A currency to make bankers cry
Bitcoin is a fascinating hybrid: part cult, part asset, part business enterprise, part currency, part fad—and it appeals to the best and worst of human nature
In 1976, the Institute of Economic Affairs published a paper by the Nobel Laureate economist Friedrich Hayek in which he advocated the “denationalisation of currencies”. Hayek argued that there should be private currencies in competition with government-backed currencies, or more simply: beware government. He was very light on the details of how these private currencies would work (but, come on, he was an economist) and no one paid much attention.
In 1990 David Chaum created DigiCash, an admired virtual currency company. The company went bust. In 1997 Nick Szabo, a cypherpunk, created “bit gold”, a mechanism for a virtual currency. No one paid much attention.
In October 2008, a “white paper” was published by one Satoshi Nakamoto, largely in response to the financial crisis, calling for a decentralised peer-to-peer digital currency, using blockchain technology as a public ledger, instead of a “trusted third party”. Nakamoto named this electronic cash Bitcoin and the first bitcoin was mined on January 3, 2009, something anyone with a bit of tech savvy could have done on their home computer.
There’s never been anything like bitcoin before. Nearly ten years after the genesis block, bitcoin is everywhere, from the big financial institutions like Goldman Sachs to popular culture. Furiously denounced as a con or a bubble, repeatedly pronounced dead by magnates and big bankers, it’s still there. That’s its greatest achievement, its most remarkable feature — that it’s alive, a rugged survivor, the honey-badger of currency as its supporters like to term it.
Originally nothing more than a nerd gewgaw on a few dozen computers, bitcoin is a fascinating hybrid: part cult, part asset, part business enterprise, part currency, part fad. It appeals to the best and worst of human nature, and that’s why from basket-cases like Venezuela and Zimbabwe to Wall Street it’ll be around for some time to come.
There have been a number of zealots who have earned the epithet Bitcoin Jesus — Andreas Antonopoulos for one, whose book Mastering Bitcoin is the standard work on the technical side of bitcoin. Now we have a contender for Bitcoin St Paul in Saifedean Ammous with his book The Bitcoin Standard, in which he argues that it is not the love of money that is the root of all evil but government and central bank fiddling with money and that bitcoin can serve as a new gold standard.
Whoever the publicity-shy Satoshi Nakamoto was (or is), the original intention was for bitcoin to be a coin — a peer-to-peer cryptocurrency that you could buy coffee with at Starbucks and support with your home computer. That, as Ammous points out, is all over: your credit card or paper money can do small transactions much better and faster than Bitcoin can or ever will, and unless you own a computer factory you now have no hope of mining bitcoin.
Bitcoin’s great power is to serve as a sort of digital gold, a hard asset since the total number of bitcoin is fixed at 21 million, and it’s out of the hands of governments and banks, who, as we all know from recent events, can be very naughty.
Ammous is an economist and practically half the book is an economic history of the world, a story of money and an ambitious ride through cultures and eras that would surely have earned the admiration of Karl Marx. Ammous’s account is heavily loaded with Hayek and Mises and he seems to have an almost personal hatred of Keynes.
His writing is clear and crisp, unusually so for an academic and particularly unusual for an economist. Whether his contentions are true or not, they are extremely engaging and made me see history in a different way. The Byzantines did better than the Romans because they had stricter fiscal discipline. The belle époque was especially belle because of the rule of gold. The American representative at Bretton Woods was a communist and possibly a Soviet agent.
Almost everything you get to read about bitcoin and crypto in the press is untrue or misleading. Bitcoin is decentralised and is certainly now too robust for any single government to squash. But while it may be dispersed randomly and has no CEO or swish marbled headquarters in New York or Shanghai, it does have something like a board, even if its members are rarely (if ever) in the same room.
Bitcoin is effectively controlled by a small coterie of coders and major mining groups. You control the code and the hashrate, you control bitcoin, or any other cryptocurrency.
The “power to the people” aspect of bitcoin which makes it appeal to both the far Right and the far Left is the usual opiate. Bitcoin may cut out the government to a large extent, but sooner or later the government will be around to collect tax.
You can, however, cut out the banks to a large extent. One of the most popular bitcoin slogans is “be your own bank” — a thrilling sensation until the bank robbers turn up, either in an old-fashioned manner with balaclavas and weapons, or more subtly as malware, and your money is gone. Running a bitcoin wallet is just not that simple or safe. Even John McAfee, famous for his security software and a crypto fanatic, has had his pocket picked.
The idea that bitcoin or any other crypto will be a boon for the unbanked or the very poor of the world doesn’t stand up to cold logic. You need to buy in, with at least a computer or a smartphone and some capital. Bitcoin will be very popular, however, with the middle classes of mismanaged Latin American and African countries. Its development is also hindered by the problem that, for the moment, there’s very little you can actually buy with it, apart from cocaine or bitcoin T-shirts and baseball caps.
The state of cryptocurrencies is very much like the early Christian church. All the spin-offs from bitcoin claim to have a fragment of the true cross. Each coin has a crew of very clever, very motivated evangelists around it, who have intelligent, cogent arguments as to why Bitcoin Cash, Litecoin, Dash, Monero or Verge should succeed, and most importantly, that they truly represent the true vision of the messiah, Satoshi Nakamoto, who was seeking to create a financial paradise. The hostility that cryptocurrency faces from most of the financial establishment is easily matched by the hostility between the various schisms in crypto, which all insist they are more crypto than thou, and is particularly ironic since nearly all the major players started out together under the bitcoin banner. Shakespeare would have loved this material.
The Bitcoin Standard has a scholarly mantle, with tables and a bibliography, but nevertheless much of the text reads as a polemic, and occasionally Ammous veers into something like a gold bug rant when talking about central banks or the effects of monetary policy on modern history (and even on modern art). Ammous is also a bitcoin carnivore, a strand of bitcoiners who are convinced that the best diet is red meat, and who view lentil-pushers as the equivalent of fiat currencies. Preaching about diet always worries me.
The Bitcoin Standard will be a big hit with bitcoiners simply because it gives them entertaining ammunition for dinner parties and it’s telling them what they want to hear: that tomorrow belongs to them. My guess is that Ammous is mostly right about bitcoin. However, he’s extremely dismissive about the thousands of altcoins. I disagree with him on that. I’d guess that in ten years there will be one or two global altcoins that you can use effortlessly to buy coffee in Starbucks, but no more than one or two. There’s room for that, but no need, because however shitty fiat currencies are, they do work. On the other hand, don’t forget every time you buy some bitcoin, you make a banker cry.