When comparing Bitcoin to traditional financial tech, people always notice that Bitcoin makes them think about security way more than they have to think about their cash or bank account. They feel that in the established system the security is “being taken care of”, while Bitcoin makes you worry about weird things like private keys or malware on your phone. For a normal person it seems like a downgrade; only rare crazy libertarians ignore all these difficulties because Bitcoin cannot me manipulated by “the powers that be”.
What many people, even bitcoiners, do not realize, is the fundamental relation of money to personal security. Not just how to store your savings or pay online safely, but in a big way: what money is and how it protects your health, wealth and sanity.
In a safe, certain world, where lightnings do not strike you in the head, crop is not destroyed by dry weather, computers do not have bugs and where people understand each other perfectly and always keep their promises, we do not need worthless tokens called “money”. We can simply agree on how we allocate our food, shelter, personal time and labor and from time to time adjust to new desires or conditions. I can go every day to the baker and take one bread, then go to my work and do something useful for someone else. Everyone gets what they could agree to and there is no shortage of anything. (And if there is, people help each other promptly and efficiently.)
But the world is far from being safe and certain. It is dynamic and unpredictable. And it is populated with people, who are even less predictable and many of them are greedy, selfish and untrustworthy. They have always been and probably always will be. In this world your bakery may disappear tomorrow, or your job may become irrelevant, or your house can catch on fire, or your friend may not hold his promise or someone may not lend you a hand when you are in trouble.
To address these issues, people invented money. As Richard Dawkins once said, “money is a formal token of delayed reciprocal altruism”.
Money is a virtual token that holds a speculative value. It can be a rock, a coin, a piece of paper, a promise from a bank, or a cryptographically signed abstraction. What matters is that it is rare enough, so if it is demanded, it can only be collected and transferred, but cannot be easily produced. If it can be produced to satisfy increasing demand, like bread, then it would only be good for direct consumption and be worthless as a collectible. Hence, it won’t be a token holding speculative value.
How does money help us? Money is a sort of a social agreement: when enough people value the token and ready to accept it in exchange for their services, then money becomes a measure of your personal security. When you can work, you can earn money and save it for later. When you cannot work, if you saved some money, you can buy yourself some food. If some accident happens, savings will save you: buy you a medical help, new clothes, shelter, MacBook Pro 15” to replace a broken one etc.
The more money you have, the safer you are. Money is not luxury. Cash flow is: if you earn a lot of money and spend all of it on your lifestyle, it says nothing about your security. Security is only how much savings you have at all times. The more liquid those savings are, the more security you have. If you own an expensive house, good thing for you, but you cannot efficiently trade it for something you will urgently need tomorrow. A briefcase full of american presidents, however, is very liquid and allows you to buy anything very quickly. (However, there’s now a problem with security of the briefcase itself.)
When you think about money as a way to insure yourself against starvation, illness, infections, bad weather, sluggish computers, shitty boss, ugly girlfriends and mob revolutions, you will see which properties of money are most important to you. First of all, the fundamentals should be strong: if demand for money stays the same, its value should stay the same. This means, your money should be sufficiently hard to produce or to counterfeit, so some wise guys do not dilute your personal security without your permission. Secondly, this money should be fairly easy to protect, for the exact same reason. If your security is way too expensive to afford, you are not secure. Wearable beads, shells, paper bills, small gold and silver coins are secure because you can hold them with yourself (a would-be thief would have to risk his ass being kicked if he tries to steal them from you). Finally, the money should be easily and cheaply transferrable. If it is not, then it’s like a house or a painting: a fine collectible, but a shitty insurance against running out of chips while enjoying nachos (https://xkcd.com/140/). That’s all properties that matter. And the history of money shows that humanity was consistently trying to improve on them.
People used local collectibles: beads, shells until they started trading globally. A more universal material then prevailed: precious metals. Then, trade became even more global and transaction costs needed to be lowered. Banking was invented. Trusted third parties enabled instantly transferrable money across the globe, fueling industrial revolution that created an unbelievable wealth on the planet: cars, robots, airplanes and free image hosting for internet memes. Unfortunately, this all was done at a huge expense: concentrating disproportionate amount of power in the hands of banks and governments resulted in the non-stop wars, worldwide economic catastrophes, and nonsensical restrictions on individuals. We have achieved a lot of things in the past few hundred years, but mostly despite of, not thanks to trusted third parties who have the power over our money. Now we finally have technology to solve the problem with trusted monetary authorities and achieve consensus on what money we want: even cheaper to protect, even cheaper to transfer and even harder to counterfeit. We have portable networking computers with every person, at all times, so we don’t really need beads, metal coins or paper bills. We can go all digital. And our computers are powerful enough and our mathematicians were smart enough to allow us to implement fancy cryptographical tricks to replace trusted authorities with independent and objective proofs.
The goal of Bitcoin is the same as the goal of money 75000 years ago: to protect the person against systemic risk of his environment. Against natural disasters, against his own faults, and against faults or malice of anyone around him. When you dislike Bitcoin for making you think more about personal security, it is only because you were ignorant to systemic risk and decades of exploitation of that risk. If you take a look at the whole picture, at the core concept of money, at all opportunity cost of trusted third parties, then you will realize that you might be better off if you could wear those necklaces of virtual beads yourself instead of you and all your neighbors giving up their security at the discretion of a small group of people who you don’t even know. It does not mean you would have to learn cryptography and math. But it means, that as more people take that path, more entrepreneurs will be there to improve the security and ease-of-use of this new technology. But the first step is to understand the fundamental problem of money and evaluate the old and new solutions with this new understanding in mind.
PS. You should read this masterpiece by Nick Szabo on concepts of “starvation insurance” and origins of money: