Are people not ready for bitcoin or bitcoin for mass adoption?

    My teacher on the subject “History of Economic Theory” very often liked to repeat one phrase: “Do not evaluate the thoughts of historical personalities as a modern person, try to become their contemporaries yourself and then you will understand the motives for the emergence of these ideas.” This was, although obvious, but practical advice, because the present time and the reality of the conditional 16th century are very different from each other. People had a different perception of reality, they lived in a different economic system and they had different material values. Studying this subject, I strengthened my belief that, regardless of the era, the behavior of most people is consistent with the spirit of the times and modern economic theory for them. Only a few offer something improved or more progressive, which over time is gaining new momentum.

    Money is dead, long live the money!

    In March 1973, the Bretton Woods system virtually ceased to exist, but the formal transition to the Jamaican system occurred only in 1978. The gold standard was canceled and we entered the era of fiat money, which, according to Wikipedia, “is supported by the belief of people that they can exchange them for anything of value.” Thus, the current monetary system (officially) has existed for only 40 years, but people are already so used to it that for many it is the only true one.

    For the most part, modern economists adhere to existing economic theory, either because of the lack of incentives to develop new ideas, or because of the intolerance of central banks to dissent. Political economists generally propose minor “improvements” as problems arise, such as a quantitative easing policy after the 2008-2009 crisis, which has increased countries' debt levels.

    An ordinary person is becoming more and more immersed in a consumer society and the convenience of using money is more important to him, rather than their fundamental basis. Cash, cards, Paypal and other services - all this is used depending on what is most convenient at a certain moment. Many people do not care what the money is provided for, because they can exchange them for valuable goods for them at any time, as a result of which an illusory trust is formed in the current monetary system.

    As a result, people's perception is so distorted that it is difficult for them to accept the fact that the entire monetary system in fact is based on faith alone. It makes it fun to hear phrases that “bitcoin is not provided with anything”. At a subconscious level, we already perceive fiat money as an unchanging given and we ourselves assign the right to money management to the central bank. This is very similar to how the people at one time perceived royal power and the right of the monarch to govern.

    When it comes to money, people have a very short memory

    Few people monitor their daily expenses, because we pay for something several times a day. We hardly notice moderate inflation, only when the prices of the goods we need “suddenly” become high. We almost forgot about the Italian lyre, German brands, Spanish pesetas, although they existed 16 years ago. All of them were replaced by the euro, which has been used in everyday life for only 20 years, although the feeling is already being created that it has always been.

    Even crisis situations are only an echo of past years. The 1990s were a time of devaluations - the British pound, the Russian ruble, the Italian lira and many other currencies were going through hard times. Not so long ago, the Turkish lira fell for 22 years in a row, by 40%, then by 80% per year. Over the past 30 years, Argentina defaulted three times and is approaching the fourth. After the 2008 crisis, most of the countries of Eastern Europe devalued their national currencies by one and a half times.

    From the relatively recent, it is enough to recall the history in India. In 2016, Indian Prime Minister Narenda Modi spontaneously declared that all large denominations of 500 and 1000 rupees, which accounted for about 86% of the total cash flow, became invalid. It was supposed that this would help to overcome corruption in a short time and make people pay taxes, because only 2% of citizens pay income tax .

    But instead of solving problems, India was faced with national indignation, massive queues and absolute chaos in banks, as citizens rushed to exchange their suddenly invalid money. Street vendors could not normally sell their goods, because 98% of payments are made in cash. The rich still continued to evade taxes and began to buy diamonds and jewelry in order to save their money. So one decision in the current monetary system can affect the lives of millions of people.

    Queue in India for currency exchange.

    Less than a year later, the experiment was found to be unsuccessful and 99% of the banned currenciesback into circulation. The prime minister wanted to transfer the country to cashless payments and digital payments in a short time, but the Indians were against such a sharp transition and the distrust of the state apparatus increased even more.

