Bitcoin: A Beautiful Corrupted System
Bitcoin is an exponential growth technology
If you look at the market capitalisation and adaptation, its growth has been exponential since its inception.
Facts are facts!
Bitcoin is not a Ponzi scheme either.
A Ponzi scheme is when someone invests capital in the promise of high monthly returns.
Such returns are taken from the capital that new investors provide to the scheme, distributed through the pyramid.?
As long as the pyramid grows, the monthly dividends are paid until a lack of new capital injection unfolds the scheme.
In that sense, Bitcoin is not a Ponzi scheme.
There is no central player collecting monies from investors and distributing them throughout the pyramid in monthly returns.
If one still has doubts about the validity of Bitcoin, the fact is that the technology is real, the math works, and the open-source code is visible to anyone.
Facts are facts!
However, Bitcoin is more than blockchain technology, open-source and maths.
We cannot summarise the complexity of financial systems in the same way as a fairytale story produced by Walt Disney Studios.
Yet, this is what Bitcoin Believers fall for.
A Beautiful Corrupted System
Have you watched the movie “The Wolf of Wall Street”?
The movie is about the story of a Salesperson who operated on Wall Street selling penny stocks in the promise of high returns.
Leonardo di Caprio plays the role of that Salesperson, whose real name is Jordan Belfort.
Jordan had a gift to persuade people, and as he started to be successful, he created a company generating hundreds of millions of dollars.
He hired young people with little to no qualifications but trained them using a system by the name “Straight Line Persuasion” (SLP).
The system he designed was beautiful, making all sales look the same regardless of the buyer’s objections or the product or service being sold.
He trained those young people each day in 2 or 3 hours of motivational sessions, turning them “as rich as the most powerful CEOs of America”.
SLP System contains many elements in the Science of Persuasion
But while SLP was a beautiful system of persuasion, Jordan corrupted it.
To the point that he ended up losing everything - his family, money and freedom - in a matter of minutes while being arrested by the FBI.
He reached his “Zero Multiplier”.
Due to his lack of self-mastery and the sole ambition to be rich quickly, he turned a beautiful persuasion system into a corrupted one - ended up using it to manipulate others to invest their retirements in highly risky assets.
Bitcoin is equally a beautiful system.
But it has turned into a corrupted one.
It is corrupted because it is no longer a “noble solution” to solve real issues that we have with the centralised financial system.
Obviously, I’m not saying those who invest in it are corrupted.?
We don’t need to have a large percentage of bad players to corrupt a system.
LIBOR manipulation is a good example of that.
It was enough to have a group of few bad players corrupt the entire system worth hundreds of trillions of dollars.
And just because Bitcoin is “decentralised”, it doesn’t mean to be immune to market manipulations & scams.
We live in an era of overloaded information, and many Bitcoin investors are trying to get as much information as possible.
And with so much information available, people tend to follow a few “Bitcoin gurus”, end up making decisions that are far from being independent but rather on the belief of what others are going to do.
That has little to do with analysing fundamentals and using critical thinking but rather driven mainly by the “fear of missing out” - no longer related to the “noble cause” of improving the financial system to be trustworthy and fully integrated with the real economy.
In my previous newsletter, I wrote some points on how Bitcoin can be magnifying certain problems instead of solving them, and I will write more about that.
There are also serious questions to address on the alignment of Bitcoin and ESG conscientiousness
?My hard question to any Bitcoin Believer is the following:?
Is your belief in Bitcoin aligned with your values & principles? Or instead due to the fear of missing the opportunity as you watch the price go up?
Now you might be asking yourself...?
"What is this guy talking about?! Mixing values & principles while investing? What is this ESG stuff anyway?!"
More on that later...
The False Narrative Of “Neutral” Technological Innovation
Back in the years preceding the 2008 Financial crisis, there was a belief of the “invisible hand” that would correct the markets, eliminating the concerns of bubbles or structural distortions from its “fundamental value”.
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Markets knew better.
Highly technical people were then concerned with the coding of mathematical models.?
Everything made sense because “the mathematics says so”.?
That belief of the “invisible hand” and the laissez-faire philosophy underlying it was the group narrative at the time - together with the belief that investors, on average, make rational decisions.
A similar narrative is used in the era of “exponential growth technologies”.
This time, the belief is that technology and innovation are “neutral” - as long as it is supported by mathematics and coding, it is up to society to absorb the changes - that being neither good nor bad but rather just part of evolution.
The underlying philosophy is that somehow, technology itself is independent of humanity and does not reflect our bias & flaws.
The belief is that technology is neutral, and it is up to the consumer to determine if it can be used for good or evil.?
Regulations, consumer protection and any level of supervision by authorities backed by the Governments are often seen as ways to slow down innovation.
Such underlying believes that started in Wall Street in the early 2000s have been absorbed by Silicon Valley in the early 2010s.
Whether it is the “invisible hand” or “neutral technology”, technical people place too much trust in “mathematics & coding”, with a complete lack of understanding of human behaviour, let alone the complexity of the systems that they are trying to change.
If you are going to take anything from this newsletter is the following:
Financial Systems and Exponential Technologies reflect the bias & flaws of human nature - regardless of whether they are modelled by mathematics or coded in Python!
Yet again, this is a message that technical people fail to understand because all they care about is to check “numbers & coding”.
From Technical Expertise To Conscious Leadership?
Bitcoin Believers think that as long they are creating innovative “neutral” technologies, society will absorb the impact in one way or the other.?
That regulators will eventually come with solutions to prevent bad players from manipulating the system.?
That the government will act to impose a fair taxation system on profits.?
That somehow things will “stabilise”.?
But what they fail to understand is that this is a game played between “exponential growth technology” and institutions that are still operating in a “linear way”.
Such institutions are either highly bureaucratic, operating through laws that no longer make sense or simply unable to capture the interest of bright young people who prefer to join the industry that offers “exponential growth”.
Bitcoin Believers provide exponential growth projections yet are unable to understand the complexity of the problem they are dealing with.
The sustainability of the system, the integration with the real economy and all intricacies that exist in the Financial system.
We live in unique times of “exponential technological growth”, but equally times of “complexity in intertwined systems” - take the example of Global Warming or Covid-19.
To solve such complex problems, one cannot adopt a simplistic mindset.
There are two dimensions to take into account:
Having exponential thinking with a simplistic one is a dangerous combination.
"Exponential thinking" is, by all means, an evolution in human thinking capacity.
But we also need to consider how such exponential growth is integrated with complex systems, as otherwise, we are more likely to create new problems than solve old ones.
And that “complex systemic thinking” is the basis of creating sustainable systems, aligned with the 17 United Nations Global Goals.
These UN goals have been widely used by certain entrepreneurial communities and more recently adopted by the financial industry in the form of ESG conscientiousness.
Conclusion
In summary, from the one-dimensional "exponential thinking" perspective, Bitcoin sounds like a great idea.
However, as one starts to enlarge the perspective to include "complexity thinking" and “sustainable systems”, many hard questions arise.
And as one adds the component of human psychology into the equation, the picture is bleak with considerable flaws and a ruthless implementation without considering side impacts and feedback loops.
Bitcoin believers are so focused on the elegance of the solution that they ignore the obvious questions.?
It is not simply that they do not know how to answer them; they do not even see them.?
They do not ask, “Where is the trust?”?
They do not ask, “How does it work?”
They do not ask, “Who will use it?”
They just hope that these problems will go away.
Nuno Reis
Former Bitcoin believer turned into a Bitcoin sceptic.?
Opinions expressed here are on my own.
#bitcoin #cryptos #esg #esginvesting #consciousleadership #futureofbanking #futureoffinance