Bitcoin, the Internet and Your Keyboard

Is Bitcoin adoption across the world fast or slow?

It looks pretty quick. It took Bitcoin just 12 years to reach a trillion dollar market cap. Much faster than Microsoft, which took 44 years, and Apple, which took 42 years. But this comparison does not make much sense as it treats Bitcoin as if it were a company and values ​​each bitcoin as if it were a share of this company.

Bitcoin is not a company, nor are bitcoins shares. Bitcoin is an open source protocol that maintains a completely new system and monetary asset in a decentralized way. In the beginning, bitcoins didn't even have a price. Either they were mined or distributed via faucets. Growing organically, Bitcoin has not followed any business plan. Its monetization was not immediate nor was it coordinated by any committee of investors or managers. It was made for the use of its users and developers, and occurred at the same time as government currencies degraded.

That's why a comparison like this Bitcoin x Big Tech Company can deceive us. To evaluate the adoption of Bitcoin, we have to be aware not only of the type of good we are comparing, but also of the ruler we are using. With base money inflation, the nominal price increase is more a function of the devaluation of government currencies and not precisely the value of a given good.

Easy and abundant money is looking for somewhere to stay and not lose its value, and in recent years it has chosen the big technology companies for this purpose. Google, for example, took “only” 21 years to be worth a trillion dollars, but that happened because it is much younger than Apple and Microsoft and it took a recent period in which the dollar began to degrade more quickly by causes expansionary monetary policy of central banks. This makes it easier every day for something to be worth a trillion dollars, just as in Zimbabwe it was easy to find trillionaires of Zimbabwean dollars. Soon we will also see US dollar trillionaire individuals.

What is the consequence of this? Because it is absolutely scarce and part of a global, uninterrupted and liquid market, Bitcoin monetization works like a central bank mine canary, as Peter Thiel recently said. Bitcoin quickly absorbs the monetary premium of assets used as a store of value, warning when something goes wrong with government money much earlier than other assets.

An example. As of March 2020, virtually all of the world's central banks have expanded their monetary bases with alarming speed. A great debate arose. Many correctly said that this would create a widespread price increase. It was just wait and see. Politicians and central bankers, defending the measure, first said that it would not generate inflation because “demand was repressed”.

As soon as prices started to rise, they changed their minds and said that this increase was only transitory as it was caused by the interruption of global supply chains imposed by sanitary measures. Now that at the beginning of 2022 the American consumer price index (CPI) reached levels that it had not reached for 40 years, it is Putin's fault and the war in Ukraine that has just started.

We don't see any government official or economist (they both seem to be pretty much the same thing these days) pay attention to the fact that 43% of the dollars in existence today were printed in the last two years and that this is the most relevant cause for the price increase that we are seeing at the moment.

Two years went from “temporary” price increases to wartime inflation, and only now does the general public seem to be waking up to the serious problem of the erosion of the purchasing power of government currencies. While this whole narrative was unfolding, the average price of bitcoin in dollars was already a sign that this economic phlebotomy would soon cause a general increase in prices in other sectors. We are just at the beginning.

If Bitcoin is not a technology company and if its price is constantly influenced by the dilution of the value of coins, what should we compare it to and what would be a good metric to evaluate its adoption? An interesting path is to see Bitcoin alongside the dissemination of digital protocols, such as the internet itself. At the beginning of last year, Willy Woo elaborated a metric crossing on-chain and brokerage data, concluding that Bitcoin would be at that moment, in February 2021, with the same number of users that the internet had in 1997, that is, with approximately 135 million users.

The most impressive thing is that, comparing year by year, Bitcoin would be growing faster than the Internet itself. At the same pace, Woo predicted that, in just 4 years, the number of Bitcoin users would jump to 1 billion people, the same as the internet had in 2005.

Why is Bitcoin being adopted faster than the Internet itself? One hypothesis is that it is piggybacking on the already open paths and infrastructure of other networks. Because it is accessible over the internet, it is much easier for someone to buy some satoshis, even more so with the popularization and proliferation of decentralized markets and exchanges. This makes Bitcoin reach the hands of billions of people around the world much faster, who can easily buy and transact satoshis with their cell phones and computers.

Another hypothesis for faster adoption of Bitcoin is that there is a great cost in not adopting it or adopting it later. The incentives around digital money seem stronger and more immediate than the incentives to get online. After all, the price of Bitcoin is daily and uninterrupted evidence of the opportunity cost of not having at least a few satoshis saved for some time, while the costs of not connecting your business to the internet were more opaque and only started to appear later (fewer customers , fewer contacts with distant suppliers, less access to products, etc.).

We tend to think that technological progress is constant and that we always adopt the most advantageous technologies, but this is wrong. Many societies are slow to adopt certain better technologies or, for social and political reasons, end up adopting a technology and then abandoning it. Take a minute now to look closely at your keyboard. Have you ever stopped to think why he distributed the letters that way and not in another order?

The keyboard we use is called Qwerty because it is the acronym that we extracted from the six letters from left to right of the top row of the keyboard. It was designed in 1873 to make typing less efficient by employing various tricks designed to force typists to type as slowly as possible, such as spreading the most common letters across all rows of the keyboard and concentrating them on the left side, forcing right-handed people to use their weaker hand.

The explanation for this counterproductive feature is that the typewriters of 1873 jammed if adjacent keys were struck in rapid succession, so manufacturers had to slow down the typists. On manual typewriters, each key is mechanically connected to a lever that has an inverted image of a letter. If a typist pressed two keys on the same side of the keyboard in quick succession, the second lever going up would hit the first one going down and the keys would stick together and the typist would have to stop typing and let go of the keys. The Qwerty layout was a smart design that minimized this problem.

When improvements to typewriters eliminated jamming, experiments with a more efficient keyboard showed that we could on average double our typing speed and reduce our effort. A famous alternative is the Dvorak keyboard, which promises a greater efficiency of no less than 74%.

But not always the best solution is the one that works. By the time alternatives were proposed, the Qwerty keyboard was well established, and invested capital, represented by millions of typists, typing teachers, typewriter and computer manufacturers and sellers, stifled all moves towards an efficient keyboard for more than 60 years. In the end, the costly and time-consuming option won out.

What lessons can we draw from this story? Think of our backward and slow Qwerty keyboard as government currency. Both are an inefficient solution that emerged from a problem that has already been overcome, but that still persist due to the numerous interests and network effects involved. Just as it seems intuitive for us to type on a Qwerty keyboard, it also seems intuitive for us to measure the price of goods in dollars, reais and yen, even though these are outdated ways of measuring, transferring and storing value.

I don't think government currencies will survive for long. In a way, the very project of a central bank digital currency is already a confession of failure of the government currency, since they do not even fall into the category of currency. But our Qwerty keyboard is always under our eyes to remind us that interests and habits rooted in a bad solution can be strong enough to stagnate us.

This entry was posted on the substack by Guilherme Bandeira