Bitcoin and the Dunbar Limit

Image by JelenaMrkovic, CC BY-SA 4.0

Disclaimer: This essay contains my personal opinions and deductions.

When it comes to cryptocurrencies, my main interest lies in Bitcoin, not “blockchains”. The blockchain hype has been blown so out of proportions in the last few years that it immediately brings to mind the fresh memory of the Dotcom era and other bubbles in the past. When things that make zero sense on multiple fronts start reaching billion-dollar valuations and everyone around you is shouting “FOMO!”, it should bother you deeply.

To be clear, I can imagine a future where a few select digital assets will co-exist with Bitcoin. It is not out of the realm of possibilities. Nevertheless, when it comes to having an impact, Bitcoin will likely dwarf everything else for reasons that I will expand on below.

I have also written about the infeasibility of projects such as Ethereum, Proof-of-Stake, utility tokens, NFTs, etc. but these will not be the topic of this essay.

So what’s the big idea? Fundamentally, I believe that Bitcoin will help us co-operate much more efficiently at scale, and change the way we organize society. In other words, Bitcoin will raise our “Dunbar level”.

What is a Dunbar level? How is it relevant to Bitcoin? Time for some stories.

Chapter 1: Columbus vs. the Ming Dynasty

For many born in this day and age, it is often taken for granted that the West is the more dominant power of the world. The West is relatively richer per capita, more developed and more technologically-advanced than the East. The East was only able to slowly catch up when it opened itself up to Western ideas and philosophies. This started with Japan during the Meiji era in the late 19th century (led in particular by thinkers like Fukuzawa), followed by the four Asian tigers (South Korea, Taiwan, Singapore and Hong Kong) in the second half of the 20th century. In the last and current wave, it has been China, Vietnam and Southeast Asia driving the growth. We don’t have to look very far for evidences. Just look around in our daily life: anything that brings material improvement to our standard of living — such as the Internet, smartphones, automobiles, air conditioners, self-cleaning toilets — they all have deep Western imprints.

Yet, this wasn’t always the case. For thousands of years, the East, particularly China, was at the peak of civilization.

Long before Columbus “discovered” America, the Ming dynasty commanded Admiral (and eunuch) Zheng He to take to the sea and discover what lay beyond the horizon. These Chinese voyages featured hundreds of ships and tens of thousands of troops, with the largest ships measured up to 500–600 feet long. These ships were 10 times bigger than the ships that Columbus later commanded. The Chinese expeditions reached lands far and away, including pretty much all of Southeast Asia, the Indian Ocean, the Persian Gulf and the coast of eastern Africa. Glamorous was an understatement.

Yet in many ways these expeditions were a failure, especially when compared to the European ones that changed the fate of the world a century later. There were a couple of reasons as to why.

First, the main purpose of the Chinese expeditions was to show off the strength and glory of the Chinese empire, and to collect tributes from foreign lands. But the exotic tributes alone could not cover all the costs. Second, these oversized (and high-maintenance) ships were not a good fit for sea commerce. What that meant was that these voyages had little commercial value. For these reasons, when times turned bad the Ming had to shut them down to focus on the Mongol threat up North.

But what the Zheng He voyages demonstrated was that the power of the Chinese empire was unmatched during those times. In any era, the discovery of new territories perhaps only reflects one aspect of society, but these expeditions and discoveries are a great proxy for approximating the wealth and the level of technology of said society. The Zheng He expeditions were not unlike how NASA, CSNA, SpaceX, or BlueOrigin are vying for space dominance today. Only the most powerful and technologically-advanced entities on Earth can afford these kinds of endeavors.

Up until the 19th century, China was still the largest economy in the world, their GDP was approximated to be a third of global GDP. China invented the compass, paper, printing and gunpowder. (Chinese porcelains, once considered “white gold”, were so advanced that it took Europeans a few centuries to be able to copy their manufacturing techniques.) Just imagine what would have happened if those early Zheng He expeditions had a different, conquering-leaning mindset, combined perhaps with the use of gunpowder, we would perhaps be living in a totally different reality. As it turned out, it was the West that used gunpowder on China first, a few centuries later.

But China’s dominance started to fade back around 400 years ago. What was the main reason for this decline? Or perhaps more accurately, what enabled the West to leap-frog the East during these 400 years?

Chapter 2: The Power and Limit of Belief Systems

If you have read Harari’s Sapiens, you have heard of “Dunbar’s number”. Due to our cognitive limit, humans can only maintain around 150 stable social relationships per person. This number was proposed by the British anthropologist Robin Dunbar in the 1990s, who “found a correlation between primate brain size and average social group size.”

It is worth noting that the exact number probably varies depending on the person and circumstances, but the theory is likely directionally correct.

