How the Rise of Cryptocurrency will Influence our Mindset: Financial Relativity
If the global monetary system was entirely different, how would our thoughts change? I believe we’ll see a major shift away from fiat currency towards cryptocurrency over the next century, bringing fascinating second-order effects. I call this financial relativity.
For those that don’t believe cryptocurrency will overtake fiat, or don’t see how it’ll be possible, there are plenty of astute investors, technologists and futurists predicting it. In fact, it’s been forecast since before the advent of Bitcoin — the first cryptocurrency — in 2009. Take entrepreneur Peter Thiel anticipating cryptocurrencies in 1999. The authors of The Sovereign Individual, published in 1997, forecast an uncontrollable “cybercash” to come in the Information Age, along with “what promises to be the world’s largest economy by the second decade of the new millennium.”
A decade ago, former Wall Street bankers anonymously created a blog helping the average person create wealth. This year, they’ve gone “full degen” (decentralized generation), repeating claims that we’ll exit fiat over the next 15 years.
From the free tier of their new newsletter: “If you follow this logic so far, then fast forward 5-10 years. Citizens have two choices: 1) transact and accept a currency that can be devalued with two clicks [USD], *OR* 2) choose a currency that cannot be diluted by anyone as it is backed by code [cryptocurrencies].”
Financial analyst Willy Woo eloquently described how he sees it: “…that’s essentially what we’re tracking; this destruction of fiat currency as Bitcoin starts to suck in that monetary base. I think what we’re witnessing here is the birth of a new monetary base which is no longer based on fiat; it’s based on consensus… this thing has value that can be stored online, digitally moved across borders, within seconds… It’s a new Internet-age monetary standard, and it’s one that’s going to keep up with the world’s needs into this digital age.”
As cryptocurrency becomes the predominant medium of exchange, it will become the new mental framework people use to consider all topics under the economic umbrella: spending and budgeting, paying taxes, saving, creating wealth, etc. But there are possibilities beyond this cognitive shift that I’d like to explore to conclude this essay.
First let’s understand the concept of linguistic relativity. As I struggled to explain last year, the language we speak influences how and what we think. The Sapir-Whorf hypothesis, otherwise known as linguistic relativity (or linguistic determinism in its most extreme form), points to many examples which suggest this is true. The Russian language has two different words for the color blue — one that corresponds to light blue and the other corresponding to dark blue. The mere existence of two different words for these shades of one color creates the effect for Russians that light blue and dark blue are, in fact, distinct colors.
Linguistic relativity suggests that language is the background, and what we say is the foreground. We are given a certain backdrop (language), and we can arrange the tools offered by it (words) to formulate the foreground (what we express). If we are given a different backdrop, what we think and how we express ourselves may change, bringing repercussions that spill into other areas of our lives. Linguistic determinism argues that language actually determines how we see the world, rather than merely influencing it.
I believe the same is true of economics. If currency is the language, or the background, the units of that currency are the words — the tools with which we structure our thoughts.
Fiat currency has been the framework in which we think about and relate to money for generations. Modern Americans estimate, donate, and think in dollars, while Brazilians think in reales, and Chileans think in Chilean pesos. As we shift from fiat to cryptocurrency, the framework will change.
Lera Boroditsky described how the phenomenon of linguistic relativity has fascinating consequences. For instance, a Spanish speaker and an English speaker are watching the same event: A man bumps a table, knocking the vase sitting on it to the floor, where it shatters. The observers describe the event in different ways; the English speaker will say, “The man broke the vase [on accident],” while the Spanish-speaker will say, “Se rompió el jarrón” (“The vase broke”).
English requires specificity whereas Spanish prefers a focus on the event itself.
A second-order effect of this difference in language expectations is that Spanish speakers are more likely to remember only what happened. English speakers are more likely to remember fault in a situation, even if it was an accident. Even a native Spanish speaker who’s also fluent in English will be inclined to say “The vase broke” when speaking English, because that’s how their mind works. If the pair were completing a task where reporting on fault mattered, for instance, the English speaker would likely outperform the Spanish speaker.
People are bound by the limits of their language. Sometimes there is no word to describe a certain feeling in one language, which means the speaker has to use several words to pinpoint it. A popular example is the word saudade in Portuguese, which describes a nostalgia for a time passed that will never return, but looking back on it with a smile. What took me 17 words to describe in English can be summed up in one perfect word in Portuguese. Perhaps this enables Portuguese speakers to reach a common understanding of this special feeling, while English speakers may not consciously recognize this feeling is available to their emotional palette.
It could be that the existence of non-translatable words in a language unlocks a wider array of feelings to the speakers of that language.
Similarly, metaphors show us how language is more than a tool to express our thoughts. It is actually a tool to construct our thoughts.
An amusing juxtaposition is between the English metaphor “Pay attention” and the Arabic metaphor to represent the same action. The Arabic translation of this phrase comes out to “Put your heart” in English.
How would you emote differently if you were putting your heart rather than paying attention?
In these examples and countless others, we can see language is closely intertwined with how and what we think, and second-order effects come with this phenomenon.
