Game of Coins
Johnson Jose Mathew
Crypto Marketer | Marketing Manager @VirgoCX | Organizing Team @Defi Toronto | Guest Speaker | Schulich MBA | CSC?, CPH?, IDSC
Chapter 1: The Old Gods – The Macroeconomic Headwind
In the beginning, there were the Old Gods in the Game of Thrones universe. They were believed to permeate throughout existence, manifesting as animals, birds, trees, rocks and rivers. Economics is like that. It is a social science that permeates through our perceptions of reality and manifests itself in our behaviour and actions.
We are not predictable though. Our behaviour and actions change and evolve over time and so does economics. Economic models, however, often mistakenly assume that these behaviours and actions are undertaken by rational and predictable humans. Time and time again, this could not be proven wrong more. Every market crash brings our irrationally exuberant nature to the forefront and economists scramble to work on a new model.
The 1900s were riddled with World Wars bringing about drastic changes to the world order. Amidst this time of volatility and uncertainty, there were two prominent figures whose description of our human nature foreshadowed the arrival of cryptocurrency as we know today. One is an economist, Friedrich August von Hayek, and the other is a prolific writer, Eric Arthur Blair, who authored Animal Farm and 1984. We know him by his popular pen name, George Orwell.
F. A. Hayek is best known for defending classical economics in his intellectual quarrel with John Maynard Keynes. To provide some context here, much of the financial and economic world before the 1900s ran without the intervention of governments. People bought and sold as they liked. This led to a robust economy supported by classical economic principles set forth by Adam Smith, the father of capitalism. One of the tangible indicators of this is the full employment of workers.
However, the Great Depression of the 1930s left a lot of people unemployed for a long period of time. There are many theories as to why this happened but there was essentially two ways to deal with it:
The governments loved Keynes and his ideas. They started printing money and spending it on industries that consolidated their power. What that means is that they started spending money on companies building defence infrastructure, firearms, bombs, and what not. People were getting employed by these companies and the revival of the economy stoked everyone’s excitement.
Hayek advocated otherwise. He claimed that this “revival” of the economy was artificial. His line of reasoning went something like this:
But who cares? The World went ahead with Keynes’ ideas.
Nevertheless, Hayek continued to defend it and preaching against a world where the government had this excessive control over our economic lives. In his book, The Road to Serfdom (1944), he laid out the prediction that empowering governments with control over the economy will cause them to eventually exert full control over our lives, something that dictators are infamous for. We will have no other choice but to serve the interests of such a government.
Hayek’s contemporary, George Orwell published the book, Nineteen Eighty-Four, in 1949, after having fought in the wars against Communism. He laid out the idea of a dystopian Orwellian state. The fundamental problem in an Orwellian state is not whether the government is communist, dictatorial or democratic. The fundamental problem is the total control of the government, no matter what form it is, over society, to the point where the independent thought process is prohibited and there is no privacy due to mass surveillance. Government propaganda is now the truth and anyone caught thinking otherwise is corrected (i.e., tortured).
In his later years, Hayek described two kinds of order in society – An organization and a spontaneous order.
The argument here is that, if we, as a group, have a specific goal such as profitably running a restaurant, or hunting animals, or even creating jobs, we can achieve it most effectively by creating an organization to fulfil that purpose.
However, what about something like the economy and money? There is no specific goal to it. Instead, each of us have our own interests and our own goals which depend on money and the economy. Maybe one of us wants a good savings rate at the bank while another wants to convert his dollars into gold. Maybe one investor wants to spend his dollars internationally, while a local entrepreneur want access to cheap funding. In a context like this, it would be ineffective if someone were to control the economy and money to fulfil their own goal(s). Instead, everyone should be able to pursue their own goals using money and the economy. The result of their collective action would form an effective spontaneous order. To this end, Hayek argues for the denationalization of money. A centralized money-controlling government cannot account for the goals of everyone and would, thus, be ineffective.
Chapter 2: The New Gods – The Cypherpunk Movement
Hayekian economics and the dystopian Orwellian state propagated two core ideas that led to the formation of the Cypherpunk movement:
The tool required to achieve both of these is cryptography.
Most of us understand that cryptography allows us to encrypt emails, chats, etc. and keep them private. Go a step further, think more deeply.
This privacy allows us to develop our own thoughts, even if they are critical and unpopular, without being punished for it. That is a deterrent to the dystopian Orwellian state.
If you want to freely spend money in pursuit of your own goals, cryptography preserves your anonymity in doing so. The result is a more effective spontaneous order of the economy that is not controlled by a centrally planned government entity.
In other words, if we believe that we have a right to think and act independently, we will need the right to privacy to enforce it.
This movement was made possible by advancements in cryptography research thanks to Whitfield Diffie, Martin Hellman, Ron Rivest, Adi Shamir, and Leonard Adleman.
The ideas were developed, fought for and built upon by various members of the Cypherpunks movement including none other than Satoshi Nakamoto, the founder of Bitcoin.
Yes, Bitcoin did not appear out of nowhere. And neither is it the first cryptocurrency.
Bitcoin is just an inflection point in the success graph of the Cypherpunk movement. It was inevitable.
Chapter 3: The Great Houses – The Microeconomic Culture
Fast forward to today, we now have tens of thousands of cryptocurrencies worth billions of dollars sparked by the success of Bitcoin.
However, we should refrain from seeing it that way.
Cryptocurrencies are inherently tools to enforce our right to privacy and in turn, our rights to think independently and pursue our individual goals as we see fit.