I want to take the liberty here to expand on this concept and very roughly define “Dunbar levels”: the idea is that certain tools will help humans become better at cooperation games, and each one of those tools likely has a limit [1] in terms of (a) how many people it can help cooperate and (b) how well it does so. These are Dunbar levels. As we create better tools for co-operation, we “level up”, so to speak. [2]

For humans to go beyond the initial Dunbar limit (level 1) and organize ourselves into larger groups, there needs to be some special forces that can unite strangers. Otherwise, we would still be living in small tribes.

Religion was such a force.

Religion was the first human invention that enabled thousands, millions of people to share a common outlook on life and “march to the same drum”, so to speak. They can go even as far as dying for their belief. Before religion, uniting groups of humans in such a way was impossible.

By the 11th century, Christianity has spread to all corners of Europe. The Kings of the Middle Ages, as powerful as they were, were second to the Church. At the peak of their power, it was the Pope that crowned kings and emperors. The center of power of Europe wasn’t in England, France or Spain. It was Vatican city.

In the East, it was Confucianism that played a similar role.

From the Han dynasty (206 BCE–220 CE), Confucianism became the central piece of organized Eastern societies. Thanks to Confucianism, the state doesn’t have to intervene in their subjects’ daily life, and let them self-regulate instead.

Confucianism was how people in the East overcame the Dunbar limit, by sharing a set of common beliefs and self-organized themselves into various professions and classes that made up the feudal Eastern societies.

Both Christianity and Confucianism were incredibly powerful at uniting people, capable of creating highly complex social structures, but at the same time, they held back our ancestors.

Christianity put the words of God above all else. Everything in life must follow the Bible to the letter. If the Bible said that Earth is the center of the universe, then that is an undeniable truth. If the Bible said that sinners shall be stoned or burned to death, so be it.

Confucianism, on the other hand, over-emphasizes harmony and the role of humans in maintaining harmony. “Let the prince be a prince, the minister a minister, the father a father and the son a son.“ Confucians tend to think that every person is born with a clearly-defined role in life, with little room for deviation. Confucians take the natural world as it is, not something to be explored or understood but something to make peace with. It elevates the mind, and downplays what the eyes and the ears see and hear, because Confucianism in essence put humans at the center of its philosophy, not nature. Confucianism also doesn’t encourage thinking outside-the-box as it would disrupt harmony and endanger the social order. In short, Confucianism is a highly constrained, oppressive thinking system.

The major changes in Europe started with Copernicus and Galileo. They were the first people that dared to go against the words of the Church, claiming that Earth was not the center of the universe. Together with the invention of the Gutenberg’s press in the 15th century, the spread of knowledge through books, the inspirations from Columbus travels, all these events slowly changed people’s perception of life. These seeds laid the foundation for the scientific revolution, which brought fourth an era of great discoveries. Since the scientific method was invented, people became less and less reliant on religion. Instead of blindly following the words of some religious texts, people honed their observation skills to find hidden secrets of the natural world.

So now we can answer the question in the first story: the reason the West was able to leap-frog the East was because the West was able to lose the shackles of their earlier belief system — Christianity — while the East was unable to do the same for theirs — Confucianism.

Through this story we can see that belief systems are double-edged swords. They often have the power to unite, but they can also be oppressive and hold back progress.

If the belief systems steer us to truly better things in life (for examples: don’t kill, don’t steal), society will likely be better off in the long run. But if they stop us from advancing our understanding of the world, we can stop progressing or even decline.

Chapter 3: The Dollar Religion

Christianity and Confucianism were some of the earliest belief systems that helped us overcome the Dunbar limit.

But there is a belief system even stronger than religion, and that is money.

To borrow Harari’s words:

“Money is more open-minded than language, state laws, cultural codes, religious beliefs and social habits. Money is the only trust system created by humans that can bridge almost any cultural gap, and that does not discriminate on the basis of religion, gender, race, age or sexual orientation.”

Thanks to money, any two strangers — no matter how far apart or how culturally different — can trade with one another. Thanks to money, we can have markets and vibrant economies. Thanks to money, we can create abstract economic concepts such as corporations and shareholders. Thanks to money, a society of hundreds of millions can operate smoothly.

For most of money’s history, gold was king. Humans have been fascinated with and have been collecting gold going back as far as 5,000 years ago. But the dollar has replaced gold as the world’s number one currency in the 20th century. And this has been entirely due to the two world wars and the unique geography of the United States.

The US spent much of the 19th century expanding its territories. When war broke out across the Atlantic at the turn of the 20th century, the US had consolidated much of its land mass and owned both the coast lines of North America, ultimately acquiring natural shields on both sides. As a result of this, the United States was by far the least damaged industrialized country during WW1 and WW2.

