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Thursday, June 29, 2017

What Wikipedia and Bitcoin Have in Common

Bitcoin and Wikipedia are platforms founded by decentralization where no one can control it's value.

The fifth most popular website in the world, Wikipedia is an almost daily part of our modern lives. It has become one of the main sources of knowledge and is often the first website that Google (#1 in popular websites) shows when you search for a term you want to be explained. It can be a scientific theory or historical fact that your friends are discussing for three hours in social media, even a celebrity, soccer player, or movie character you heard about on the news, you name it.

The idea behind Wikipedia is explicit in its slogan: The free encyclopedia that anyone can edit. While the slogan is accurate, it is incomplete. On Wikipedia, anyone can edit pages and be a content creator. However, that also means that anyone is able to correct mistakes. Wikipedia’s secret is that its role is to provide simple guidelines that generate efficiency and accuracy, like demanding sources for the info written on the website, and to manage disputes in controversial topics.

The attempt to centralize decision-making would invariably lead to inefficiency. Jimmy Wales, one of the founders of Wikipedia, said that the creation of the website was partially inspired by the ideas of the economist and Nobel Laureate, Friedrich A. Hayek and his famous paper The Use of Knowledge in Society. In this paper, Hayek talks about how knowledge is dispersed in society and the attempt to centralize decision-making would invariably lead to inefficiency and, in public policy, bad results due to the lack of information of the central planner.  

On the other hand, Bitcoin’s recent record is also impressive. In May 2017, it surpassed the price of an ounce of gold and then reached $2,000, both for the first time. Japan has also declared Bitcoin as a legitimate payment method. We might be witnessing a technology that can transform the way we use the money. According to Wikipedia:

Bitcoin is a cryptocurrency and a digital payment system[13]:3 invented by an unknown programmer, or a group of programmers, under the name Satoshi Nakamoto.[14] It was released as open-source software in 2009.[15]

The system is peer-to-peer, and transactions take place between users directly, without an intermediary.[13]:4 These transactions are verified by network nodes and recorded in a public distributed ledger called a blockchain. Since the system works without a central repository or single administrator, bitcoin is called the first decentralized digital currency.[13]:1[16]

It is interesting to note that Bitcoin, likewise for Wikipedia, is based on decentralization. Nobody can control its emission or its value. That means the currency is not susceptible to monetary inflation and the relative price of Bitcoin, unlike the dollar and other currencies, is defined by the market forces of supply and demand.

Wikipedia and Bitcoin both have a system in which individuals make decisions independently from each other and are able to learn, adjust mutually, and improve. It resembles the definition of a polycentric system of governance, as explored by another economist and Nobel Laureate, Elinor Ostrom. In her work, Ostrom shows how systems can be efficient without government command and control or an individual private ownage.

May the successful stories of Wikipedia and Bitcoin serve as inspiration for entrepreneurs to innovate and for governments to stop failed centralized planning in public policy.

  • Maurício F. Bento holds a Master's degree in Economics. He has lived in Washington where he worked with the Cato Institute, the Leadership Institute, and the Charles Koch Institute. Currently, he lives in Brasilia where he works with financial and economic research at Econ Americas and is a Non-Resident Fellow at Property Rights Alliance.