Bitcoin: The Mathematics Of Rocket Science
Rediscovering Wiener’s work in a journey starting from WW2, the landing on the Moon and the re-humanization of Finance through the future wave of Conscious Leaders.
This newsletter does not represent the views of the author’s employer and is not a financial or investment advice.
It is intended as a psychological, philosophical and systemic approach to the Bitcoin phenomenon to elevate the consciousness levels in the finance industry.
The newsletter is solely targeting Bitcoin and should not be generalised as views to the wider theme of Blockchain technology.
The writing of this article intends to be gender-neutral.
From Bitcoin Genesis to Bitcoin Monopoly
“New research shows that just 0.01% of bitcoin holders controls 27% of the currency in circulation.” —WSJ, Dec 2021
Happy New Year!
One of my wishes for 2022 is the development of a Conscious Crypto that serves as a solid alternative to the Bitcoin prototype.
Thirteen years after the Bitcoin Genesis - the mining of the first 50 coins on 3rd Jan 2009 - the “Bitcoin Idea” of being a solution to the financial system’s problems has proven to be corrupted by its implementation.
From a supposed fair system that gives the power back to people through a decentralisation power, the reality is that the “Bitcoin Implementation” has rather created a monopoly for the 0.01% early adopters.
Only artificially sustained by a multi-billion dollar marketing machinery, Bitcoin is no longer a solution but, worse, has become a bigger problem.
In short, Bitcoin is not sustainable, not fair, not green, not practical and not scalable.
From Bitcoin Monopoly to Conscious Crypto
“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” —Buckminster Fuller
A Conscious Crypto is therefore needed to replace Bitcoin as a solid alternative.
An alternative that is not only technically 10x more advanced but as well with rules coded in its algorithm that makes it a self-regulated system to prevent:
…and so on.
Such Conscious Crypto must be developed & implemented by the next wave of future Conscious Leaders, moving away from the belief that Finance & Technology are “neutral” from human nature.
Indeed, both Finance & Technology have deviated tremendously from more humanistic disciplines such as Philosophy & Psychology in the past decades.
We had a convergence of Psychology & Economy with the discipline of Behavioural Economics.
Still, the truth is that it failed to be integrated into the Financial sector on the modelling & behaviour support as an objective practice.
The future Conscious Leaders in the Financial industry will be those capable of re-humanise the sector by converging the apparent opposing technical and humanistic disciplines into the profession of a banker, analyst, developers and regulators.
More than words, there is a need to have a practical objective on achieving that.
The creation of a Conscious Crypto is one of many such possibilities.
From Conscious Crypto to Conscious Leadership
"The best way to predict the future is to create it."—Peter Drucker
The future wave of Conscious Leaders will be capable of envisioning the power that a Conscious Crypto can have in society and having Finance to be used to the service of society back again; the option & value creation in a fair system.
Future Conscious Leaders will have an understanding of new mathematics needed to model the markets, with first principles better aligned with the collective human nature.
Future Conscious Leaders will empower people to be able to innovate and use their natural creativity and the willingness to succeed aligned with ethical values.
Future Conscious Leaders will have technology working on behalf of finance practitioners to move work away from mundane tasks.
Future Conscious Leaders will have a wider thinking spectrum between the technical & philosophical approaches to Finance.
In this newsletter, we will present the main building blocks on becoming a Conscious leader and the new mathematics needed to model a Conscious Crypto.
To make the task easier, it is crucial to draw a parallel with past events and rediscover knowledge available to us but lost in history.
History of Technology vs Human Nature
“Technology is not neutral. We're inside of what we make, and it's inside of us. We're living in a world of connections — and it matters which ones get made and unmade.” ―Donna Haraway
It is vital to be conscious of the difference between the technology - the idea - and technology - the implementation.
An example of that is rocket technology.
The growth of rocket science started decades ago during the Nazi regime and WWII.
Coming from the WWI defeat, Germany was ruled out to develop weapons of war as per the Treaty of Versailles - except for a loophole that allowed the development of rockets.
Germany became a leader in rocket science, led by the scientist Wernher von Braun, who served the Nazi regime on constructing the V2 rockets intending to bomb London.
The V2 rocket's greatest impact was psychological - it came over silently and hit without warning.
Eventually, as the Allies won WW2, Von Braun escaped the Nazi regime and surrendered to the American military forces.