    Despite all these examples, many people are still ardent fans of fiat currencies and stubbornly do not notice the whole story of the eternal depreciation and unexpected political decisions. Even the current crisis in Venezuela will be quickly forgotten, as well as jokes about a hundred trillion Zimbabwean dollar bill.

    People practically cannot make any conclusions from crisis situations and continue to live by inertia, only slightly transforming their reality. Most likely, the first argument will be the question: “What are the alternatives?” At least diversification. Not only currency diversification, but also for all assets. Probably, few people bought gold before and after the crisis of 2008-2009, because it is not as convenient as currency exchange. At that moment, did you or your family have a financial airbag that you could rely on? Do you have it now?

    Let's say no. Its creation may seem complicated to someone, out of place and, of course, uncomfortable at the moment. And we don’t like the uncomfortable, so we are translating this question into the category of “Unimportant”. Is it justified?

    Oh brave centralized world

    We are so closed in our world that we are surprised at the contrast between human values. After watching the film “The Man” by Jan Arthus-Bertrand, you begin to understand how different perceptions of reality can be in people. Someone does not have arms, legs; someone is blind, serving a life sentence; someone cannot move along the street without fear, believe in whom he wants, choose with whom to communicate; someone lives in a cycle of violence, and someone in an economy where money turns into a meaningless piece of paper. All these people have different values, goals, desires and you are lucky if you have not encountered such a thing. Therefore, how can a person with a completely different perception of reality tell the other what he really needs?

    Daniel Jeffries in hisAn article about the main feature of cryptocurrencies described why the attitude to centralized structures and fiat money depends on perception:
    “Imagine that you live in Syria right now. Your centralized infrastructure is destroyed, no one can prove that you had money. You do not want war, but you cannot do anything about it. Your house is no longer there, your friends and family are dead, your banks are being bombed. You are an outcast, homeless, penniless and out of control of your life. Worse, nobody cares about you. The world has moved from open borders to building walls everywhere. You are not expected anywhere, you cannot stay where you are, and you are broken.

    But what if your money was still there, written on the blockchain, waiting for you to set your deterministic wallet, specify the correct passphrase to recover it? How much easier would it be to start a new life? ”

    Power holders and many wealthy people live in a “normal” centralized world, where most of the things work properly, and one of the main problems is the interest on the loan. Many do not see the need for technology support, which can be useful in such a situation, as they are confident that it will never happen to them. They basically see what is close to their perception and system: money laundering, tax evasion, terrorist financing and so on. Therefore, the issue of regulating cryptocurrencies for them is not a matter of protecting the system from possible collapse, but a matter of protecting the system from familiar problems.

    For an ordinary person from the “normal” centralized world to pay attention to cryptocurrencies, they must give him either financial gain or even greater convenience. Not finding any of this in this, this technology becomes practically meaningless for him.

    Crisis situation forces a person to change perception

    Therefore, it is not surprising that cryptocurrencies received support from the population in such countries as:
    • Venezuela with its hyperinflation;
    • Turkey and South Africa, which faced a new wave of devaluation;
    • China, where there is strong capital controls;
    • India, due to distrust of the government after the story in 2016.

    The inhabitants of these countries had objective reasons to lose faith in the current monetary system and move on beyond the wall, towards cryptocurrencies. It’s clear that there are a minority of such people, the rest simply put up with the consequences, but this already suggests that they are looking at cryptocurrencies as an alternative.

    Curiously, the first mention of the use of fiat money in Europe was also a crisis. During the Spanish siege of the Dutch city of Leiden in 1574, the inhabitants of the besieged city had neither metal coins nor leather, which was sometimes used to replace metal money. Therefore, the townspeople decided to use paper, from which they made a temporary replacement for metal money.

    Leiden Gyuza's revenue

    After Leiden, they tried to introduce unsecured money in Sweden and the USA, but they quickly depreciated quite quickly to the cost of the paper on which they were created. There was no faith that is now . Paper money began to be introduced, which was secured by certain assets, but not all of them were successful. For example, after the first paper money was issued in Norway, people did not understand what it was and why they should use paper instead of valuable metal.

    For people who have long lived in the era of gold and silver, paper money will be an inexplicable curiosity. How can plain paper be equivalent to a silver coin? Why is this “piece of paper" conditionally worth $ 10, and another $ 2? Because it says so? For the human perception, some fundamental foundation of money was important, not the practicality of their use. The addiction and trust in the new payment method was formed gradually until it turned into an unconditional acceptance. E-money has gone the same way, and now cryptocurrencies can also go.

    Universal belief in revolution is already the beginning of revolution

    Most of the changes in the monetary system were consolidated through the ruling stratum of the population, and the people adjusted to innovations. Fiat money, the use of gold and silver coins - all this appeared in an evolutionary way and became ubiquitous by the will of the authorities, not the people. The monetary system has constantly evolved into one that can offer a more convenient form of payment and can satisfy a growing economy.

    The idea of ​​cryptocurrencies has not yet been fixed and, on the contrary, is revolutionary, because the transformations began among the people, and the government adapts to innovation. Therefore, it is not surprising that the revolutionary spirit and rhetoric are inherent in the cryptocurrency community. Some crypto enthusiasts are against state regulation, the introduction of rules and norms for users, and this seems partly justified, since the system has failed more than once.

    All this leads to the fact that current cryptocurrencies have only two paths to mass adoption - evolutionary or revolutionary. Or, the authorities will recognize cryptocurrencies as a new form of money, they will develop this idea and contribute to the creation of a monetary system based on blockchain technology. Or a certain economic collapse should occur, which will finally reassure people of the reliability of the current system, and then the power will be transformed. The only question remains: are the cryptocurrencies themselves ready for such changes?

    Imagine what happened, which many revolutionary-minded representatives of the cryptocurrency community want - the fiat money system crashed. The world saw a new economic crisis that is more devastating than the Great Depression of the 1930s, the oil crisis of 1973 and the crisis of 2008-2009. Many lose their jobs, banks and companies close, panic is everywhere, and there are lines in stores. People are trying to understand how it happened, who is to blame and what will happen next, they become very politicized, superstitious and timid. A guarantor in the form of a state monetary system has lost its authority and for many, faith in national paper money has been completely lost. In order to somehow save your money, you, like millions of others, start buying gold, cryptocurrencies or trying to find some other alternatives. Yes, it is no longer comments on the forum and not prophetic articles, all in reality. Well, fun cleansing with a flame?


    And now the question is: what next? Will people learn how to distribute money without central authority? Accustomed to full control over your money? Will we jointly, through universal voting or competition, constantly formulate flexible rules in a dynamically developing system? And this is considering that each person has his own experience, knowledge and perception of justice? Will this absolute democracy not turn into a universal manifestation of the herd instinct in decision-making?

    Yes, over time you can get used to everything in the world and it is not worth excluding such an outcome, but all this looks too utopian. Although during times of change and crisis situations people are prone to collectivism and self-organization, can a centralized person quickly evolve into a decentralized person?

    It is unlikely, because we always shift the responsibility for certain things to other people. This has already become an integral feature of human psychology, and the reason for this is our centralized worldview. For example, we solve many everyday problems through centralized structures. The state, individual institutions and figures often act as the scapegoat and the culprit of all universal problems. For many, a state or other manifestation of power is a necessary evil. Therefore, human power in one form or another will still remain, even in a world where public consensus is at the core.

    The power of three

    So we got directly to cryptocurrencies. Given the technical condition of Bitcoin and other coins, they are unlikely to become a full replacement for fiat. The problem boils down to the “Holy Trinity” (decentralization, security, and scalability), in which you most often can focus on two points out of three. In the current economic system, priority is given to security and scalability, and decentralization, although present to a certain degree, is not a matter of primary importance.

