Bitcoin maximalism.

Though you may not be familiar with the term, you’ve almost certainly been exposed to the ideology.

Bitcoin maximalism is the belief that Bitcoin, and only Bitcoin must succeed in the market. This belief stems from a faulty understanding of the role of social consensus in currency markets, and belief in myths about the origins of money.

A Collective Memory

Through centuries of cultural conditioning, money has been elevated to a special place in the public’s mind. People cannot imagine what money might look like in a free society.

In a free market, money would be a good just like any other – cryptocurrencies included. Demand for goods stems from the value those goods bring to consumers. Money is not unique in this sense.

Good money has distinct qualities, which Bitcoin maximalists like to list. Scarcity, portability, and fungibility are among them. However, Bitcoin maximalists are working from a different paradigm. They don’t recognize the ordinary status of money.

Due to unconscious conditioning and reasoning by analogy, maximalists imagine money has special properties which make it act differently than ‘ordinary goods’. In a sense, Bitcoin maximalism is only a step removed from existing arguments for fiat currency.

Fiat currencies remain popular through the threat of force. In Bitcoin maximalist circles, it’s the threat of ostracization. Insults are not violence, but they’re hardly a competitive strategy.

Benefit of the Doubt

Unlike policymakers of the past century, Bitcoin maximalists are not malicious. Bitcoin maximalism stems from a genuine desire for Bitcoin to succeed, coupled with a faulty understanding of the interactions between technology and economics.

Maximalists believe that money is purely a social construct, that its value is subjective. Bitcoin maximalists are afraid that if Bitcoin fails, there will be no reason for people to agree on any one cryptocurrency. They see Bitcoin’s failure as driven by speculation on other coins, and reason that, because code is adaptable, any currency can copy the properties of any other.

While it’s true that code is adaptable, the network effects of currencies are much more robust than maximalism implies. Among other reasons, these network effects remain because infrastructure is built around them. And infrastructure is an objective reality, not a social construct.

Another reason for Bitcoin maximalists’ fervency is that they believe money must be (or must be made) valuable before its use. This line of reasoning comes from their reasoning by analogy, and uses few examples.

Bitcoin is compared to gold ad nauseam, but there are other non-fiat currencies circulating today which should be considered. Drawing insights from a sample size of one is bad practice.

Cigarettes, Food, and Tide laundry detergent are still used as currencies in distinct niches. Bitcoin maximalists tend to ignore these examples and decline to consider what makes them valuable.

Why Are Currencies Valuable?

On a high level, these currencies are accepted because of their near-universal utility in their target markets. For that matter, even gold has utility, supremely in the ability for owners to flaunt their wealth.

The utility of a currency is its usefulness as a medium of exchange. Currencies are affected by supply and demand just like any other good. Assuming stable supply, currencies appreciate with demand. And the best way to create demand for goods is through utility.

The alternative is forcing people to buy them. This is what the US government does to oil-rich countries if they decide to sell oil in another currency. It requires citizens pay taxes in dollars for the same reason.

Utility –> Adoption –> Price

As explained in How to Value Cryptocurrency: The Equation of Exchange, utility drives adoption; adoption drives price. The next time cryptocurrencies spike, it will be due to utility. Unfortunately, utility has been masked while most new money to cryptocurrency comes in through Bitcoin.

Bitcoin is the dominant base pair on most exchanges. Because buying other cryptocurrencies typically requires BTC, the BTC price stays up, even without Bitcoin’s utility.

A currency’s utility is in its use as a currency. This is axiomatic. It’s self-evident, implied by the very name crypto-currency.

At Eat Sleep Crypto, we focus on utility rather than speculation. Gambling is fun, but it’s not a sustainable investment strategy.

We’ve been creating models in the Investor Series which tie cryptocurrencies’ utility to real-world use cases. Models are created with comprehensively-sourced data and adjustable assumptions for you to see the effects of individual factors on the value of each cryptocurrency.

The Monero Investor Series article is in its final stages, and you can get a discount on it by subscribing to the Eat Sleep Crypto newsletter for FREE. As a subscriber, you’ll also get access to articles like this one in advance.

If you enjoyed this article, or even if you disagree completely, we’d love to hear your thoughts on Twitter @officialESC and in the comments below.