There is no Second Best
During an interview mega bull Michael Saylor famously said the following thing:
Which one is the best crypto asset, well Bitcoin is the best crypto asset. What's the second best. There is no second best. There is no second best crypto asset. There is a crypto asset and it's called Bitcoin.
The important sentence here is "There is no second best" – emphasis of mine. That saying has hence become iconic in the Bitcoin space. Today I would like to talk about the reasons why I would agree with him. Moreover this also plays into our other saying which we covered in this blog – "Stay humble and stack sats". By the end of this post you'll hopefully understand why both sayings are linked and why I believe Michael Saylor was right with his assessment that there is no second best crypto asset.
In the big world of crypto assets everybody is looking for the next Bitcoin, chasing the next 100x coin from which they hope to get rich. But in reality 99.9% of these newly established crypto assets lack the important properties that make Bitcoin unique at its core. The most frequent is decentralisation. The decentralisation of Bitcoin is the reason why it is so robust. There is no head of Bitcoin just the network in its entirety. This means that if the government or a bad actor wants to corrupt Bitcoin they cannot go to a single point and extort or manipulate it. They have to corrupt the entire network simultaneously in order to achieve their goal. This is nearly an impossible feat as there a thousands of nodes and even if they corrupt a significant portion of the network the honest nodes cannot be forced to accept the corrupted rules (I heard a great book on that topic is the Blocksize wars but I must admit I haven't gotten to the book myself yet). Most of the new crypto assets out there have a central person, foundation, company or a similar single point of failure which makes the asset clearly centralised and not decentralised. True decentralisation is a core feature for a network to stay uncorrupted. Through a single point of failure the network has a weakest link. Those single points can often also very easily decide in which direction the network will move forward to. Monetary policies can be changed and have been changed before. This is not sound money that's just a central bank on a blockchain. There are other factors that reduce the decentralisation of a network like the speed of new blocks or the size of blocks. If there is too much data flowing in the network smaller nodes won't be able to keep up or it will be just to expensive to keep up in general. This will reduce the count of nodes in the network. A low count of nodes means low decentralisation. If a network only has a hundred nodes the government or a bad actor can easily go to the limited number of nodes and extort or manipulate them. That's why it is important that a network is decentralised. There are several other aspects like a pre-mine for example but for reasons of brevity I won't go into details on that.
In order to understand why there will be no second best you also have to understand two more things. Firstly, the design space of money is limited and secondly that Bitcoin will suck up all inferior forms of money into itself. About the first point. What is meant with the design space is limited is that there are not too many ways in which you can improve on the properties of money. I outlined the properties of money in a previous post: "Is Bitcoin Money". Going through some of the properties. Limited supply: I believe that it is impossible to have money which is sustainable with an inflation rate below 0%. Bitcoins long term inflation rate, after all Bitcoin are mined into existence, will be zero. How does one improve on that? Money with a negative inflation rate – seems non sensical and is unsustainable in the long run. Money with a constant positive inflation rate would be the current system with some adaptations – so also bad. So in the regard of the money supply there does not seem to be a whole lot of change possible. The next point is that Bitcoin lives in cyberspace. This means that your Bitcoin are at all points at the same time. Bitcoin transactions can happen as fast as information can travel which is close to the speed of light. Not to get into a physics lesson here but from my basic physics classes I know that nothing can travel faster than the speed of light, hence we have reached the limit in that regard as well. This concludes that we have improved portability to a very high level and I believe that we are hypothetically not bound by the speed of light. If for some reason we find a way to communicate information faster than the speed of light we can use these rails to transfer our Bitcoin information as well. There maybe some small step function improvements that can be done to some other aspects of Bitcoin but any improvement that is implemented on a new network has to make that network a hundred times better due to network effects. Bitcoin is already quite a large and established network. In order to beat the Bitcoin network a new network has to be a lot better than Bitcoin in order to break up those network effects. For a similar reason people are still stuck on Facebook or WhatsApp because there are strong network effects at play.
Now, why will Bitcoin suck up all inferior forms of Money. Bitcoin is the hardest asset we know of. History has shown us one thing, weaker money was always absorbed by harder forms of money. The winner of them all were silver and gold and then gold even sucked up silver and we had one global winner which was gold. People will always strive to store their wealth in the hardest money available to them. The reason for this is human action and the history is very well explained in the Bitcoin Standard by Saifedean Ammous. I will give a very brief summary of the concept. People are not stupid and if they see that their money is being devalued they will try to find an asset which does not devalue as strongly as the previous. For the same reason we see that people and businesses in developing countries with high inflation prefer to transact in dollars instead of their local currencies. They have found out that saving in the dollar or other limited properties is more profitable – or leads to less losses – compared to their local currencies. The same effect happened throughout history in a process of constant observation and action which ultimately lead to gold. Since gold lost its status as global money of the world in the 20th century – officially thanks to Nixon in 1971 but it was already looming since the two great wars – the dollar was at the top. But this time there was a crucial difference. The dollar – which is fiat money – is a lot weaker as a currency than gold because it can and is being printed with the press of a button and has been inflating at a high rate for at least the last century or so. The consequence was that many people who have had savings have lost their wealth over time. The people who saw the constant debasement of their money bought hard assets like real estate, gold and stocks. They were protected. The issue with the dollar was its comparably "low" rate of debasement, high enough to hurt but not too high such that people would largely notice the cause of their wealth diminishing. What they did notice were the inequalities which were established through the fiat system. Real estate, gold and stocks have received a monetary premium just because we have a very weak currency. They maintain that monetary premium because our money keeps devaluing. The argument now is that they will loose that premium once enough people have adopted sound money. So to conclude, we can say that if we reach a point were enough people would rather save their wealth in sound money than "risky" assets, those risky assets, real estate, gold and stocks, will be demonetised. I will definitely do a post on that topic because it is crucial in understanding why Bitcoin will most likely see global adoption. As I said in Stay Humble and Stack Sats: "Saving in Bitcoin will become the most rational course of action." In general the goal in this blog is to show you why this is the case. An in-depth analysis of this understanding will come in a following blog post.
Considering that Bitcoin will suck up all weaker forms of money we have simultaneously established that all the weaker crypto assets won't survive because they will get sucked into Bitcoin. Hence there is no second best asset in the long run. Bitcoin is at the top and the rest are distractions trying to take your Bitcoin. So don't be distracted by the other crypto assets promising insane returns because 99.9% of them are not worth your time and they will just take your Bitcoin and you will be left with worthless coins. So stay focused on sound money and stay humble and stack sats.
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