    Bitcoin, on the other hand, underpins security and decentralization. It is Bitcoin, not cryptocurrencies, because most of the altcoins are not really decentralized. Yes, their network can carry out thousands of operations per second, developers can quickly innovate and change the blockchain in case of problems, all this is cool, but at the cost of decentralization.

    Altcoins are not much different from fiats, because they have a single point of failure in the form of a founder, a core development group, or a company in general, like Ripple. I understand that if this statement may seem controversial to someone, but bitcoin does not have a single point of failure and, to paraphrase Jimmy Song , if a whole group of developers gets caught by a bus, the system will continue to develop normally.

    Due to the similarity of many altcoins with centralized structures, they can be more easily adapted to the current system, but apart from privacy, they offer little to change the status quo. The same Ripple does not deny anything to itself, it works directly with banks and financial transaction agents. That is, it looks like a regular IT company, but with a cryptocurrency solution. Because of this, the XRP token is rather a digitized personal product that can be used as a means of payment. If the Fed digitizes the US dollar, won't it be the same as the XRP?

    Bitcoin, on the contrary, due to its distinguishing feature, suffers from a long update period and low scalability. According to Jonas Schnelli, one of the leading developers of Bitcoin Core,a bitcoin client does not have such a thing as a roadmap . Each developer is free to decide in which direction to move. However, the more developers work on one thing, the sooner the innovation will be released. This situation is now with the implementation of the Schnorr signatures, which are also designed to improve scalability.

    For the most part, the most discussed suggestions for improving bitcoin are precisely those that increase the scalability of the network - butching, SegWit, Lightning Network, MimbleWimble and others. Developers are trying to make the Bitcoin network possess all three necessary qualities - decentralization, security and scalability.And while Bitcoin will not possess them sufficiently, then there can be no talk of any mass adoption .

    Remember the Charmed series of the late 90s and early 2000s, in which there were three witches and to defeat a strong demon they needed the so-called Power of Three. So, something similar is necessary for bitcoin, if it wants to become a full-fledged alternative to the current monetary system.

    The power of three

    Convenience? No, I have not heard

    If you compare the process of buying bitcoin now and 5 years ago, then it has become much more convenient and simple. I can buy bitcoin using my bank card with a relatively low commission, paying with my national currency, and my bank will think that I am making a normal purchase on the Internet, and not doing some dubious business. The whole procedure takes several minutes. Cryptocurrency purchased on the exchange is sent to my Bitcoin wallet, access to which I can even have from my smartphone. In the future, I can conduct transactions at any time from the most convenient device for me. It would seem that there is no convenience problem, take and use bitcoin in everyday life, but not everything is so rosy.

    The problem begins with a transaction. After indicating the address of the recipient and the commission for the transaction (and it is good if the wallet told me the optimal amount of commission at the moment), we confirm the transaction with a digital signature and go into standby mode. Depending on the network load and the size of the commission, a transaction can take from several minutes to a couple of hours or even a day.

    Given that we live in a world where people whine that a web page has been loading for more than a second, a “modern person” would immediately begin to spit or worry if the transaction takes more than a few minutes. The person in the subject understands that the nodes must check and distribute the transaction, then it falls into the mempool, where it essentially competes with other transactions for the attention of the miner, after which it is included in the block and it is carried out. The average user is deeply ... no matter what happens and how it happens, he wants it here and now and the reasons for the delay in the transaction are not very important to him. At the same time, the user always has the feeling that everyone owes him.

    Another issue is the average commission. Now it is less than $ 1, thanks to some of the above technologies, which are designed to improve scalability, as well as relatively low user activity. But if December 2017 is repeated again, when people began to actively make transactions, and the cost of bitcoin flew to the moon, then the commission will be monstrously high. At the end of December, the average transaction fee reached $ 55. Now imagine what will happen if the above economic collapse occurs and people flee to the crypt en masse?

