of the 21st century thus far. What make this experiment so glorious is that it’s real, open and sandboxed, free to roam in unchartered waters.

On the other hand, the finance industry is not as uninnovative as we hope they are. To innovate often means to experiment, to experiment means there will be failures. Over the years, we’ve seen the financial industry fail and fail again. The incentives to “experiment” and “innovate” are so high, the cat and mouse game between the regulators and the industry players keep on replaying and the revolving doors of the prison cells keep on spinning.

The failure and greed of the finance industry had irked us and certainly bred a level of mistrust. But trust in the financial system on the other hand is at the highest level in human history. Yet they are no stranger to such mistrust, it has been their nemesis throughout the human history.

As human civilization made progression, our financial system evolves to satisfy our growing economical needs. Ideas like fiat money, floating currency and central banks emerges. Deposit insurance were then made possible. They are layers of protection to prevent a total collapse of the financial system. They were built in response to past crisis. The current system is the resultant of many iterations over thousands of years. This financial system run the global economy of 7 billions and counting, it’s unimaginable large in human scale. There’s really a lot to appreciates. That’s how trust in the system accumulates.

Sure there’s room for improvements. The 2008 financial crisis still fresh in our memories. Many of us treats Bitcoin as if it is the solution to the crisis, only to find that the many problems it’s facing now (and in the past) is exactly what the financial system had solved. Its not hard to see why we came to this conclusion, the idea that crises shape and evolve the financial system for the better is counter-intiutive to many.

Even though I’m pretty convinence that Bitcoin’s will have an impact on the next iteration of the ever evolving financial system but I have to say, the financial system is going nowhere.

The financial system is designed with economy and scale in mind, while Bitcoin is designed to mimic precious resources like gold, making devaluation difficult. I would hypothesize that Bitcoin is our response to quantitative easing. As counter-intiutive as it sounds, the financial system is built on trust through economical sustainability, while Bitcoin is built on mistrust, to encourage value hoarding.

Thus, the Bitcoin community I have seen fails to recognize the important of trust in finance. Not just trust between computers, but trust between humans. Like the 1990s and 2000s where the software industry fails to recognize the important of simplicity and good user experience. The next Steve Jobs of the cryptocurrency one who understand these by heart. For a currency to thrive, it need a sustainable level of human trust.

There’s a lot to celebrate about Bitcoin and what we have done but Bitcoin is not a replacement to our existing financial system. It is, or will be if it haven’t, part of the system. The rise and fall of Bitcoin’s price while alarming, is part and parcel of the on going Bitcoin experiment. It’s kind of exciting to see it in the running, although I’ll dread experiencing it first hand.

Bruce Lee once said,

In great attempts it is glorious even to fail.

I wouldn’t even remotely consider the Bitcoin experiment a failure but it’s definitely glorious.

P.S. This opinion post is derived from the comment I made at hacker news, you can find the original comment here.

Bitcoin Charts in 15th January 2015” by Coinbase / Crop and Darken from original