March 19, 2024 | Read Online

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"As too in the case of food, we do not right away believe things that are scarce to be absolutely more pleasant than those which are abundant."

- Philodemus, the Herculaneum scrolls

Mo Monies, Mo Problems?

Bitcoin was originally conceived as internet money: "A purely peer-to-peer version of electronic cash," as Satoshi described it in the first sentence of his white paper.

This turned out to be a slog. It's hard to be both expensive enough to be valuable and cheap enough to be sent in small increments.

So, bitcoiners pivoted away from being a medium of exchange and towards being a store of value — a more easily achieved aspect of the monetary premium that gives money value.

Rebranding as "digital gold" has been a great success: Bitcoin's entire $1.2 trillion market cap is attributable to its monetary premium.

Seeing that success and needing a narrative of its own, the Ethereum community embraced the meme of "ultrasound money."

This similarly sought to achieve a store-of-value monetary premium for ETH, but from a different angle — ETH became a productive asset when it started burning transaction fees.

It's been a mixed success.

The Ethereum network is doing a lot of transactions, but it's not burning a lot of ETH: Even the current rate of elevated activity equates to an annualized burn of just 0.9%.

It doesn't feel like there's much upside to that either (with everything happening on layer-2s), so the narrative around ETH's value proposition is shifting again: Instead of being money because it's a productive asset, ETH wants to be money simply because people hold it.

That might work!

Lots of people hold ETH for a variety of reasons like DeFi, NFTs and (most hopefully) no particular reason at all.

But the competition is increasing.

In addition to digital gold and ultrasound money, we now have "modular money" (TIA, DYM), "AI money" (WLD), "ZK money" (MATIC, apparently), decentralized money (eUSD) and "memecoin money" (SOL).

(OK, fine. I made that last one up, but I'm confident it's going to catch on.)

It seems like every new token wants to be money and that makes perfect sense to me: It's far easier to be money than it is to make money.

Why bother building something productive when you can just meme your way into a monetary premium?

I'm not sure it's quite as easy as that, but with so many aspirants claiming money status, we should soon find out.

Can new cryptocurrencies get big by becoming money?

Or do they become money by getting big?

You have to start somewhere

Per the quote at the top, we learned from the Roman philosopher Philodemus that scarcity does not create value.

But we've learned from Bitcoin that the meme of scarcity does.

It's been an historic achievement: Bitcoin is (I believe) the first money since gold to simply meme its way into existence.

Bitcoiners like to say that fiat currencies are memes too, but all fiat currencies (that I know of) started out backed by some collateral (usually gold) that gave people a way to measure their value (or by being pegged to another currency that was originally backed by some collateral).

Once a currency becomes widely accepted as money, however, the collateral is no longer necessary.

That doesn't mean the currency is then worthless, as hard-money types will argue — it just means that the free-floating currency has acquired a monetary premium.

This is the party trick that would-be crypto monies hope to match.

The best bull case for ETH, for example, might not be the ultrasound-money narrative of higher transaction volumes leading to more tokens being burned.

Instead, it might be that people get so in the habit of holding ETH for whatever reason (gas, staking, NFTs) that they forget why it was meant to have value in the first place (transaction fees).

This would be the best possible outcome because new monies only hit escape velocity when people forget why they were meant to have value.

For the US dollar, that forgetful moment was 1973.

The dollar still has some intrinsic value in that it's required for paying taxes in the US, but that's not the reason it was able to abandon the gold standard.

By 1973, the dollar had become a unit of account (everything priced in dollars), a medium of exchange (everything paid for in dollars) and, yes, a store of value (from one month to the next, it would buy approximately the same amount of stuff).

Dollars were intrinsically useful by that point, so they no longer had to be collateralized by anything, gold or otherwise.

It usually takes decades, centuries or even millennia to become money by achieving that kind of monetary premium.

But crypto is famously speedrunning the history of finance, so it's reasonable to expect it to happen faster for aspiring crypto monies, as it did for bitcoin.

That might not be the best precedent to go by, however — I doubt that the OG crypto is a repeatable phenomenon.

Instead, aspiring monies might be better served by studying the history of fiat, where new monies have to be backed by something before they can grow their way into a monetary premium.

It might be ETH paying real yield or SOL being the unit of account for memecoins or WLD being the means of exchange for a universal basic income.

Or, it might be something else no one's thought of yet — but new tokens will likely have to give people some reason to hold them before people start holding them for no reason.

Crypto increasingly wants to get big by becoming money, but it's more likely to work the other way around: They will become money by getting big.

― Byron Gilliam

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