    Bitcoin Commission

    Yes, the solution to the issue of scalability should save us from all these problems, but there is another important aspect. All the current convenience of the Bitcoin purchase process has very big sacrifices. This is a triangle of “privacy, trust and security” in the context of bitcoin wallets and cryptocurrency exchanges.

    My example of a convenient Bitcoin purchase is possible thanks to a regular centralized exchange and an online wallet, which for the most part have none of this triangle. Do you want privacy? Find an exchange or wallet on which you do not need to leave your data or establish yourself a full node. Do you want to trust third parties? Validate your network, i.e. set a full node. Do you want security? You can try using hardware wallets or somehow strengthen the protection of private keys. Ah, well, set a full node, just so as not to go around twice.

    As you can understand, this is not very convenient and an ordinary user is unlikely to download almost 200 gigabytes of information to make transactions. Only a person for whom privacy is more important than convenience will do this. Therefore, the average user may not appreciate all the opportunities that Bitcoin provides, simply because something else needs to be done.
    In general, people don’t go to Bitcoin en masse simply because the whole process of interacting with it is difficult for a modern or, what is tricky, lazy person. A bunch of new terms, a bunch of some obscure gestures to perform seemingly simple things.

    And in truth ... it’s just great , because the relatively high entry threshold gives developers time to solve technical problems, for example with the same scalability.

    In the footsteps of Orwell

    Some people, especially those for whom privacy and security are more important than convenience, call bitcoin “good” technology. Almost a light that can lead us out of the gloomy tunnel of modern reality. Some crypto enthusiasts like to draw some utopian stories in which we will finally become free from the shackles of the existing system, and the monetary mechanism will be fair, as there will be no bias among individual participants. In short, everyone is equal, there are not enough unicorns.

    Yes, in technical terms, the technology is not bad, but this does not mean that the consequences of its use will also be good. This is a very one-sided view of things. Technology is a knife, and you cut a tomato for a salad, or you decide another person is up to you. Any utopia can turn into a dystopia if the person holding the knife has a different perception than yours.

    All this to the fact that if the government begins to regulate cryptocurrencies, actively develop this idea, then the massive adoption of bitcoin is also in question. We can find ourselves in a world of the ubiquitous centralized blockchains, where the authorities will have much more control and information about each person. A sort of script in the style of Orwell, which was partially presented by Weiss Ratings.

    Bitcoin can have quite strong opponents in the form of national cryptocurrencies. This is not a team of developers who came to the ICO with a cool idea and wide functionality, but a whole state apparatus that has unconscious support from the people in the form of centralized thinking. In this case, Bitcoin will also remain a niche product “for its own”, which is important for privacy. But if it is more convenient, understandable, simpler and will not have problems with scalability, then high competition for the user is ensured.

    So is bitcoin not ready for mass adoption or people?

    Both. We are too accustomed to the cult of convenience that is being promoted now, and we are not ready to reorient ourselves to the new system, where it is necessary to act according to other rules. The concept of decentralization and the lack of a single point of failure, which can be blamed, is unusual for the average user.

    Even taking into account all the advantages, a modern person will prefer a more convenient rather than a secure system, so until a decentralized network provides the same level of convenience as a centralized one, we will not see mass adoption. Well, or it is necessary to change the consciousness of society, which will not be a very quick procedure, even in a severe crisis.

    Of course, we can still talk about the massive adoption of bitcoin under the guise of replacing gold as an intersubjective means of preserving value. Then the question of scalability will no longer be so acute. Roughly speaking, bitcoin lacks only faith and stability to replace gold. In relation to gold, the Lindy effect acts in the minds of people (if something has been popular for several thousand years, then it will most likely be popular for several thousand more), but this does not apply to bitcoin. One way or another, I think this is a question for a separate article.

    It is important to understand one fact. We look at cryptocurrencies as contemporaries and do not know how successful the technology will be in the future. Electricity, cars, telephone, Internet - all these technologies were underestimated at the beginning of development. And perhaps now we are again condescending to what can radically change our lives in one direction or another.

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