Following approval of spot Bitcoin and Ethereum ETFs by the SEC, the competition between monetary assets invites examination through the lens of the "Karenina principle" -- the concept that success requires multiple compatible attributes working together.
The Karenina Principle Applied to Money
The author adapts Tolstoy's famous opening: "All good monies are alike; each bad money is bad in its own way." Just as successful marriages require numerous compatible attributes, functional money must possess multiple essential characteristics. Historical monetary competitors failed for different specific reasons.
Six Essential Attributes of Sound Money
Divisibility
Money must be easily divided into smaller units for transactions and unit-of-account functions. Bitcoin divides into 100 million satoshis, enabling fine-grained calculations. Real estate and cattle historically suffered from poor divisibility.
Portability
The ability to transport value across space matters enormously. Gold's weight made large transactions impractical. Bitcoin's dematerialized form allows "portability like a password" requiring only private key knowledge.
Durability
Assets must resist degradation over time. Fiat currencies average only 27 years of lifespan. Bitcoin exists as decentralized records that cannot degrade, though coins may be lost through forgotten keys.
Verifiability
Confirming authenticity and value must be practical and affordable. Gold required melting to verify purity. Bitcoin uses cryptographic proofs enabling cheap, impossible-to-counterfeit verification.
Fungibility
Units must be interchangeable and equivalent. While each satoshi has custody history recorded on the blockchain, Bitcoin maintains high fungibility despite nefarious efforts through chain analysis and "Ordinals theory" to diminish it.
Stock-to-Flow Rate
The relationship between existing supply and new production determines whether money can maintain value. Bitcoin currently grows supply by less than 1% annually, with 94% of all Bitcoin already mined. The Rai stones of Yap Island lost monetary function when supply suddenly increased, destroying their scarcity advantage.
The Competition Between Bitcoin and Other Tokens
95% of the tokens launched since 2016 have lost value compared to Bitcoin, with 5,175 tokens having no market price today. Other tokens struggle on key attributes:
- Ethereum faces high transaction fees in its proof-of-stake system
- Solana experiences frequent network instability
- Most competing tokens lack sufficient liquidity for broad acceptance
- Centralized alternatives can alter monetary supply arbitrarily
Historical Precedent: Animal Domestication
The parallels to Jared Diamond's analysis in Guns, Germs, and Steel are instructive. Of 148 large wild mammals potentially suitable for domestication, only 14 were successfully domesticated before the 20th century. Success required multiple attributes: herbivorous diet, fast growth rate, reproductive compatibility with captivity, docile temperament, herd-based social structure, and resistance to panic.
Candidates like zebras and African buffalo possessed some attributes but failed due to single deficiencies -- the Karenina principle in action.
Conclusion
Just as few animals succeeded as domesticated species through having all necessary attributes, Bitcoin's superiority in monetary competition stems from simultaneously possessing all six essential monetary characteristics. ETF approvals cannot alter this fundamental economic reality, as the winning money will naturally dominate in free markets.