Not only it was least effected, it benefited greatly from the wars. Before WW1, the US was just one of many powers on the world stage. During the wars, it supplied weapons and goods to the participating countries. It adjusted its industrial base to the demands of the wars. It gave out loans and became an increasingly large creditor. Slowly but surely, the wealth of the entire world gravitated towards the US.

This trend culminated post-WW2: the US at that point had possession of more than half of the world’s gold reserve (some figures said up to 75%). At the same time, the rest of the world had been badly destroyed and currencies from former imperial powers lost much of their values. Under this environment, the Bretton Woods agreement came into place in 1944, officially making the US dollar the world’s reserve currency. At the time, the dollar was still pegged to gold. Owning the dollar was indirectly owning gold.

But everything changed again in 1971. The US, ensnared in Vietnam, became heavily indebted and financially strained from both the war and LBJ’s Great Society programs. Then US president Nixon made one of the most pivotal decisions in modern history by unilaterally ending the Bretton Woods system, removing the gold peg and floating the dollar. The dollar’s long 200-year relationship with gold officially ended in 1971.

(The role of gold in US history was deemed so important that the US founders added a “Gold & Silver” clause to the Constitution in 1787.)

Connecting the dots, we can come to this conclusion: it was war that propelled the US and the US dollar into dominance, and it was again war that indirectly helped create the global financial system that we know of today. [3]

Since 1971, the total supply of the dollar is controlled by a cabal known as the US Federal Reserve. Instead of anchoring our universal exchange value in a neutral, scarce and unforgeable metal like gold, we have turned to trust this small group of people.

We can also say that since 1971, the dollar became a full-fledged religion. Just like Christianity, the dollar has its gospel (the dual mandate), its churches (the central banks), its missionaries and enforcers (mainstream economists and politicians), and its Popes (the Chairmen of the Federal Reserve).

The fact that we are willing to trust the dollar is not unlike how people in the Middle Ages believed that the earth was the center of the universe. We believe in it purely because other people do, too.

The power of the Federal Reserve is as far-reaching as it was for Vatican city. Markets around the world collectively hold their breath whenever the Fed makes policy announcements. The Fed sneezes and the world catches a cold.

And just like Christianity, the dollar has great oppressive power.

Along with the rise of the dollar, the US became the “policeman” of global economic activities.

The fact that most international payments are denominated in dollar means that the US has discretionary power to intercept and interrupt the flows of global economic activities, even activities that have nothing to do with the US. This is the basis of the US sanction system.

The primary ways the US achieves sanctions are through Chips (the US Clearing House Interbank Payments System) and indirectly through SWIFT (the Society for Worldwide Interbank Financial Telecommunication). Chips processes about $1.5 trillion a day and has a 96% market share on large-value domestic and international USD payments. SWIFT does not settle transactions but it is a communication network that connects 11,000 global banks, and is heavily controlled by the US.

In recent years, especially after 9/11, the US has ramped up its sanctioning activities. This angered many countries, including Russia, China, and even the US’s own allies. When President Trump started imposing sanctions on Iran, the EU encouraged its members to maintain economic ties with Iran. In 2019, England, France and Germany briefly set up a vehicle called INSTEX to skirt around US sanctions, but ultimately failed. The US’s control of the global financial machinery was simply too powerful.

As we speak, the EU, Russia and China are all actively finding ways to promote their own currencies and to become independent of the dollar.

The sanctions on Iran are a prime example of how a centralized currency system can become oppressive. Without such a system in place, there could have been billions of value created through trade, but the US single-handedly stopped this from happening, against many countries’ wishes.

If we stop and think about it, the mere concept of sanction is bizarre. How does one single country, out of almost 200 countries in the world, put another country into total economic isolation? This would only be possible if that country has complete control over economic flows of all other countries. If the world is a village, then the US must be the village’s biggest bully.

An even bigger problem with a state-issued currency is the threat of inflation and hyperinflation.

The blind trust that people place in state-issued currencies makes it easy for the state to abuse that trust and print money irresponsibly. Throughout history, there has been many state-issued currencies that experienced hyperinflation. This was the case for the currencies of the Roman Empire, the Tang dynasty and the Ming dynasty. More recently, it was Argentina, Venezuela, Zimbabwe and Turkey.

When a currency hyper-inflates, it causes major long-term structural problems. First, it kills trust and wreaks havoc on the economy. Second, it fuels deep-seated conflicts, which could turn violent quickly (some historians suggested that Roman currency debasement was the primary cause of their civil wars and eventual collapse). Third, it massively increases wealth inequality, as the upper classes typically have more means at their disposal to hedge the impact of inflation, such as parking their wealth in rare commodities or real estate.

