Currency is trade. And every trade is based on human trust. The only people who could trade are Homo Sapiens. They had the cognitive and social skills that other species, including Neanderthals, didn’t.
Sapiens bands that lived on the island of New Ireland, north of New Guinea, used a volcanic glass called obsidian to manufacture particularly strong weapons and tools (at list for those times). New Ireland, however, has no natural deposits of obsidian. Laboratory tests revealed that the obsidian they used was brought from deposits in New Britain, a different island 250 miles away.
Trade might seems like a pragmatic activity that can exist without fiction. The problem is that trade cannot exist without trust, and it is very difficult (and sometimes foolish) to trust strangers.
The only way of trusting strangers is by creating a collective fiction – legal companies, religions, tax laws, and coincidentally, currencies.
Why is this important? Because as a currency, bitcoin is far superior to the US dollar. It has no centralized power, transferences are instantaneous, cheap, recorded and irreversible, and it’s private.
The issue is that, apart from currencies, bitcoin and the US dollar are stories. Fictional stories.
The dollar is backed by law, the US government, and international markets. But most importantly, with the collective story that it has value, and you can trade it for other things.
The problem for bitcoin is that, as a story, flunks. Big way. At least for the critical mass of the population.
And that’s what matters. When there is no social limit between individuals, something that’s limited to a small percentage of those individuals, won’t ever succeed.
For bitcoin to win, it needs to become a valid story for a population an order of magnitude bigger than what it is right now.
And for that, it needs trust and transparency.