Is Steem a Collective Fiction or a Collective Delusion?

Fact and Fiction

We like to think of the difference between fact and fiction, as the difference between real and unreal. You will go to a bookstore and find different sections, some are based on fact and reality such as history or science books, and others are fantastical fictions, like The Lord of the Rings or even more mundane fictional stories like To Kill a MockingBird. Don't be misled though, what makes something a 'fiction' is that it is originates in our minds, as opposed to facts which originate in the external world. While fictional novels represent stories and worlds that are not real, your life is permeated by fictions that have become real.

Collective Fiction

Some fictions have a bizarre power that they can become real as long as enough of us truly believe in them. You may be married, or your parents may be. The marriage of your parents originated in someone's mind. There is no physical constraint keeping people married, it is the collective belief and the rituals surrounding marriage that take it from an idea to something real. Something which can affect your life in profound ways, and even affect the likelihood that a couple will stay together, have kids and be happy.

There are many other examples of collective fictions, as a society we depend upon them to be able to exist peacefully at a large scale. Countries, governments, institutions and money are all fictions that have become real because we believe in them, and we know others believe and treat them as real. And they are real, despite the fact that if we stopped believing in them, they would cease to be.

Collective Delusion

Not all fictions have this power. I mentioned earlier novels like The Lord of the Rings. No matter how many of us believed that Frodo Baggins was a real person, it would not make it so. Hobbits would still be imaginary and not be able to walk the Earth (or Middle Earth) just because we believed it. The reality of government and money can be measured by its impact on the world. The existence of hobbits could also, if they were real, but we do not see any. Fortunately few if any people believe the Lord of the Rings is real, but there are other stories which people do believe in. If you are a religious person you may not consider your own religion to be fictitious, but you likely would recognize at least some others as such. When people believe something that is not real, we call it a delusion. Any fiction that does not become real by virtue of believing it, but many people believe it anyway, is a collective delusion.

A Third Category - The Combination of the Two

So far it seems pretty straightforward to identify the difference between a collective fiction and a collective delusion. Unfortunately it's not always as clear cut. Sometimes a collective fiction can seem real for a long time, but be based upon foundations that make it false.

My favorite example is the South Sea Company of the early 18th century. It was founded in 1711 on the model of the successful East India Company and was to have a monopoly on trade in the ports of Central and South America. It was also functioning effectively as a second central bank issuing national debt for the British Crown, because the Bank of England was controlled by the opposition at the time. I won't go into all the details of the story, the company was a collective fiction and it was real in the same sense that any other company is. However what was not real were the beliefs that surrounded the company. For example although they had a legal monopoly on trade, the Spanish port cities in South America were blocking access for the company. The company cooked the books in terms of their finances, and used a myriad forms of credit (guaranteed by the Crown) to allow people to buy their stock and raise the price on the open market. The company stock price peaked in 1720 and crashed in the same year. It crashed again in 1721, though the company continued to exist until the mid 19th century.

The South Sea Company was simultaneously a collective fiction and a collective delusion. It was real, it had executives, employees, credit, a balance sheet and it even had some ships. It was also a collective delusion because society at large believed things about it which, no matter how hard they believed, would not become real by belief and will alone.

So What About Steem, Bitcoin and Fiat Currency?

Readers of my blog are likely interested in cryptocurrency, and I suspect you can already identify how fiat currency can be like the South Sea Company, a collective fiction that is real, yet also a delusion. The average lifespan of a fiat currency is 27 years - they usually end in hyperinflation and are either replaced or re-pegged as commodity currencies. The fiat currency works, is real and practical until it doesn't. The delusion is broken by people abusing the power to issue new currency, and no matter what people believe about the money, oversupply will always result in a downward spiral of purchasing power.

Steem, Bitcoin and other cryptocurrencies are a bit murkier. We at least know that there is limited, predictable issuance of the tokens. However, how many other beliefs are we relying on being true, for cryptocurrency to be as sound as we think it is? It has limited supply, but are there ways around that? Can exchanges create extra de-facto supply by means of fractional reserves? Are there scenarios where you would be forced to pay large sums of your cryptocurrency to be able to spend it? Is "Store of Value" truly a sustainable use-case for cryptocurrency, or does it rely on people believing they can get rich by selling at a higher price to someone more foolish than themselves? Can the token you believe in withstand the constant proliferation of other new tokens on the market which can act as a substitute? Can they become user friendly? Will people really use them? I will leave the answers to those for the reader to decide. All I will say is, cryptocurrency is complicated. I don't understand it all myself. Quite a lot needs to be true for cryptocurrency to be genuinely sound, to be a collective fiction we can rely on, and not a collective delusion.