Saturday, April 02, 2011

The Wise Leader fallacy

I've been thinking a lot lately about taking Bitcoin mainstream. Right now, most people interested in a "nobody in charge pseudo-anonymous" internet currency are libertarians and the techno/crypto crowd.

People like me. Which makes me wonder: are my biases making me think Bitcoin is a technology destined for greatness?

If I play Devil's Advocate and try to think of what might prevent Bitcoin from going mainstream, I think the biggest barrier might be a widespread belief in the Wise Leader Fallacy (which is a form of argument from authority).

We tend to reward and blame our leaders for things that are completely out of their control. If the economy is doing badly-- fire the President. If the baseball team did great during the regular season but got swept in the playoffs-- fire the manager. I think we have a strong need to feel like somebody is in control, whether that somebody is our King or our President or our God.

The idea that wise men are in control of our money is, I think, comforting for most people who believe that our economy can be steered towards stability. They will smooth out the natural ups and downs, making the economy heat up when it is getting too cold and cool down when it is getting too hot.

Combined with people's natural risk aversion and suspicion of anything new, I wonder if that will be enough to prevent people from using bitcoin. "If it ain't broke, don't fix it" is a good rule of thumb; maybe bitcoins will only become mainstream in places where the monetary system is obviously broken.


Unknown said...

I think for bitcoin to go more mainstream, you should find a place where it is well suited to replace a small currently operating near-barter system.

Bitcoin's advantage over current bartering is divisibility and transferability. Bitcoin's advantage over the dollar/paypal in this space is transaction costs.

Finding an industry where producers and suppliers can be the same party at different times would work best, since you have a fewer number of people required to sustain itself. Minimizing the need to transfer in and out of other currencies is essential to wider adoption.

One industry that seems to be a natural fit is the web development. Web developers need hosting and advertising. Hosts need advertising. Webmasters need hosting and development, but can provide advertising. Indeed it seems many of the early adopters are in the web development industry. Because of low transaction costs, bitcoin may be attractive to this group. If you focus your efforts on sustaining the web development economy with minimal cash ins/outs, it could become close to a standard. Eventually people outside the industry may find it a little cheaper to hire a developer with bitcoins rather than paypal. They may find it convenient to join the bitcoin economy.

I think if you concentrate your promotion efforts on finding places where bitcoin's advantages encourage it's usage organically, you will have success.

Rick Hood said...

Just noting that two of my favorite podcasts had Bitcoin featured recently:


Security Now

Jeff Erickson said...

I wonder what it will take for people to realize that their currency is 'obviously broken'? I am seeing more and more criticism of how the Fed has mismanaged the US money supply over the past 80 years or so. Perhaps that will generate more interest in something like BitCoin.

Alternatively, it seems plausible that BitCoin could get big enough that sites like eBay or Google's payment system would accept BitCoins, then it could really take off without it needing to be seen as a nation-wide alternative.

Zooko O'Whielacronx said...

The estimable Mark S. Miller quoting Milton Friedman:

We do not influence the course of events by persuading people that we are right when we make what they regard as radical proposals. Rather, we exert influence by keeping options available when something has to be done at a time of crisis.

Anonymous said...

Required reading for a person who wishes to discuss such topics with some measure of historic insight:

"Lords of Finance" by Liaquat Ahamed

You won't regret it.

Guy Smith said...

BitCoin is too complicated for me to understand... I have to trust the people who say it all hangs together. Has my need for a wise-leader just got solved?

Anonymous said...

On occasional long commutes by car I encounter miles of stop-and-go traffic. The average speed of this traffic might be 20mph, and so - acting like a wise "governor" - I try to maintain the average speed instead of wasting energy braking and wearing out my engine and transmission accelerating with the traffic density waves. (It also helps avoid my breathing the exhaust from the tailpipe ahead of me, and reduces the risk of colliding with the rear bumper ahead of me.)

So how does that work out?

Opportunists jump in front of me when they get a chance, and crowd the empty space I am so carefully cultivating! I suspect there's a lesson to be learned from this experience and applied, e.g., to Bitcoin....

zby said...

“What happened was that everyone in Ireland had the idea that somewhere in Ireland there was a little wise old man who was in charge of the money, and this was the first time they’d ever seen this little man,” says McCarthy. “And then they saw him and said, Who the fuck was that??? Is that the fucking guy who is in charge of the money??? That’s when everyone panicked.” - from

Unknown said...

Very interesting point of view over 6 years later.