Financial Relativity – Layer 1
Just as with linguistic relativity, we are bound by the limits of the framework. We cannot say words that don’t exist, and we can’t talk in nonexistent units of money. We need to use the tools available to think, and then to express our thoughts. This begins a feedback loop.
Cryptocurrency will become the structure in which we shape our ideas about spending and budgeting, paying taxes, saving, investing, and creating wealth. When considering spending $100, instead of thinking in $1, $5, $10, $20, $50, and $100 bills, we will think in satoshis, microbitcoins, and millibitcoins (units of bitcoin). There may be a time when one hundred dollars is an incomprehensible concept.
Commodity trader Peter L. Brandt stated in the aforementioned interview with Willy Woo, “As a trader in the US, I’ve always measured wealth based on US dollars. I want to look and know that my US dollar worth goes up at a steady rate… Bitcoin was just a trade, but I think really within the last year, my mindset has really changed… If my goal as a trader has been to accumulate more US dollars, what that now tells me is I had a wrong goal, because my goal was to accumulate the weakest asset in the world, the most depreciating asset in the world, and that’s US dollars. So my mindset has really changed within the last year in terms of moving from bitcoin as a trade to bitcoin as a measure of wealth.”
We will use units of cryptocurrencies to think about sums of money. These units will become our economic measuring sticks, while dollars, pesos and euros will lack relevance. The same way your contemporaries don’t know how many clamshells a loaf of bread is worth.
This is the first layer of both linguistic and financial relativity. There’s a second layer which we touched on in the example of an English and Spanish speaker recounting the story of the broken vase. English speakers are more likely to remember who’s at fault, whereas Spanish speakers are more likely to remember only what happened.
Financial Relativity – Layer 2
If you’re into cryptocurrency today, you likely still use fiat as the frame of reference. You look up the conversion rate of 1 ETH to USD to understand how much 1 ether is worth in US dollar terms. You are translating from a foreign language to your native one.
Sometime in the next century, people will reverse this habit. If a kid of the late 21st century hears “one hundred dollars,” they will look up the conversion of that amount in USD to bitcoin in order to orient themselves around it. When the value of a dollar amount is less comprehensible than the value of a satoshi amount is when we’ll have crossed over from fiat to cryptocurrency as our financial framework.
So what will the second-order effects be? When new job market entrants are negotiating their salaries in ether, paying taxes in a government-issued coin, and contributing to a bitcoin fund rather than an IRA, how will they view the world differently?
Will the world seem smaller and more attainable? A person in Nigeria is getting paid in the same currency as someone in Singapore. Suddenly they have a common understanding where they previously may not have even known what currency the other country uses. When traveling overseas, this is one less foreign concept about an exotic culture. One thing that makes us feel more familiar and comfortable away from home. Will we relate to people in other cultures more easily? Feel more at home when away?
Will we get more comfortable with big numbers? When one bitcoin is endlessly divisible, we will have to find ways to easily divide and multiply smaller units of it. Will more mathematicians and actuaries be born?
How will we view wealth differently? When one bitcoin is worth 7 figures of USD, people will say, “Wow, she owns one whole bitcoin. She’s stackin’.” (Some people will prefer to use the phrase “whole coiner.”) Where a person used to have to own a lot of a currency (millions of dollars or billions of pesos) to be rich, possessing one singular digital coin will represent high economic status. Will this lead to a more minimalistic, less consumerist society? Will we begin to see less as more in other areas of life?
Transferring money overseas will be instantaneous and much cheaper compared to wiring funds. How will that change us? Multiplying the effects of widespread Internet use, cryptocurrency will fully enable the decentralized economy. Future generations will look at the entire world for job opportunities, without having to live in a certain locale to work for a particular company. How will the kids of tomorrow view their place in the world when their location is fully divorced from their income? And the people they work with will be in the same boat, meaning their colleagues may be living in different countries. What a way to learn about other cultures!
Job market entrants will negotiate their salaries in cryptocurrencies, and they will even get to choose among different currencies offered by their employer. Do they prefer to get paid in bitcoin, ether, chainlink, dogecoin, or matic? How will they assess value? Rather than simply considering numbers, they will evaluate the underlying technology when choosing between multiple cryptocurrencies. Comfort level with technology already grows with each new generation, but imagine how integrated our lives will be with tech when we assess it in order to evaluate the worth of money. Computer sciences may become less foreign and mysterious, even for those who consider themselves “non-technical.”
What other layer 2 effects can you envision for our future?
If you saw the movie Arrival, you stretched your imagination to try to comprehend linguistic relativity. The main character learned to speak an alien language throughout the film, which is why she began experiencing the passage of time differently. The alien time was experienced circularly rather than linearly, essentially enabling her to time travel as she learned it.
Maybe we won’t become time travelers thanks to the rise of cryptocurrency, but it’s highly likely humanity will experience the world differently when it becomes the predominant medium of exchange.
“It’s probably the biggest thing that’s happened to money since the invention of money… It’s not just a ‘one in a 100 year’ thing, it’s a ‘one in a humanity’ event.” – Willy Woo
How do you think your world has been influenced by the financial framework you were born into? If you start paying attention to the limits of your thoughts, you can push them. Maybe you can begin to predict how future minds will see the world with an entirely new framework, now that you understand financial relativity.
Thanks to fabio for the photo.