Rules not Rulers
A Different Kind of Government
Do I think we need government? I don’t know. But I know we need strong rules for society to follow, otherwise we end up with chaos.
Despite governments playing a large role in our lives already, the majority of human cooperation is the result of rules that we agree on implicitly. They are culturally enforced rather than being enforced through fiat (authority or power).
These are rules such as “don’t steal” and “don’t kill”. Most of us don’t do either of these things; not because the government says not to, but because we intrinsically view these actions as morally and ethically wrong.
So I reject the notion that we need the government to tell us what is right and wrong. I think we derive our own rules and organizing principles to adhere to. We can live with rules, and no rulers.
A common critique from someone who hears the position that we don’t need rulers might be the following: “A world without rulers would be anarchy”. They would be correct as “Anarchy” literally means “An Arkhos” or “No Rulers”.
But based on my research, and listening to self-described anarchists such as Michael Malice, they’re not for doing away with rules entirely; just rulers.
I’m not saying I ascribe to the same set of beliefs, but I enjoyed this intellectual exploration into anarchy because of how it relates to bitcoin.
Bitcoin; Rules Based Money with No Rulers
Bitcoin is actually quite anarchistic when you look at it from the perspective that it has no ruling party.
It’s an excellent example of how a system without rulers can run so well that it accomplishes a wide set of goals and achieves mutually beneficial outcomes for all who are involved.
It is through Bitcoin that I became open minded enough to consider the viability of ruler-less systems.
Rules and Rulesets
Leaders (Presidents, Prime Ministers, CEOs) are usually thought to be responsible for organizing the parts (atoms, units, citizens) of their establishment around a common goal.
In this instance, the organizing principle is derived from rulers that define and enforce rules. Deviation from this ruleset will result in punishment to disincentivize any further deviation from the ruleset.
In this scenario, one of the organizing principles is the implementation or threat of force if compliance with the ruleset is not reached.
Bitcoin takes a completely opposite approach. Bitcoin defines a set of rules for which people can voluntarily organize around. There simply is no means for bitcoin to impose force upon the people that don’t use it.
Any non-compliance with the ruleset is met with non-violent rejection.
For example, if a user tries to spend bitcoin that does not belong to them, Bitcoin simply says no. They are not thrown in jail, or banned from the system for life, or given a fine. Instead, they are unbiasedly invited to come back and participate in the established ruleset at a later date.
The fact that 200 million people have voluntarily decided to adopt this ruleset for playing the game of money is something I find remarkable.
Opting in is Freedom
I have fallen in love with the idea of opt-in systems. The idea that any given system, company, government, or action is strictly opt-in has completely changed the way that I conceptualize freedom. Freedom is not just the ability to say no. It’s the ability to say yes and no.
Bitcoin is Opt-In Only
At no point in the future will bitcoin become forced upon you by bitcoin itself.
Remember, bitcoin is not capable of caring whether or not you use it. If the use of bitcoin is ever demanded of you, it is because it is being imposed upon you by an authority figure such as a government or tax agency.
I find it a beautiful fact that a system that is completely opt-in has grown to be used by 200 million people worldwide. That means that 200 million people have voluntarily decided to buy, trade, or accept bitcoin.
Chances are, almost none of the people using bitcoin are doing so because they’re being coerced or threatened. If I want to live in a world without violence or coercion, then I need to choose technologies that represent the values that I want to see in the world.
I can’t think of a technology that better inhabits these values than one that transfers value around the world at the speed of light (which is objectively awesome), but simultaneously doesn’t care if you use it.
The Governor of Governments
The United States government is largely considered to be the largest experiment of democratic freedom ever conducted. Within this form of government there are checks and balances that are supposed to limit the reigns of power from being centralized by any one party.
Although I think America got off to more or less a good start, I think a major failure occurred when the power to create money was centralized with the creation of the Federal Reserve in 1913.
At this time money was still backed by gold at a 1:1 rate. But over the course of the 109 years, money became de-pegged from gold, and the reserve requirement for banks fell to exactly 0%.
The Rules of Gold
In the book Gold Wars, Ferdinand Lips describes gold as “The governor of governments”. This is because gold gives governments a set of implicit rules that must be followed.
If the rules are not followed, then the government will fail. These rules are rooted in physical reality, energy, and physics. What are these rules?
There exists a finite amount of gold (limited supply)
Gold must be mined from the ground in order to bring new gold into circulation (proof of work)
Gold has the atomic number of 79 meaning it has 79 protons and electrons. Any form of matter that does fit this description is not gold. (verifiability)
This is really all of the rules that are built-into a gold based system. These three rules keep the power of governments and central banks in check. How?
Governments cannot arbitrarily increase the supply of money in order to
Bail themselves out of bad decisions (paper over losses)
Borrow from the future to invest in today
Both of these activities, regardless of good intentions, result in inflation.
Companies or governments mining gold to increase the monetary base must do so profitably, thus limiting the natural inflation rate of gold.
If too much gold is mined at once, the price would go down, resulting in a gold mining operation becoming unprofitable.
If not enough gold is in circulation to meet the liquidity demands of a population, the price of gold increases, which also increases the profitability of mining gold.
This give and take relationship is just simple supply and demand economics in action. There is no ability for the central bank to create money at the stroke of a button. Gold must reach circulation as a result of work.
Lots of companies, governments, or fraudsters have tried to debase a monetary supply by replacing Gold (AU) with something else.
Monarchies such as that of Henry VIII would systematically replace gold coins with copper ones. They would plate over the copper with a thin layer of gold in order to trick people into believing they were using a monetary instrument of the same value as gold.
In reality, the population and bankers were being duped the entire time.
Gold has these fantastic rules that a population must abide or face economic catastrophe. Regardless of the currency, if any of the above rules were broken by banks or rulers in the past, it resulted in the failure of the currency.
This failure always brought on a prolonged period of economic stagnation otherwise known as depression or recession.
The Rules of Bitcoin
Just like gold has rules rooted in physics, so does bitcoin.
There are 21 million units of bitcoin in existence
Bitcoin must be mined through the expenditure of energy in order to be brought into circulation (proof of work)
Bitcoin is only bitcoin if it can be accounted for on the bitcoin blockchain
Bitcoin actually has several advantages over gold because it is non-material. Gold suffered from being a physical money because it could be manipulated in several ways.
Since it is heavy and difficult to transport, it incentivized the warehousing of it (creation of banks) and the issuing of IOUs (fiat money) that represented a claim on gold. This inevitably lead to centralized and fractional reserve banking.
But, since bitcoin is digital, it carries no weight, and doesn’t ever need to be warehoused by financial institutions. Bitcoin cannot be counterfeited and it is immune to debasement.
Lastly, due to the ability to audit the bitcoin blockchain, fractional reserve practices with bitcoin are detectable.
Strong Rules to Live By
I think the ruleset created by bitcoin is strong enough to result in radical change throughout our societies. Furthermore, they transcend the bitcoin codebase and give us inspiration for how we can build future collaborative systems.
Money has always been something humans have fought over. But bitcoin is a system of money wherein fighting over the money is no longer an effective means of obtaining it. Coercion and violence suddenly have reduced power for capturing the wealth of our neighbours.
I want to know what other systems this applies to; if any. It may be the case that after human society fixes the money, we’ve fixed most of the problems that stem from financial corruption.
Although, I feel as though this position is slightly overzealous and the reality is much more complicated.
Nonetheless, dedicating my time and effort to see the proliferation of bitcoin and related systems is well worth the energy I spend to do it. I hope that I’ve given you something to think about within this letter!