Trust is the foundation to any functional society. In my previous article, I suggested that there is an ever-growing lack of trust across society, underpinned by a financial system that can be changed and manipulated by centralised parties. It’s hard to deny that it has brought significant prosperity, and allowed society to grow, but, we are seeing the cracks in this imperfect system, and I believe that Bitcoin can serve as a foundational layer of trust across society at large, so that we can level-up and start to diagnose and fix higher level problems. In this article, I will delve deeper into why a lack of trust is a problem, and how Bitcoin acts as a trustless foundation (we don’t have to trust, we can verify), and how that might allow us to level-up to solve these higher-level problems.
What Is The Issue With Us Having To Trust A System
In a democratic system, we elect people who we believe will best represent the values and beliefs that we have, in the hope they will reflect these through policy across the country. The usual election cycle consists of a four year period, whereby the elected officals implement their policies and drive change across society.
We often see political leaders commenting on how they will alter policy to benefit the people, but very rarely do we ever see them speaking about the fact that the actual system itself is broken, until now.
The current financial systems we see across the world are controlled by centralised entities, who we rely on to make the best decisions to benefit the population. However, as we have seen, this blind trust we have in leaders and institutions to make decisions that lead to good outcomes is often unwarranted. The hyperinflation in Venezuela and Zimbabwe, and the bank bailouts during the global financial crisis are just a couple of examples of how abusing the financial system can lead to dire economic and social outcomes, the effects sometimes not manifesting until years after those decisions are made. When citizens don’t trust their leaders to manage the financial system responsibly, it ends up eroding the foundation of trust across society.
In summary, trusting in a centralised power that controls the Fiat financial system has been shown to lead to:
- Erosion of Financial Stability – Mismanaging monetary policy and excessive money “printing” can lead to high-inflation/hyperinflation, disrupting stability and making people’s time preference higher.
- Reduced Social Cohesion – as people’s time preference becomes higher, the engagement in innovation and building a society for the future generations reduces. We are pushed down the hierarchy of needs into a survival mode.
- Social Inequality and Poverty – High inflation leads to soaring asset prices, higher living costs, and stagnant wages. The Cantillon Effect can be seen in full force (an article to come on this next), and the escape from economic hardship becomes worse and worse for the average person.
- Loss of Faith in Institutions – when we see institutions prioritising their assets and financial position over “the people”, it erodes the trust in these institutions. In a truly capitalist society, a bank would fail, and see difficulties similar to SMEs and individuals who ultimately end up bearing the brunt of poor monetary and fiscal policy. How can we have trust in leaders, if the decisions mostly benefit them at our expense?
- Lost Innovation – as people lose their faith in institutions, they look to other countries where these problems are less exacerbated (or earlier in the cycle). This can lead to a “brain drain” of talent, a reduction in entrepreneurial behaviour, and a loss of innovation – just look at how many companies and individuals are now relocating to El Salvador as an example of this!
These are just a few examples of how a manipulated financial system leads to societal issues, and ultimately a lack of trust across communities and nations.
What Is A Trustless System And What Are Its Benefits?
Michael Saylor innovated the way we view money. He coined (pun excused) the term that money is energy. We operate in our jobs, we earn money (proof of work), and this money stores our energy over time and space so that we can reuse that energy at a point in the future of our choosing.
Therefore, if money is a store of our energy, and leaders control the mechanisms that affect that store, then we are at the mercy of, and have to trust an opaque decision-making process to determine how prosperous our future is. If we have to trust a system that is setup to erode our stored energy over time, it’s fundamentally a ‘system of control’ and a redistribution of energy to those who control it. This is what Fiat money really is – it’s a way to manipulate a system to control its users. How can we have trust across society if this is true? We can’t!
How Does Bitcoin Provide Us A Societal Foundational Trust Layer?
One of the key features of Bitcoin is its triple entry ledger system, unlike the traditional double entry system where transactions are recorded by two parties only. This approach makes it “impossible” to manipulate the records, and allows anyone with an internet connection to verify its validity. Satoshi’s creation solves the Byzantine Generals Problem, ensuring that all participants can trust the validity of the ledger without a central authority’s involvement. Bitcoin is the antithesis to Fiat, and Fiat systems. Bitcoin is a decentralised, immutable ledger that cannot be changed at the whim of a change in leadership, or because of a political narrative.
With Bitcoin as the foundational trust layer, allowing all to participate, we can rely on the fact that our energy will be stored across time without manipulation. We won’t feel like we’re being pushed down the hierarchy of needs, but in fact supported to ascend it We are empowered to lower our time preference and to focus on higher level problems….because we know (don’t have to trust) that the system will not erode our precious energy – the opaque-decision making is removed and replaced with a decentralised triple entry ledger system. Trust becomes a given, we are playing a new game where the rules cannot be changed and the outcomes can be better predicted.
So How Does Having Bitcoin Help Us With Society
Satoshi established a new game with rules that apply equally to all participants. By creating a system where no one is above the rules and everyone plays on a level playing field, Satoshi set the foundation for trust and fairness in the Bitcoin ecosystem.
Just as Maslow’s Hierarchy Of Needs identifies the fundamental requirements for human development, Bitcoin’s trustless system (you don’t have to have trust, as you can verify the code) establishes the core foundation for a society to flourish. With a reliable and transparent financial system in place, the lower levels of Maslow’s pyramid, such as physiological and safety needs are more easily fulfilled. People know their energy will not be eroded over time, leading to less economic insecurity, and allowing a focus on the next levels up.
People will look to create value, to help others. They won’t need to undercut people to get ahead, because the social incentive will be changed from “I need more”, to, “how can I support others get what they need and want”, because ultimately, if you don’t, people won’t part with their Bitcoin to pay you for your services.
Just as the internet connected us in ways we could never have dreamed of, Bitcoin will connect us at a deeper level, because it solves the fundamental problem preventing us from collectively climbing up the hierarchy of needs…..trust.
In summary, Bitcoin is the system that all things can be built upon. It is a system owned by, and played in by its participants. We have a foundational layer that we can set our dreams and aspirations in motion on. Bitcoin is the foundational layer to the hierarchy of needs, because it is the layer that establishes trust and fairness.