When it comes to raising children, there are two types of parents — those who use an incentive to induce certain behaviours in their children and those who use punishment to do so. The carrot and stick, in other words. A classic example is trying to get a child to start using the toilet; some parents employ an innocent lie along the lines of “Santa is not coming to our house this year if you don’t use the toilet”, which acts as an incentive, because there aren’t much worse things than not getting a present for Christmas in a child’s world. Other parents threaten the child with punishment, in the form of certain limitations or even physical violence, should they defy their wish and poop in their nappies (or anywhere apart from the toilet).
Based on my limited observations, both methods are efficient in driving the desired behaviour in the child. The question, however, is — at what cost? Parents using the innocent lie method do not suffer any damage to the relationship with their child — on the contrary, they might even be thanked for the caution. Parents who use authoritative measures, on the other hand, are sure to get some resentment from their child in return.
Now, let us use this as an analogy for the government’s handling of bitcoin. Let’s imagine that the parents represent the government and the children represent the general population.
Some governments, mainly western ones, have used the “innocent” lie method — bitcoin is bad for the environment, it’s used by criminals, it’s used to transfer capital to rogue states like North Korea, it’s going to zero, etc. They appeal to the moral and financially responsible side of people to drive desirable behaviour. Other states, mainly eastern ones, characterised by an authoritative rule like China, outright ban or restrict the use of bitcoin and bitcoin-related technology.
The difference in the approach is influenced and has influence on the relationship between the government and the people. Western democratic governments need the approval of the people to stay in power, whilst eastern autocratic governments don’t generally care what the people think of them, as just like a tough parent, they assume they know what’s best for their child and make the decision on their behalf.
Whilst getting a child to start using the toilet is desired by the parents, because it’s essentially a step closer to becoming an independent adult, governments trying to limit the use of bitcoin is somewhat the opposite — trying to get the child not to use the toilet, so it keeps being the dependent on the parent whenever it shits itself. I’ll slightly amend the analogy here — let’s imagine that the economy is the child this time.
The economy is perhaps the most important aspect in our modern day, capitalist society. The government exercises control over it through fiscal and monetary policy. When the economy is doing well, the government doesn’t do much — no need to change a clean nappy after all. When the economy shits itself, however, they use one the levers available to them to manipulate the value of the national currency in order to repay debt, drive exports or tackle inflation. Historically, these methods have served as nothing more than a short-term fix. Just like a brand new nappy — it’s good until the child shits itself again. Economists have a name for the economy’s defecation cycle — the famous “Boom and Bust” cycle.
Bitcoin is resistant to government levers. There will only ever be 21 million bitcoins, many of which have already been lost forever. Should it be universally adopted, governments will no longer be able to easily manipulate the currency to influence the economy. So, when the economy shits itself, it will definitely get messy; with no nappy to contain the mess or government to clean it, it will have to deal with it alone. According to Nassim Taleb’s idea in his book “Antifragile”, that’s good — somewhere down the line of unexpectedly shitting itself and dealing with it repeatedly, it will learn to minimize the mess and clean itself — it will become “Antifragile”.
Like an overprotective or authoritative parent, the government doesn’t want to lose control over the economy and the people either because it fears that they won’t survive without it, or simply because it enjoys having authority over them. I believe the time has come for the people, and therefore the economy, to grow up into an independent adult. A child is oblivious to the fact that Santa does not exist; it is also powerless before a parent’s moral and physical authority. Lack of information and ability to fight back means that the child cannot do much but display the desired behaviour.
Thanks to the internet, however, information is abundant, so an “innocent” lie can be easily exposed to the west, and people have unprecedented ability to organize and defy the authority of the government to the east. Society is no longer a child. It’s time for it to take responsibility for its own economic actions. Bitcoin provides the means for it to do so.
Friedrich von Hayek advocated for a government that does not intervene in the economy. John Maynard Keynes advocated for a non-national currency called Bancor, in which all international trade is denominated. I strongly encourage anyone interested in getting a politico-economic perspective into the potential societal impact of bitcoin, to read about their ideas.
Notice from the team: Please note that the author did not benefit in any way from writing this article. He should not be associated to any extent with Infinite X Labs. Writing articles is purely a work of heart for Dimitar.