Touching the Stove
Crypto crashes deliver invaluable experiential knowledge.
Every week, I write about technology and culture. This one is very crypto-specific, but I still try to get to the “human” aspect behind the current crash.
This last cycle has proved—for the five-hundred-billionth time in history—that human beings are impervious to wisdom acquired from without, and that our neurons can only be jostled into understanding once we feel the stove’s heat ourselves. Perhaps our fathers’ skepticism surrounding million-dollar digital monkeys should not have been met with eye rolls; perhaps foaming at the mouth every time Warren Buffet is derided is, a little, bestial; and perhaps some regulations go hand-in-hand with reason.
Why did evolution create brains that need to be seared with experience to encode understanding? Because it leads to a species obsessed with experimentation, and while most of our experiments fail miserably, all of our progress comes from the few that succeed. Nature wants us to slap the “outdated” label on our elders’ advice so that we can discover a few new truths while we re-discover countless timeless ones.
And we’ve done just that. We’ve re-discovered the animal spirits that were present in the two-foot towers of toilet paper that overflowed from COVID-lockdown shopping carts; we’ve rediscovered the animal spirits in grandmothers’ hearts when they bought XRP on leverage at the end of 2017; and we’ve re-discovered the animal spirits that drove restaurant owners to accept payment in the form of shares instead of dollars during the dot-com bubble. One need not be a scholar of history to understand human beings’ proclivity for frenzy.
Thus, there is no real excuse for missing the general pattern of madness. However, it is understandable that we didn’t know what to make of the new forms of tinder and fuel. It is non-trivial to predict the de-pegging of an algorithmic stablecoin when we’ve never seen one exist, let alone implode. It is non-trivial to evaluate a new technological primitive that sparks the inception of completely new industries. It is non-trivial to make sense of virtual, game-based economies.
That’s why the Cryptocurrency Kitchen exists: to teach us of the risks that are specific to our industry. Hotel California plays in the background, the temperature is turned up to eleven, it’s open 24/7, and it doesn’t discriminate against anyone that wants to pass through its revolving door—as long as you have something to play with. And as each of us lines up to touch its stove, its output naturally shifts away from “LIMITED NUMBER OF THOUSAND-DOLLAR SUNDAES, GET THEM WHILE YOU CAN” towards real value.
Through this lens, at an individual level, the recent boon and the current crash are evolutionary successes: they have etched understanding onto hundreds of millions of soft tissues around the world. This is vital: the long-term stability of the cryptocurrency industry is a function of the number of brains that carry these lessons’ scars. To accurately gauge our industry’s maturity, we should be counting burns, not Bitcoin wallets.
At the organizational level, companies are now aware of foundational cryptocurrency risks, especially as it relates to treasury management (i.e. don’t put it all into stablecoins that offer 20% APY and expect limited risk, lol). And even though companies will be less in need of regulatory intervention because of their firsthand experiences, they may be more likely to work with regulators on unobtrusive, productive policies. They will certainly innovate more sustainably.
And so, evolution continues in its messy way, increasing our collective antibodies at a rate comparable to Bitcoin’s 2020 tear. Next time, it’ll be easier to differentiate noble experiments from shoddy scams. Next time, fewer well-intentioned institutions will shut their doors. Next time, our communal disinfectant will force ratty institutions to find solace in sewers. Next time, fewer paper-rich families will suddenly become food-poor. Next time, we’ll think more carefully about the relationship between risk and yield. Next time, we won’t be disappointed with short-term 2X returns. Next time, we won’t put up our well-being as collateral while we go searching for pearls.