When the US soldiers uncovered the V2 factory in 1945, they found 25,000 dead bodies in the construction site - slaves used to fabricate the V2.
More people died building V2 than were killed by it!
As news that Germany was to be split in two between the Allies, the US had a month to dismantle 100 rockets and make the biggest dislocation of materials before they were handed to the Soviets.
The V2 technology was later the springboard during the US Space Program to win the race against the USSR.
History has shown that rocket technology can be used as weapons of destruction or scientific tools to explore the mysteries of the Universe.
Any powerful technology in the wrong hands can be highly destructive, but in the right hands can create wonders.
Blockchain technology is no different.
Walt Disney Marketing Strategy
“Let us imagine for a moment that the many problems have been solved and that after completing our space station, we are ready to begin our first voyage around the Moon.” ―Wernher Von Braun
The quote above from Von Braun is taken from a television program promoted by Walt Disney to capture the public imagination on the wonders to travel to the Moon.
This was a key moment in the Space Program that led the US to win the race against the USSR to place a man on the Moon.
With the collaboration of Walt Disney, Von Braun created three television shows;
It was no coincidence that the programs were shown in this exact order.
That was Von Braun’s Space Program step-by-step strategy with the end goal of placing a Man on the Moon and beyond.
The reason why such television programs were broadcast is probably less obvious.
After arriving in the US, Von Braun realised that the military funding was being diverted to projects to develop aeroplanes and navy with less engagement to rocket science.
Frustrated with the lack of commitment from the US Government, Von Braun took radical measures. He decided to sell the idea of a Space Program directly to the American public, overpassing the politics of administrative offices.
He used one of the most powerful industries of public persuasion - the entertainment industry!
Walt Disney was an obvious choice at the time, creating a strategy that both parties could benefit from.
Indeed, in the first program broadcasted, Walt Disney reached an audience of 40 million people.
An ingenious marketing strategy led to the popularisation of Von Braun ideas to later enforce the US Government to fund his projects.
He understood well the power of combining a marketing strategy with his technical knowledge and vision.
During the shows, Von Braun was very meticulous and detail-oriented when presenting his vision to the public - triggering the imagination and a willingness to explore such ideas spoken by a trusted authority.
He also wrote science fiction books to consolidate his marketing strategy.
A couple of interesting facts worth noting:
“The Martian government was directed by ten men, the leader of whom was elected by universal suffrage for five years and entitled "Elon." Two houses of Parliament enacted the laws to be administered by the Elon and his cabinet.” ―Wernher Von Braun, 1953
As Von Braun was selling the dream to the American public, on the other side of the world, his silent rival Sergei Korolev.
Korolev was released from the Gulag to act as the Soviets' rocketry expert and bring Soviet rocket technology up to date with that of von Braun.
As he started to succeed in the project, the Soviets feared that Americans would assassinate Sergei and asked him to keep his anonymity.
Sergei lived as if he didn’t exist, so no one should know his name and identity as he was becoming as powerful and important as his rockets.
The strategy resulted in the USSR placing Sputnik in orbit - the first artificial satellite flying over the heads of the American nation who was sold a dream turned into a nightmare.
The Parallels With Bitcoin
The Space Program was a history of power games, deceit and ruthless actions, with a parallel to Bitcoin history - with powerful marketing machinery selling a vision to the public of a world ruled by a decentralised system and an economy free of inflation and financial crisis - giving the power back to people.
Recommended by LinkedIn
The reason why Bitcoin Believers buy this story - while knowing it has plenty of flaws and doesn’t really make complete sense - is not because they believe in the narrative, but because the narrative leads them to a world they dream of being.
Deep down, Bitcoin Believers accept being deceitful about the false narrative as long as it leads to what they want.
Such a phenomenon has been amplified by the Covid social restrictions that lead to isolation and an increased feeling of self-preservation, which has added to a sense of lack of meaning that has preceded well before Covid.
However, there is a big difference between Bitcoin and the Space Program; Gravity.
During the Space Program, there was a clear objective of placing a man on the Moon but as well a clear challenge to overcome the force of gravity.
Contrary to rocket science, there is no gravity law acting against Bitcoin as most of it is driven by wishful thinking that resembles more of a cult than dealing with reality.
