How Rational Optimism Fuels Belief In Crypto

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The year 2022 may have started on a high note for the crypto industry, but the current situation is very far from ideal.

Bitcoin prices have crashed by more than 50% this year after previously recording spectacular all-time highs. The general market downturn has also hit crypto companies badly, with many laying off workers and others filing for bankruptcy. Amidst all the ongoing drama, million-dollar crypto hacks continue unabated, while promising DeFi projects go down under.

With all that happening, many would expect those in the crypto industry to cut their losses and hit the exits in a frenzy. But that isn’t happening—at least, not yet. This is even as the media pundits claim the current crash is evidence that “the blockchain dream was too good to be true”.

This naturally brings up one question: “Why?” Why are players in the crypto industry—developers, researchers, startups, investors, creatives—refusing to call it quits and move on to other things?

Perhaps there’s some shadowy “Global Cult of Crypto” forcing members to drink the Krypto Kool-Aid? Maybe that would explain why those damned ‘crypto bros’ fail to see that the end is nigh.

It does turn out that the answer is very simple: early crypto adopters are rational optimists.

What is Rational Optimism?

The first time I heard the word “rational optimism” was while listening to a podcast by Naval Ravikant, titled Rational Optimism Is The Way Out. It’s only two minutes long, but it offered enough insights that had me thinking for a while.

“Rational optimism” combines two ideas, rationality and optimism, so let’s explain both terms first. The agreed-upon definition of ‘rationality’ is “being able to exercise reason”. For example, we are rational when we see reality for what it is, not what we want it to be.

Meanwhile, ‘optimism’ is used to refer to “a state of hopefulness and confidence about the future or the success of something.” For instance, Alice is “optimistic” if she thinks her startup will succeed even though statistics say nine out of ten startups always fail.

Combining both ideas gives us ‘rational optimism,’ which I define as “the ability to accept the reality of a situation while remaining confident that we can make things better.” Serial entrepreneur Brian Clark also has a great definition of rational optimism:

Rational optimism is critical for almost every life endeavor, whether that’s creating businesses, building valuable products, or solving the world’s problems. Here’s how Naval describes it:

Essentially, to create things, you have to be a rational optimist. Rational in the sense that you have to see the world for what it really is. And yet you have to be optimistic about your own capabilities, and your capability to get things done.

Rational optimism is different from the sunny-eyed and utopian thinking of irrational optimists. A rational optimist doesn’t naively think life is all rainbows, unicorns, and sunshine. The rational optimist sees all that is wrong currently, but crucially—and this is what separates them from pessimists—believes that things can get better.

Without rational optimism, making progress and improving lives is difficult. By default, innovation and change require believing in a future that seems near impossible, given the status quo.
People like Elon Musk, who do impossible things and take risky bets, are rare examples of rational optimists in the world today.

Crypto and the Power of Rational Optimism

If you’ve read up to this point, you may ask: “What does this all have to do with crypto?” The answer (again) is quite simple: rational optimism has everything to do with crypto.

Rational optimism is an inherent quality of early crypto adopters. If anything, the first rite of passage for every crypto supporter is to become a rational optimist.

The past, present, and future of the cryptocurrency industry is a tale of rational optimists. And we can even formally prove this theory by evaluating the qualities associated with rational optimism:

Maintaining bias towards action

Rational optimists maintain a bias towards action. This means they are more likely to work on solving hard problems and creating things that provide value.

It also means rational optimists prefer finding out if something is viable or not by taking action, not mulling possibilities in their heads. “If it works, good; if it doesn’t, we learn from failure and use that information to make something better.”

Rational optimists in Web3 are the ones constantly pushing the bounds of innovation and using blockchain technology to solve real-world problems. Identity protection, decentralized social networks, fairer financial systems, equitable public goods funding, community-owned organizations—the examples are limitless.

The blockchain ecosystem is filled with rational optimists taking action. They’re not sitting around complaining and playing doomsday prophets, nor are they overly confident that these approaches will work. Nevertheless, they’re putting “one foot in front of the other”, learning from failures, and constantly re-iterating to create better solutions.

Making asymmetric bets

A rational optimist makes “asymmetric bets.” To make an asymmetric bet is to take an action which has limited downside and unlimited upside. In other words, the (potential) positive benefits that accrue from the action outweigh the negative consequences.

Anyone who’s into crypto in 2022 is taking an asymmetric bet on the prospects of the industry. Just like those who bet on the Internet in the early 2000s, early adopters understand the payoff waiting for them if crypto goes mainstream.

Of course, there are downsides: the current market crash is reminiscent of the dot-com bubble burst and has led to huge financial losses for financial investors. Web3 product owners also have to contend with slow adoption rates and limited user bases. And there’s no guarantee that every Web3 application will find mainstream usage, so all that effort spent on building may count for naught eventually.

