“To me, it’s just dementia. It’s like somebody else is trading turds and you decide you can’t be left out.”
—Charlie Munger on cryptocurrency, May 5, 2018
Many useful quantitative studies have been done on blockchain and cryptocurrency, presenting data on the number of wallets in use, currency flows, transaction throughput, and price action, as in studies by Cambridge University and the World Economic Forum. However, these studies stop short of explaining why the pursuit of a functional cryptocurrency was interesting to technologists in the first place. What behaviors, exactly, are these systems enabling?
When behavioral phenomena are driven by the promise of new territory or industry, the kind of “territory of freedom” alluded to by Satoshi Nakamoto in his or her letters, the promise of such territory can be hard to measure empirically. Roger Martin, dean of the Rothman School of Management, argues that “the greatest weakness of the quantitative approach is that it decontextualizes human behavior, removing an event from its real-world setting and ignoring the effects of variables not included in the model.”
Several pertinent questions can lead us in the right direction:
Doing it through the opportunity-cost lens of "where are people allocating time?" Develop an ethnographic competency to abductively reason about the future of work using qualitative (not quantitative) assessments:
This essay is intended as a high-level primer for investors. It does not labor over deep technical descriptions of Bitcoin’s inner workings, nor does it discuss the anthropology of money and Bitcoin’s place in that tradition; those topics have been well-covered elsewhere (like in our pieces How Bitcoin Works, Briefly, or Pioneering Academic Work Leading to Bitcoin, or this Brief Introduction to Bitcoin's Technical Design Rationale for Investors).
Instead, we're going to look at Bitcoin as an anthropological phenomenon, and we're going to approach it the way one does when the antecedent and descendant events are unclear; that is, before you've developed valid futuribles, a term we'll explain later.
In short, ethnography and abduction – that is, observation, interviewing, and hypothesis-forming – become useful when the future appears to be outside the real of present imagination.
As the graphic below is meant to illustrate, "default thinking," or deductive/inductive thinking, is appropriate only in the first two contexts above.
When the future is perceived to be highly uncertain, investors need to exercise an information gathering process by speaking to people on the margins of society which are changing the most rapidly, to get an understand of the actual goings-on. This information gatering process, which can be thought of as informal (but agenda-driven) interviewing, is what we refer to with the term ethnography.
Abduction is a gut-reasoning process, but gut-reasoning's limitations come with your level of experience: in a domain you know extremely well, your gut is pretty good. In new territory, it can be the worst thing to rely upon. Uncertain futures by necessity require close study and common-sense insight-making.
"The abductive suggestion comes to us like a flash but it is not a flash available to all. It is an act of insight, although of extremely fallible insight. It is true that the different elements of the hypothesis were in our minds before; but it is the idea of putting together what we had never before dreamed of putting together, which flashes the new suggestion before our contemplation." CS Pierce, Lectures on Pragmatism
The necessity to rely increasingly on abduction is a result of the world "moving faster," whatever that might mean. This acceleration exists in a wider cultural milieu of Discontinuity and Unpredictability characterized by authors 50 years ago:
Understanding secular trends is a matter of gathering the data. The ethnographic process at Iterative Capital was the result of our product development score, in which all internal processes are designed. The process for understanding secular trends is based upon the philosophy of Bertrand de Jouvenel's "framework for conjecture," and works as follows:
“We find ourselves trying to bend the course of events in a way which will bring the probable closer to desire. And this is the reason that we study the future.”—Bertrand de Jouvenal
The goal of abduction is to develop an idea of the future; to understand secular trends and envision scenarios in which their effects might play out; draw reactions; and have secondary reactions.
Before we conceive of any trends, let's discuss how we think about the future more broadly. How do we:
Consider two scenarios:
One is betting on repetition; another is betting on continuation of a trend.
The difference: trends compound.
Secular trends are defined as “Market activities that change by orders of magnitude over the long term, and are likely to continue moving in the same direction.” (Compare to: Cyclicality.)
Secular trends can be thought of as enabling certain futuribles:
“A future state of affairs enters into the class of ‘futuribles’ only if its mode of production from the present state of affairs is plausible and imaginable…. A futurible is a descendant of the present, a descendant to which we attach a genealogy….”—Bertrand de Jouvenel
But what if we are unsure whether we are seeing a secular trend or a reactive action to a trend? Or, a secondary effect of the reaction itself? In short, more ethnography and abductive reasoning is needed if you feel that way. How do we know the driver of is secular and not cyclical? More historical data is needed if you feel that way.
Next, to understand whether our futuribles are part of a secular trend or something smaller-scale, we assess to what degree they are within our control.
What we are looking for when assessing master-ability of a futuruble is scenarios which may throw off false negatives; that is, scenarios which seem to pose no immediate threat at first, but suddenly do later:
Congestion: What other entities or organizations might have similar goals, which could create congestion on the path to success? Could congestion appear later that is not visible now?
Distortions: How might our map of the future become distorted, causing estimates of time and money to be incorrect?
In the ethnographic process, we use gut impressions to highlight areas of subsequent inquiry. To see the results of this process in our latest analysis of 2020 secular trends, click here.
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