In particular, there are no “checks & balances” in the form of regulations to counteract the cult behaviour of Bitcoin Believers.
Bitcoin’s technological evolution has been extremely slow because, contrary to the V2 rocket technology, there is no gravity law to bring people to reason and face the harsh realities.
What prevents such development is not just technical challenges but also the absence of clear restrictions & metrics to get solid feedback on progress.
Bitcoin prototype is instead propelled by collective delusion and group herd behaviour.
Take the example of a time during the Space Program in a leap to upgrade the rocket technology with no less than 800 modifications to overcome the flaws with the previous generation of rockets.
800 modifications!
It is hard to imagine the Bitcoin prototype going through such a level of technological transformation when it is still stuck in the highly inefficient proof-of-work since its inception, causing a huge energy consumption.
And with the absence of “checks & balances”, the show goes on, leaving Bitcoin as a prototype 13 years since its creation.
It is no wonder that former Bitcoin Believers have realised this cult behaviour and left the show to build their crypto version.
As Charles Hoskinson - a former Bitcoin Believer turned into the creator of Cardano - claims, “There has been so much investment done in Bitcoin that instead of evolving the base layer at all, we’re just going to build this layer two stuff which is usually highly fragile and centralised and requires enormous effort at the base level to do anything.”
Please note: this is in no way a marketing of Cardano. The author of this article doesn’t believe we currently have a Crypto that fully works for the benefit of society, i.e. a Conscious Crypto - and the main reason is not necessary technological but rather the lack of Conscious Leaders who are capable of bringing technical & human knowledge together.
HODL-cult behaviour hates evolution.
Bitcoin has been one of the most technological conservatism systems where developers hate innovation.
But the problem is not only on the level of Blockchain technology but also on having a deeper understanding of the underlying dynamics that a crypto economy can hold - so that one can create a solid alternative to the Bitcoin prototype.
As we soon will see, a new financial mathematical framework is needed to depart from the conventional one, a framework that places network effects at its core.
Norbert Wiener, Cybernetics & Systemic Thinking
“Progress imposes not only new possibilities for the future but new restrictions.” ― Norbert Wiener
Mathematician Norbert Wiener is best known in the Finance industry for the Wiener-process that describes the random behaviour of market prices.
Wiener also developed a field in mathematics less known to Finance practitioners to model the turbulence and trajectory correction of rockets; cybernetics.
Cybernetics lead to the wider field of complex theory, to have a systemic understanding of complex systems, including network effects.
In the case of rocket science, had engineers simply used the Law of Gravity, launching a rocket to space would have been a trial and error exercise.
Due to the air turbulence felt by the rocket - particularly when crossing the sound barrier - there is a need for a science to model this and other factors that destabilise its trajectory.
One can think of the analogy with the current state of art in modelling the behaviour of financial instruments, where the current science is similar as if just taking the Law of Gravity into account and ignoring feedback loops and complex destabilising factors in the system.
The case of Bitcoin is very particular as one can question if there is any “intrinsic value” aside from a network effect.
The “intrinsic value” can be seen as a “mass” that has no dynamics under the conventional Newtonian Gravitational Law.
Or, to put it simply, conventional mathematical finance has little to no relevance in understanding the Bitcoin phenomenon without considering feedback loops and complex destabilising factors - worse than ignoring cybernetics in the launch of a rocket into space!
Therefore, since Bitcoin economics is derived from a network effect, it is surprising that cybernetics and complex systems approaches haven’t had much attention in the crypto community.
Complex & systemic thinking has been a resurgent field in Physics, as proven with the 2021 Nobel Prize award.
Daniel Garisto from Santa Fe Institute described that “spanning disciplines and notoriously difficult to define, complex systems science has struggled to achieve the mainstream recognition of older, more established fields. But the acknowledgement from the Nobel Committee, arguably the most prestigious award-granting assembly in the world, has emphasised its importance and beauty. “
Santa Fe Institute is one of the institutes at the forefront of research of Complex Theory, including in the application of crypto economies; see, for example, this seminar.
Norbert Wiener, best known in the Finance industry by the Wiener-process, may well be in the future be equally known for his work on Cybernetics & Complex Systems.
The Genesis Of Conscious Leaders
"There is no birth of consciousness without pain." ―Carl Jung
Bitcoin Believers proclaim having found the solution to create a more fair and stable financial system.