It wasn’t a coincidence that global wealth inequality has accelerated sharply since 1971. The level of wealth inequality today is the worst it has been in a few centuries, going back to the Middle Ages. High wealth inequality causes a lot of social friction and the reason why so many have taken to the street in protests across many countries.

More than 20% of all dollars in circulation were printed in 2020, which was unprecedented. Inflation pressures in 2021 can now be observed everywhere across the board, from the prices of gas to vegetables to construction materials.

Whether the fiat dollar — a currency with merely 50 years of history — can survive or it is fated to inflate itself out of existence, we will have to wait and see. But past evidences are not encouraging.

Chapter 4: Bitcoin’s Mission

Bitcoin has great potential because it can become a better currency standard than both gold and the dollar.

Bitcoin is better than the dollar because similar to gold, it is not controlled by anyone, and truly scarce. The Bitcoin supply is fixed at 21 million and cannot be arbitrarily changed.

Bitcoin is better than gold because it is digital and inherits all the properties of digital things, such as moving at the speed of light, efficient storage, etc. The costs associated with transportation, storage, as well as verifying the authenticity of gold are extremely high. For these reasons, gold ownership has historically been susceptible to improper confiscation. In contrast, Bitcoin is easy to store and transport, and its authenticity can be verified cheaply. Bitcoin is a perfect fit for the Internet economy because just like the Internet, it is borderless.

Bitcoin is similar to gold in the sense that they are both unforgeably costly, and they are ultimately backed by energy. Gold atoms were created billions of years ago during the collision of neutron stars — this is gold’s “Proof-of-Work”. Because of the enormous amount of energy required to create or synthesize gold, gold is hard to fake. In the same way, to create fake bitcoin would require an amount of energy so large that it would be impossible to go unnoticed if any person or group ever attempts to do so.

With all that said, Bitcoin is not perfect. Bitcoin has a relatively short history compared to gold, which has been tested through many millennia. The decentralization properties of Bitcoin, which are needed to maintain its neutrality, are relative, and can change with time. Bitcoin requires continual vigilance from its participants (developers, users, businesses, exchanges and miners) to ensure that the system stays open and permission-less.

So far, Bitcoin has been positively moving in this direction, improving its decentralization and resilience metrics over time.

Early in Bitcoin’s history, mining was concentrated in China, but now it has completely moved out of China and spread to other countries. Self-custody is another area that has seen major improvements. Early on, the majority of bitcoin were held on a few exchanges, but the options for safe self-custody are rapidly expanding, which will make the system more robust in the long run.

Bitcoin’s biggest test came in 2017, when a significant faction of the network, comprised of some of the biggest Bitcoin businesses and ~80% of total mining power, wanted to force a rule change onto the Bitcoin protocol that would weaken decentralization. Yet they failed spectacularly and would serve as a major deterrent to future take-over attempts.

Bitcoin is the only software network that has a 99.99% uptime since its inception. In its short history, it has already served as a lifeboat for so many people around the world who live under totalitarian regimes, war-torn countries or economic sanctions.

When it comes to the future of money, no other blockchain project can even come close to Bitcoin’s network effects and strengths.


The reason humans are at the top of the food chain is because of our ability to co-operate with one another. Without special tools that unite people and improve our co-operation skills, we could only live in small tribes of a few hundred people. This is the Dunbar limit.

Religion and belief systems in general were the first human inventions that allowed us to break the Dunbar limit. Christianity played this role in the West, while Confucianism did the same in the East. While incredibly powerful, belief systems can also be oppressive and hold back progress.

Money is also a belief system. The unifying force of money is even stronger than that of religion. Thanks to money, we can exchange goods and services with people we have never met. But similar to religion, a currency operated purely based on belief and controlled by a small group of people can create an oppressive financial environment. The US and the dollar rose to dominance in the 20th century, but since Nixon unilaterally ended the Bretton Woods system in 1971, the US has increasingly turned the dollar into a financial weapon.

Bitcoin has great potential to change the world because it is superior to gold and the dollar in many aspects. Bitcoin is apolitical money, and does not discriminate. Bitcoin gives us an anchor of value in a world that has lost its sense of values. If successful, Bitcoin will help us co-operate much more efficiently at scale, remove gate-keepers, unlock frictionless commerce, and bring wealth and prosperity to large populations of the world.

[1] For example, Bitcoin probably will not work inter-planetary if the distance is too large.

[2] Nick Szabo called it “Social Scability” and expertly argued how Bitcoin improves social scalability. This essay has been influenced by Szabo’s writings.

[3] The relationship between war and money is a two-way street.




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