A sufficiently decentralized cryptocurrency network is censorship resistant and unrestrictive. It will inevitably lead to a robust spontaneous economic order.
Not every cryptocurrency is created equal. While most articles you come across talk about the underlying technology, I’m going to go even deeper and talk about the social layer that underpins the technology.
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The social layer or the community that rallies behind a cryptocurrency is its inherent value.
The technology is not.
Let me explain. Anyone can create a copy of the blockchain technology and even modify it. It’s open source.
However, that copy won’t be worth anything unless you have a community who:
When a cryptocurrency network is valued at billions of dollars, it is essentially the community that is valued at billions of dollars.
The ideological reasons for the existence of different currencies can be thought of as different subcultures akin to the different Great Houses in Game of Thrones. In this issue, I will be covering only seven of them.
1.??Fiat regime – House Targaryen
House Targaryen conquered and assumed control over the Game of Thrones universe thanks to their dragons. Their dragons allowed them to single-handedly force the submission of rebels to their authority, dictate who gets to rule over the lands on their behalf and even, inbred extensively in order to confine power within the Targaryen family. Unfortunately, this extensive centralized control utterly disregarded the interests of those outside their family. Eventually, they were brought to their doom as they lost their dragons and the other houses rose up in rebellion.?
The Government-owned US dollar system is very similar. It assumes control over much of the World economy thanks to its reserve currency status. Those in control of the US dollar printing machine enforce the regulation of other cryptocurrencies. They dictate who gets the most benefits of the dollar system which so happens to be wealthy individuals and large corporations with close ties to the government. They even confine power within the system by making it difficult for the poor and outsiders to be a part of the system and access opportunities to accumulate wealth. Eventually, this extensively centralized system is destined to its doom because it simply cannot anticipate and accommodate the needs and goals of everyone in the World.
2.??Stablecoins – House Baratheon
House Baratheon was loyal to House Targaryen since inception until the Great Rebellion, led by Robert Baratheon. His betrothed was abducted by a prince of the oppressive Targaryen dynasty. Even though the Baratheons weren’t great rulers, they were, however, more diplomatic to the other houses. Each of the Baratheon brothers laid claim to the Iron throne.
Stablecoins such as USDT, USDC and UST attempt to be pegged to the US dollar since inception through various arrangements. That is, until, those arrangements fail. Even though they aren’t known to be “stable” per se, they are however, more compatible entering into contracts with other cryptocurrencies than government controlled CBDCs (Central Bank Digital Currency). Each one of the different stablecoins claim to be more legit than the others, even more so when one of them fails to hold the peg to the US dollar.?
3.??Bitcoin – House Stark
House Stark upholds honour like no other house on this list. The Starks are a happy bunch together and don’t actually mix well with members of other houses. Their motto, “Winter is Coming”, is a warning that humanity should prepare for the long night where white walkers would come again and attempt to wipe out the human race. They strongly support the Night’s Watch as the deterrent.
The Bitcoin camp is like that. They are happy with other Bitcoiners and while they acknowledge the presence of other crypto communities, they solely believe in Bitcoin. They warn against government control of the economy. Such control leads to total surveillance and authoritarianism. They are staunch advocates of privacy as the deterrent.
4.??Ethereum – House Lannister
House Lannister is the wealthiest house thanks to its gold mines. The Lannisters are also a clever bunch whose ambitions know no bounds. They don’t just store their gold but they also use it well. Even the crown resorts to the Lannisters for borrowing money. They are associated with the motto “A Lannister always pays his debts”.
Ethereum is the wealthiest cryptocurrency network thanks to the cumulative value of all the tokens on it such as Ether (ETH), other fungible tokens and NFTs. Vitalik Buterin, revered as the father of Ethereum, and his family of developers and researchers have been clever in developing Ethereum so that it would not just store wealth but also act as a worldwide computer that anyone can use and build applications on top of it, bound only by their imagination. Borrowing and lending protocols don’t default and debts are always repaid.
5.??Cosmos – Free Cities of Essos
The Free Cities of Essos are a bunch of sovereign independent states under no central authority but share the same continent, its resources and trade freely among them. Each of them develops their own unique culture and forms of security.
The Cosmos ecosystem allows software teams and their applications to be independent, set their own laws and run their own economy. Applications can seamlessly interact with other applications in the ecosystem and easily trade resources with them. They are, however, solely responsible for their own development and security.
6.??Binance – House Tyrell
House Tyrell rules over the Reach. It is a vast region with fertile plains and a bustling population. The Tyrells are naturally wealthy. However, they have wavering love-hate relationships with the other houses. You see, their allegiance lies with whoever they thought were likely going to dominate. Before the Great Rebellion, they swore their allegiance to the Targaryens because they thought that the rebellion would be crushed. Afterwards, it was the Baratheons. Later, as the Lannisters seemed to dominate the throne, the Tyrells proposed marriage alliances with them.
Binance is very similar. They have onboarded a vast number of users onto crypto and are cash-rich. However, they have wavering relationships with various governments and cryptocurrency groups. While they are respected for their accomplishments, they aren't exactly trusted by many.
7.??SEC – Night King & White Walkers
The White Walkers were created to hinder the occupation of humans on the lands of Westeros. However, they were uncontrollable and sought to destroy every living being.
Gary Gensler, the SEC chairman and his army of litigators, although tasked with monitoring the development of the cryptocurrency space and keeping it in check, often resort to destroying several promising projects before they even get a chance to innovate and take off.
So, which house do you belong to? Let me know.
Bibliography (Highly recommend for further knowledge - includes videos as well):