A system where people can preserve their wealth and combat the deflationary forces from the centralised power that prints money at its will.
However, a deeper dive into such alternative dynamics reveals that Bitcoin Economy is based on the same underlying paradigms of the Austrian School of Economics - a blind belief in mathematics and a market dynamics toward an “equilibrium”.
The major difference is that in the Bitcoin Economy, there is a change of the boundary conditions in such a utopic market “equilibrium”, translated with a limited supply of 21 million coins. Together with additional incentive dynamics to the miners of those coins.
In practice, what such a hypothetical “democratic” dynamic system led was a monopoly to the 0.01% early adopters, completely failing on the initial idea to create a fair system of giving the power back to people.
Only the future wave of Conscious Leaders will genuinely understand the need for a paradigm shift towards complex social system & systemic market approach and away from naive fixed boundary conditions & market “equilibrium” dynamics - particularly to the development of holistic crypto valuation methodologies.
However, there are tensions preventing the genesis of such a new wave from being formed, mainly due to the following four reasons:
Once untrapped from such a downward spiral cycle, the future wave of Conscious Leaders will achieve the following:
So what specific actions can a future Conscious Leader start doing?
Only by creating an upward spiral dynamics can one reverse back the current downward spiral dynamics - leading to the genesis of the future wave of Conscious Leaders.
Conclusion
“Men have become the tools of their tools.” —Henry David Thoreau, 1854
Covid-19 has brought a disruption in society, coincidentally leading to a revamp of Bitcoin valuation, but as well questions the meaning of our work that will lead to a wave of innovations.
And in that search of meaning at work, one can recognise that the majority of the finance practitioners operate with linear & quadratic thinking - with rare exceptions capable of complex & systemic thinking.
This is not innocent.
For example, in the Derivatives market, there is a deep reliance on the archaic Taylor Expansion mathematics used to risk manage the position on a daily basis.
From a systemic lens, finance practitioners' thinking reflects the shortsightedness of first & second-order Taylor expansion, the tools used to perform their job.
It is not much different from the linear thinking used by hunter-gatherers.
Hunter-gatherers learned from quick feedback — put your hand in the fire: it gets burned — and their actions had little impact on their wider surroundings.
Many Finance practitioners operate as hunter-gatherers, on a continuous day-to-day survival mode with little broad understanding of the wider picture.
Blockchain and, in particular, cryptocurrencies operate from a network effect.
If Finance is to operate in such a setting, Finance practitioners will be required to understand the behaviour from systemic & complex mathematical tools and away from the Taylor expansion.
That will open the opportunity for the emergence of Conscious Leaders, who will have a systemic perspective both from a technical & humanistic side - and with that, the design of a Conscious Crypto to replace the Bitcoin prototype.
Bitcoin system design promotes an economy of self-interest and not a society with altruistic values.
The system is mainly designed to compensate miners and create a monopoly by holding as many coins as possible to reduce supply further and artificially inflate its value.
The system has no self-regulated function to promote altruistic behaviour to balance the wealth redistribution.
Or, in a mathematical language, there is no “objective function” programmed in Bitcoin code to do so.
Bitcoin prototype is like the early V2 in rocket science, believing that to be enough to “reach the Moon”.
The source code is there, it works, people are using it, but its implementation is full of flaws.
Not sustainable, not fair, not green, not practical and not scalable!
Society and the sustainability of the economy depend on reciprocity & collaboration between people, and money is a form of exchange between services & goods.
Bitcoin promotes a society based on self-interest with no reciprocity or collaboration but instead plays a game of artificially inflating money.
Bitcoin is no longer seen as a vehicle to change services and goods but rather as a scheme of artificial wealth.
In particular, the system diminishes the actions of altruistic operators who are ready to punish defectors and free riders, even if it costs them personally.
Only a Conscious Crypto developed by the future wave of Conscious Leaders will be able to change the situation and use Blockchain technology for the development of humankind.
And not for the greed & selfishness of a few who wish to declare their independence from the rest of society.
Nuno Reis
Former Bitcoin believer turned into a Bitcoin sceptic.
Disclaimer: Opinions expressed here are on my own.
#bitcoin #cryptos #esg #esginvesting #consciousleadership #futureofbanking #futureoffinance #singularity