Ludwig Wittgenstein once asked a friend, “Tell me, why do people say it is more natural to think that the Sun rotates around the Earth than that the Earth is rotating?” The friend said, “Well, obviously, because it just seems like the Sun is going around the Earth.” Wittgenstein replied, “Well, what would it seem like if it did seem like the Earth were rotating?”

As bitcoin begins its quadrennial bull run, we must brace ourselves for the wider world’s sudden and ill-informed interest. A great many newcomers will arrive with an open mind – as we all did once – but so, too, will many representatives of the incumbents emerge to insist that what we can see with our very own eyes isn’t actually happening because, according to their theory, it can’t.

Bitcoin can’t be a store of value because it has no intrinsic value. It can’t be a unit of account because it is too volatile. It can’t be a medium of exchange because it is not widely used to price goods and services. These are the three properties of money. Therefore, bitcoin can’t be money. But bitcoin has no other basis for being valued, therefore it is valueless. QED.

I call this argument, semantics therefore reality. What could possibly falsify this? It is, at root, a claim about the material world; about what will, or in this case won’t, happen in real life. And yet it looks rather like it relies entirely on the meanings of words. In discussing dollarization in Ecuador – the instructive process of an “official” money being spontaneously replaced by a simpler superior money – Larry White says of those who deny by definition that such a thing can even happen that they, “are only looking at the blackboard and not at what is happening outside the window.” This is a curious approach to understanding novel phenomena that, in general, I would not recommend. Reality doesn’t care how you describe it.

But there is also a softer, slipperier, more agnostic form of the semantic theory that acknowledges that something is happening: that bitcoin is not nothing, but that it surely cannot be money because it is so dissimilar to the standard (semantic) conception of what money should be and how it should behave that the proposition is too uncomfortable to accept. It certainly seems like a network of some kind: It is global, digital, sound, open and programmable. And it has undeniably increased in value from a point in the past when it was worth nothing at all. But does this distinguish it from a regular old financial bubble? Can “money” be reconciled with bubble-like behavior? And is bitcoin’s digital nature such a plus? Doesn’t the Internet enable a speed and potency of virality that is arguably finely tuned to inflate a bubble in anything deemed openly, programmably digital? Bitcoin may be something – maybe the “blockchain technology” it runs on? – but, obviously, it just seems like bitcoin isn’t money.

Wittgenstein would be most unimpressed. He would likely ask, "What would it seem like if it did seem like a global, digital, sound, open, programmable money was monetizing from absolute zero?"

Let us ask that, too.

See also: Allen Farrington - Spiritual Reflections on the Bitcoin Halving

The semantic theory is alarmingly static. This stasis is rooted in its semantic chicanery: many languages have different verbs to distinguish between “being” as in having some property intrinsically or circumstantially, such as ser and estar, respectively, in Spanish. English does not. I am male just as I am hungry. But in which sense is bitcoin volatile? Is it intrinsically volatile or is it volatile at some moment, in some circumstances, relative to some standard? Are goods and services somehow fundamentally resistant to being priced in bitcoin? What happens if you try to do so? Is it like dividing by zero?

Imagine if all respectable business knowledge had been derived from studying large, established companies because there had never been a startup in living memory. If a startup then came along, people might well say, “That’s not a business because it doesn’t make a profit,” or, “That’s not a business because it doesn’t have a defined business plan.” Clearly, this would be ill-advised. That is not to say that their models and definitions would be perfectly wrong instead of perfectly right, but rather that things are not so binary. Reality is messy and it is reality we should care about, not our theories of reality that, it turns out, have never really been tested.

I propose we should reject the arrogance of knowing that a new money cannot emerge because reality follows from our semantics. 

So what would it seem like? It would depend on the relative merits of the challenger and the incumbent, but also on how the perceptions of these merits spread, how perceptions of these perceptions spread, and so on. As the opportunity cost is absolute, the challenger money cannot merely be dabbled in, like a novel social network, but must be sincerely believed. Hence the challenger’s emergence may for a time depend on how individuals in the network think about money itself …

An adherent of the semantic theory would dismiss the challenger out of hand. If it isn’t acting as a medium of exchange and a unit of account then it won’t acquire the network effects to ever do so, meaning it won’t store value either and it can’t be money. QED.

But a more sophisticated observer might be less interested in definitions and look to the circumstances of competition between the two in real life. She would realize money has value on the basis of economic uncertainty, and that the greater the uncertainty we have around its operation, the less useful it becomes; that the demand for certainty it reciprocally fulfills means its value is primarily derived from perceived utility in exchange in the future rather than in the present; that it should support healthy and stable capital formation and that its mechanism should trustworthily capture true scarcity without dilution.

Turning to the challenger, she might be put off by the lack of immediate utility and the uncertainty this unfavorably invites. Nonetheless, she might recognize the value of the essential trustworthiness of its mechanism, and its transparent and limited dilution as providing a useful future certainty that respects the time and energy it aims to preserve. She might be encouraged by its prospects for healthy capital formation and the early signs of such capital formation taking place, and notice that the perception of its utility is spreading, steadily self-perpetuating the size and strength of its network.

As for the incumbent, she might worry its highly dilutive mechanism could not be trusted at all; that the capital formation it supports is toxic and unstable; that its overall operation is highly uncertain and that, as this perception seems to be spreading, its long-term utility and the size of its network is in increasingly serious question.

She might reason that, like Esperanto, its elaborate design may make it pleasing to its designers yet fragile and encumbered in the real world, whereas natural languages and natural moneys emerge and evolve to fulfill a decentralized demand. They suit a coarse reality, not a clean semantics. That these designers seem to have no conception of the importance to money of time, uncertainty, knowledge and capital might make her more nervous still about the likely quality of their design.

But regardless of her own appreciation of the merits, our observer cannot escape that she will also need to pre-empt others’ realization of the merits, and their appreciation of others’ realizations of the merits and so on. The challenger money’s success will be subject to precisely the uncertainty that generates its potential utility. This is not just a trade-off in the minds of economic actors, but a likely source of dynamic instability.

This is all to say that if it did seem like a new money was emerging, it would likely seem extremely volatile, irrational and unpredictable. The individual’s perspective tells us nothing. It possibly tells us less than nothing because it might seem informative as a snapshot of the dynamics of the network as a whole. It might seem like this volatility, irrationality and unpredictability destroys the challenger’s utility as money. But his individual perception is irrelevant to the whole. If it is acted on, by an individual, it affects the whole in volatile, irrational, unpredictable ways, and loops back around to affect his later perception.

If it did seem like a new money was emerging, I propose it would seem more like it were tracking an evolving and messy narrative than obeying a fixed and clean equation. It would be slow and it would be sporadic. It would not be the smooth exponential of a hot new social network, because the nature of its “network effects” would frankly be far more complex. It would be, in essence, the erratic and ever-changing spread of a contrarian belief about the nature of money itself. 

If it did seem like a global, digital, sound, open-source, programmable money was monetizing from absolute zero, I guess it would seem a lot like this.

Thanks to Sacha Meyers, Nic Carter, Pierre Rochard and Robert Breedlove for edits and contributions.