July 16, 2024 | Read Online

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"Humans control the world because we learned to trust one another."

— Yuval Noah Harari

Trust matters

History's first known currency is thought to be barley, which was used in ancient Mesopotamia from around 3,000 BC as both a unit of account and means of exchange — a seminal first step away from barter-based economies and towards market-based ones.

The advantages of this first big monetary innovation must have been immediately clear: Barley was readily available, storable, highly divisible and you could eat it if you had to.

(Or turn it into the new beverage they'd invented — "beer" — and drink it with friends, as pictured above.)

But barley money was also cumbersome to transport, was of variable quality and perishable.

That made it ill-suited for use in anything but small, local economies, so barley soon gave way to silver, which, being less cumbersome and non-perishable, served as a better "store of value" — the third of the three-prong definition still used to categorize things as money today.

More importantly, this second big innovation in the history of money supported bigger, more complex economies by making trade over longer distances possible, thus enabling larger transactions and encouraging savers to lend their excess capital to borrowers.

But metallic coins are neither weightless nor infinitely scalable, so our economic systems would eventually outgrow these as well.

This is why Yuval Noah Harari believes that the greatest innovation in monetary history was the third big one: the introduction of fiat money.

The financial history of the world, as Harari sees it, can be understood as the evolution from "currencies of distrust" like barley and silver, to "currencies of trust" like fiat.

"What we've seen over the last centuries," he said in a recent interview, "is that it's a good idea to give banks and governments the ability to create more and more money in order to build more trust within society."

This is heresy to crypto types, of course, who believe that allowing governments to print "more and more" money is the root of all financial evil.

For Harari, though, "the whole purpose of money is to create trust between strangers" — and that makes bitcoin, a currency of distrust, a step in the wrong direction.

Instead of opting out of the banking system, as bitcoiners would have you do, Harari wants you to opt in — the banking system, he says, creates "trust between millions of strangers who can then pool their resources together and cooperate on shared projects."

This framing attracted a lot of exasperated responses from bitcoiners, many of whom made the reasonable counterargument (here and here, for example) that by cutting distrusted governments out of the equation, bitcoin should (in theory at least) enable more economic cooperation between people, not less.

But bitcoiners have always pitched bitcoin as "money for enemies," and enemies, by definition, don't trust each other — and that does not seem a sentiment you'd want to base an economic system on.

The historian Francis Fukuyama argued that the level of trust in a society strongly predicts its economic success; the behavioral psychologist David Halpern contends that social trust is more important for a country's economic growth than the skill level of its workforce; and a team of economists found that trust begets larger financial systems and that larger financial systems begets higher economic growth.

All of which seems to confirm Harari's sentiment that we need more trust in finance, not less.

But not just in finance!

Trust has also been found to limit the outbreak of disease (societies where people trust one another are healthier than ones where they don't); being distrustful takes a toll on our mental health, and an increase in trust has even been linked to both increased judicial efficiency and reduced government corruption.

It's for these and other reasons that Harari hopes that "humanity finds a way to build trustworthy human institutions instead of adopting technologies of distrust."

I find it hard to argue with that.

Beer for enemies

So, if trust is good — and especially so in finance — does it follow then that a trust-less financial system like crypto is bad?

Not necessarily.

Trust in institutions has been in structural decline for decades (in the US, at least) and it's not at all clear what could turn that trend around.

Worryingly, advances in technology seem to accelerate the decline in trust, as has been sadly evident with the rampant sharing of unfounded conspiracy theories on social media this week.

But I can think of at least one exception to that rule.

Consider hitchhiking — which was a common form of travel way back when I was a kid — before people, for no particular reason, became too distrustful of strangers to risk getting in a car with them.

Until Uber!

The new technology of ridesharing has miraculously made riding in strangers' cars great again (although you do have to pay now, unfortunately).

Could crypto do something similar for finance?

I think there are signs that it might.

For example: Stablecoins, which require holders to trust issuers like Circle, are enabling more financial transactions in many countries with otherwise untrustworthy currencies.

Similarly, the permissionless, code-based capital market that is crypto is facilitating investment in tokens that carry no legal protections at all — investors are simply putting their trust in founders and projects and hoping they do the right thing.

Investing in code may be a counterintuitive way of increasing trust in human institutions — and it could well end badly for investors.

But not much else seems to be working, so maybe it's worth a try?

And if all else fails we can at least turn some of our bitcoin into beer and share it with friends.

Or — ideally — enemies.

— Byron Gilliam

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Uma Roy @pumatheuma

One refreshing thing from this EthCC is that the take "there are not enough apps, too much infra" is finally consensus.

Last EthCC I had the same feeling, but the broader conversation was excited about modular, MEV, DA, intents, etc.

Now that founders and VCs are on the same… x.com/i/web/status/1…

4:24 PM • Jul 16, 2024

86 Likes 6 Retweets

11 Replies

Ki Young Ju @ki_young_ju

Mt. Gox is preparing to distribute #Bitcoin to creditors.

A large-scale outflow indicates that retail investors haven't received any yet. @cryptoquant_com will confirm via on-chain data when it happens.

Unlike the German govt selling, Mt. Gox creditors aren't forced to sell, so… x.com/i/web/status/1…

tw profile: Julio Moreno Julio Moreno @jjcmoreno

Mt Gox #Bitcoin on the move again.
48.641K Bitcoin sent to a new address a few hours ago.

2:26 PM • Jul 16, 2024

425 Likes 68 Retweets

32 Replies

Benjamin Cowen @intocryptoverse

I do think the Fed will cut by September, but seeing the probability of the Fed keeping rates at 5.5% in September at 0.0% means the market is essentially leaving no room for upside surprises in inflation.