Thread by @tomaspueyo

The emergence of cryptocurrencies reminds me of the emergence of writing and currencies. These are obvious to us now, but they were weird to their contemporaries.

Let's have a look 🧵

The parallel with fiat currencies is better known, so let's start with it.

Early on, ppl bartered. Inconvenient.
So they started using some currency.

First, it was something scarce, easy to value and to divide into smaller pieces (=fungible), and with some intrinsic value. Eg, salt (thus "salary")

Sometimes, things that were not very intrinsically valuable, but were scarce, sufficed. Eg, sea shells. Not ideal though, because somebody could just go and find seashells and break an economy.

This is how precious metals emerged. They were truly hard to find and required lots of work to extract (proof of work). They were also fungible, durable, portable, verifiable, unforgeable. All things that help

Then coins were created. Originally, they were just quantities of precious metal with a seal that basically said "yes, this represents X weight of silver. You don't need to look at your scale every time you transact".

Obviously, ppl tried to cheat it. Eg, gold-coated lead, chipped coins that had slightly less weight than they were supposed to...

And then bills were created. They said: "With this bill, you own X weight of gold that is stored at my bank. Trust me, it's there."

At the beginning, ppl didn't trust them. Anybody can print that! Why should I trust them?

So more trustworthy organizations appeared. Eg, government orgs that said "trust the gov, this bill does represent X weight in gold."

Naturally, many of these orgs realized ppl started exchanging the bills and leaving the metal stored.

This is the beginning of the dissociation btw paper money & precious metals

This system became more and more robust over the centuries. Eg, at some point the US said: "Your currencies shouldn't be changed for gold. They should be changed for $. And $ can be changed for gold."

The + ppl used paper money, the + they thought it was actual money

Until at some pt Nixon said "forget it, we will just print all the $ we want and they can't be exchanged for gold", at which point all the world was like "Wot?" but since everybody had been using paper money for decades, they just kept going.

It was ok as long as the paper money was like a precious metal: scarce, fungible, verifiable, portable, durable...

Because the point of gold and other precious metals was never their intrinsic value. That helped, of course. But what really mattered was these other features.

Paper money has no intrinsic value, but it works because it's scarce, fungible, verifiable, etc.

People thought it was weird when they started using seashells instead of bartering
Or when they replaced them with precious metals
Or when they became coins
Or when they became bills
Or when they became fiat currency, unbacked by gold

But they got used to it, as long as the next currency was scarce, fungible, durable, verifiable, etc.

So is it true with cryptocurrencies today.

Something similar happened with writing. At the beginning, you needed to show me your bushel of wheat. But if you store it in the shared granary, how do you know how much you stored? How much you paid the government?

So ppl invented tokens, a bit like currencies

One token for some wheat, another token for some other quantity of wheat. The tokens became a representation of the value of the wheat.

Then these tokens were placed into envelopes to store them.

Then they pressed against the envelope to see what was inside

Then somebody realized they could just press the tokens on the envelope and look at the mark.

Then somebody realized they could just create a sign on the envelope and there was no need for a token.

Script was born.

Originally it looked like wheat.

But over time they simplified it. Over and over and over until it was just a symbol. This is the evolution from hieroglyphs to hieratic to demotic:

Like with currencies before, humans realized over time that a thing and its symbol could be equated for simplicity.

Today, when I hear ppl say "Bitcoin has no intrinsic value!", "Cryptocurrencies are not physical! They're not real!", I imagine a reactionary Sumerian: "You can't just simply use the imprint of the token! You need the token! The token IS the bushel!"

Cryptos are just one level of abstraction above fiat and gold, and they have some fundamental advantages in comparison.

In 50 years: "Our grand-parents backed fiat and were reluctant to adopt cryptos. So ignorant. So cute!"