Why Monetary Maximalism could fall short of expectations

7 minute read

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Why Monetary Maximalism could fall short of expectations

By Su Zhu and Hasu

Posted February 2, 2019

Monetary maximalism is the idea that in a free market for money one big winner will emerge and that the “soundest” money is in the best position to do so.

In a previous post I wrote that “every token competes in one massive power law distribution for the title of dominant non-sovereign monetary store of value. If it does not win this rat race (or comes to a close second or third place), its market share will, effectively, be zero.”

The most popular argument for why that should be the case is that it already happened once – with gold.

There are two big assumptions baked into the grand narrative of monetary maximalism today. First, that the world will gravitate towards the soundest monetary-policy coin. And second, that gold-analogies are apt in describing Bitcoin.

We would argue that this is reasoning by analogy, and that the analogy is not self-evident even for many people inside crypto, let alone outside. We should steer clear of suggesting that we can use logic to determine how this will all play out.

Instead, we should realize that for Bitcoin to become what most of the community wishes it to be, there are multiple challenges to overcome that work as counterforces to the consolidation into one money. These counterforces are:

Misalignment of incentives with crypto companies

Crypto companies are funded with the goal to capture value – especially value that can weather both bull and bear markets. The result is a value capture layer on top of Bitcoin with actors that over time evolve their own opinions that ultimately become social attacks on Bitcoin.

Many of these companies would lose if bitcoin was to become a mature store-of-value tomorrow and since they respond to their shareholders and not the Bitcoin community, it’s in their best interest to prevent that.

The biggest “attack” on Bitcoin is the existence of altcoins. Investors and VCs are incentivized to push for a multicoin future because they can be paid for finding the next Bitcoin. Monetary maximalism ascending necessarily implies that this paradigm of crypto-as-tech would come to an end.

Exchanges like Coinbase are also incentivized to push for a multicoin future, as they benefit from people trading back and forth between different assets. Consolidation into one money would mean a massive decline in cross-currency trading. As an exchange, they love drama and volatility in the markets to attract traders. Their support for past contentious Bitcoin forks as an attempt to shape the protocol to suit the needs of their business and later pushing for a world where Bitcoin is just one of many assets have been entirely rational.

Miners can also decide to attack Bitcoin, with Bitmain as a prominent example. When they disliked the direction protocol development was going, possibly because they were afraid that a layered scaling approach would hurt their bottom line, they launched a social attack in the form of Bitcoin Cash. Even though the attack ultimately failed, the fork diluted Bitcoin’s supply in the eyes of the public as well as its brand value.

If we look at who is actually incentivized to help Bitcoin become a mature SoV, in terms of crypto businesses there are shockingly few. A mature Bitcoin would force many of them out of business. And yet we find that Bitcoiners are constantly surprised by the so-called impure behavior of companies in this space.

Culture clash between different currencies

Because of crypto’s unique nature of a social layer and technical implementation reinforcing each other, all networks are highly cultural in nature.

All coins get their properties from the shared beliefs of their holders. A strong culture has to be enforced so they can retain these properties against change.

Unpacking Bitcoin's social contractImage Source: Unpacking Bitcoin’s Social Contract

Arjun Balaji and Yassine Elmandrja have recently laid out how almost all fundamental disagreements in crypto are not about details of implementation, but about the fundamental values that each project enshrines in their social layer.

The result is competing frameworks like “Vision of the Constrained vs Unconstrained”, “Money crypto vs tech crypto” or “Autonomous vs Governed”, proving that there is a lot to disagree about when it comes to culture.

Just as the world is unlikely to converge to a single culture, whether we are talking about politics, art, music, language or food, so too can crypto exist for a long time as a pluralistic collection of different cultures.

If we assume there are irreconcilable disagreements on the social layer between projects and that the value of each token is agreed upon at the social layer, then the logical conclusion is that people with different cultures will prefer – and hence monetize – different coins.

We claim Bitcoin is apolitical maximalist money, but in practice the political philosophy views of bitcoiners are homogenous, especially with regards to libertarianism, and distinct from other crypto communities (which your authors have previously argued is a dangerous mismatch).

Bitcoiners tend to be objectivists – they believe there is such a thing as objective moral truths. But let us not mistake strongly held opinions for provable truths. We can neither prove that global money will evolve through soft forks rather than hard forks, nor can we prove that a premine is worse than no premine.

We can only show that the tradeoffs are such that we believe certain approaches are more promising than others. But if people disagree with us and these projects don’t actually implode as we predict, then this market can well stay fragmented forever.

Appealing to human biases

Beyond basic preferences that are the result of a different culture, there are some biases inherent to our thinking that can draw people away from Bitcoin’s monetary maximalism and towards other forms of money.

The most familiar example is probably the unit bias. When faced with a selection of coins most people intuitively compare the price of one unit, without regard for the number of total units outstanding. As a result, they falsely assume the cheapest unit is underpriced relative to the others and buy it.

Then there are people who have a bias in favor of innovation and tend to promote the new over the old without really looking at its limitations or weaknesses. Pro-innovation bias could play a big role in Bitcoin’s future as the incentives of this market (see earlier) are aligned in such a way that crypto companies and investors collectively benefit from a steady flow of new competitors.

The most important bias working against Bitcoin, however, might be the “anti-waste” or “anti-PoW” bias. Already today there are many who categorically refuse to use any currency that uses proof-of-work for security, claiming that it is extremely wasteful and hence dangerous to our environment.

You can expect Bitcoin competitors like Ethereum to lean even more on this bias once they have completed their switch to proof-of-stake.

It’s hard to imagine that people with a strong ideological dislike for proof-of-work can be convinced by economic arguments to turn around and embrace it. We find it more likely that this particular bias will continue to appeal to many people in the same way that easy answers to hard questions have always appealed to humans throughout history.


While we don’t fundamentally disagree with the idea that a big winner could emerge from the battle of monies in the ultra-long run, there are also significant counterforces at work to prevent Bitcoin from being that winner.

The counterforces presented today all assume that the market structure itself is uncompromised, i.e. a free market for money exists. In practice, this assumption is hopelessly optimistic. Governments will continue to shape our economic realities as people in the Liberal West will not risk their lives to use one money over another for ideological reasons.

Most Bitcoiners are gleefully unaware of how few companies in this space actually have an incentive to help Bitcoin succeed, especially those who own the customer relationship and onboard all the new people into this space.

Bitcoiners should stop expecting companies, miners, etc. to virtue signal to them and instead start taking ownership of the means of production by building their own exchanges, nodes, wallets, custody, and education.

All cryptos are highly cultural. They need to be because they derive their properties from the shared beliefs of all users. This is a major differentiation from gold. The idea of Bitcoin monetary maximalism would require Bitcoin to transcend culture itself if it wants to appeal to people versus other cryptocurrencies.

Many people are questioning the “top-down” analogies used by bitcoiners today. Even many Austrian economists are not buying into Bitcoin as sound money .

So instead of mapping the history of gold over the future of bitcoin, we should look where we are today, where we want to be tomorrow, and how we can get there.