But that’s the nature of asymmetric bets: they offer uncapped advantage at the cost of taking on finite risk.

Satoshi Nakamoto couldn’t know if Bitcoin would fail, like earlier attempts at creating digital currencies, but they built it anyway. Today, Bitcoin is an asset with a trillion-dollar market cap.

Similarly, Vitalik Buterin could have simply shuttered plans for a decentralized, general-purpose computing platform after his ideas initially received lackluster support. But he built Ethereum, anyway, which has become a billion-dollar ecosystem creating value for millions around the world.

In both cases, there were tangible consequences associated with failure. If Bitcoin failed (like Digicash), Satoshi would deal with the crippling self-doubt and sadness that comes with building a failed product. Ethereum’s failure would have had Vitalik dealing with many I-told-you-so’s and questioning his decision to end his university education to build a new blockchain.

Playing wealth games

You can separate rational optimists from others, especially pessimists, by observing the “games” they play in life. By “games,” I don’t mean video games, but those activities to which we dedicate our time in hopes of achieving specific results.

While we play many games throughout our lives, wealth games and status games are the most popular. People (obviously) play wealth games to make money and status games to gain societal rank. But there’s a bigger difference between the two: wealth games are positive sum games, while status games are zero-sum games.

A positive-sum game is one in which the total gains and losses in the “game” are greater than zero (i.e., “everyone wins”). The opposite is a zero-sum game where one person’s gain is equivalent to another’s loss—for Alice to succeed in a zero-sum game, Bob must lose.

Wealth-creation is a positive-sum game because making money doesn’t have to be at each other’s expense. We may not get the same amount, but at least everyone gets to have a piece of the cake.

Crypto adopters and wealth-creation games

Crypto’s promise of democratizing access to the financial system and unlocking value for all individuals without discriminating makes it a positive-sum game. DeFi protocols generate billions in revenue today, but unlike traditional finance, users have better chances of benefitting from the wealth flowing through the system.

People building crypto products are playing wealth-creation games because the goal is to have an open, accessible, and equitable financial system. Hardly is anyone building a product in Web3 and saying, “the company gets to keep 100% of all profits” or “people from X country cannot participate in this enterprise.”

Playing wealth-creation games requires exercising rational optimism.

You must believe that it is possible to create public goods that benefit everyone. You must believe that “we are all going to make it” regardless of differences in access to opportunities.

You also need to believe that, contrary to the notion of the world as a cutthroat, Darwin-esque environment, we can collectively achieve positive outcomes. All of this cannot be possible without rational optimism.

The media and status games

Status games are (unsurprisingly) the preserve of pessimists. As a zero-sum game, chasing status always involves bringing others down (often through criticism) to boost our ego. For instance, those who attack wealth creation or technological innovation—like the media does—are essentially playing a status game.

Pessimists in the media want you to believe money is evil and that the technology that creates money is evil. It isn’t because they care about you; they just want to sound smart and signal virtue to others.

Moreover, the pessimist gains more satisfaction from saying how something might not work instead of trying to make it work. All of this is an effort to score invisible “status points” and secure a higher position in the social hierarchy at the expense of others. You can see it in the way media pundits paint Web3 as just another capitalist cash grab or discredit the potential of blockchain technology.

For what it’s worth, the media’s anti-crypto stance has a comical quality to it. First, they spend time highlighting problems—broken financial systems, reliance on Big Tech, et cetera. Then someone tries to solve the problem with blockchain technology, but they don’t like it and choose to turn and haul criticisms instead. And all this while they cannot offer tangible solutions to these same problems.

Rational Optimism is the Way Out

At the end of the podcast episode mentioned earlier, Naval declares: “Rational optimism is the way out. The data supports it, and history supports it.”

To be in crypto is to be a rational optimist—there’s really no other way to put it. It takes rational thinking to understand that the crypto industry is young and faces problems.

We all agree that MEV is still a problem, blockchains are becoming centralized, and smart contract security needs to improve. Besides, the implosion of Voyager, Vauld, and Three Arrows Capital is evidence that crypto-native financial institutions need more transparency and oversight.

At the same time, we’re optimistic that these problems can be solved by harnessing the power of human creativity and innovation. Utopia isn’t promised, but at least, we’re building, supporting, and investing in financial systems and technologies that can improve lives and lead to more flourishing for a greater number of people.

Finally, although creating financial value is a worthy goal, we don’t see crypto as a get-rich-quick scheme. Instead, we believe in crypto’s potential to make wealth-creation accessible to everyone and choose to buy into it.

We’re rational optimists voting with our legs, getting skin in the game, and putting our money where our mouth is. Everyone else—including you, the reader—is free to join this movement and participate in creating a better future for all.