Bitcoin: Return of the Wolf

The Top-Dog Effect in Complex Systems

Bitcoin is new, but its concept is old. It was designed to be a digital version of gold. Gold arose as a symbol of wealth everywhere from ancient Egypt to ancient America. Over thousands of years gold was the top dog. Gold could buy anything anywhere in the world: a beer, a camel, a farm. It dictated international trade and war. It made kings and and drew borders. Bitcoin is like gold in that it is a recognizable, but scarce commodity that doesn’t decay and can be easily cut into pieces.

Gold fell with the rise of printed money. Paper money was better in that it allowed people to store the wealth of a hundred coins on a single piece of paper. Paper money was good for trade, but it had a downside: it wasn’t scarce. It was overprinted and used for bribes. It was counterfeited. Banks and countries who controlled paper money were unstable. Booms and busts played havoc with people’s lives. Nevertheless, the last two hundred years saw every country in the world abandon gold as backing for their paper money.

Bitcoin is roughly doubling in value every five months. If this trend continues bitcoin will dethrone paper money by 2020 or so. If this happens I believe the entire economic system will be healthier, richer, and more stable. I can’t prove this (obviously,) it’s just a hunch based on the story of the re-introduction of wolves to Yellowstone Park.

Yellowstone’s last wolves were killed in 1926, and then re-introduced in 1995. The most obvious effect was how they chased coyotes from away from valleys. With fewer coyotes, beavers thrived. Beaver dams stabilized the water table and fish thrived. New pond and marsh habitats allowed moose, otters, mink, wading birds, waterfowl, fish, amphibians to thrive. Wolves also chased away elk, which meant that trees grew taller. Their roots countered erosion and rivered were stabilized. Wolves changed the entire ecosystem, from fungi to microbes. This story is shown vividly in the viral video “How Wolves Change Rivers.”

Ecologies and economies are both systems of infinite complexity. It’s clear from the experience of Yellowstone Park that adding a top dog was both beneficial and stabilizing for the system. For the past hundred years the world economic system has been missing a top-dog. The US dollar is stronger than the yen, euro, and peso, but it’s the same species. It’s difficult to predict the effects that bitcoin will have on the global economic system, however from the story of the wolf in Yellowstone Park, I’m optimistic.

This essay is a sequel to my video: Bitcoin and Inequality. Watch it here.

I love to hear feedback! Let me know how I can improve this essay. Thanks!