The history of money is increasing confusion… bitcoin is no exception
Letter from the Editor: From Editor in Chief P.J. O’Rourke
People have all sorts of feelings about cryptocurrency – wild enthusiasm, cool skepticism, greedy desire, utopian hope…
All I feel is ignorance and guilt…
First, let me explain the guilt. I’m a libertarian, and I want a medium of exchange – a kind of money – that adheres to libertarian principles.
Money that adheres to just one libertarian principle will suffice. This is the privacy principle: “What I do that doesn’t physically harm you is none of your damn business.”
Business is conducted with money. Cryptocurrency would seem to be the private kind of money libertarians want. It’s private in the two most important senses of privacy.
First, cryptocurrency isn’t subject to government public policy. Government public policy, of course, is to issue as much money as it feels like issuing.
Government treats money like a stalker treats posting things on your Facebook page. A couple of clicks of a Federal Reserve keyboard, and there’s another creepy rant. The original rant didn’t have much value, and subsequent rantings are increasingly worthless and worrying. But “unfriending” the government is hard.
Second, cryptocurrency encrypts transactions. What you’re buying or selling isn’t revealed to a nosy snoop. That nosy snoop being, once again, government.
I’m a law-abiding guy. I’ll wait for the “walk” light when I’m on an empty street corner in the middle of the night. I don’t even cheat on my taxes – any more than federally mandated tax loopholes force me to.
I wouldn’t use cryptocurrency for any criminal scheme. (Well, except maybe getting some Cuban cigars.) But no matter how legal the purchases I make are, I don’t like those private purchases being on the public record in sales receipts and credit-card records available to who-knows-which nosy snoop government agency.
And I don’t like other people’s purchases being on the public record either. If somebody buys an inflatable, anatomically correct Minnie Mouse doll for intimate relations in the privacy of his home, I sure don’t want to know about it.
I don’t want government to know about it either, for fear the Environmental Protection Agency (EPA) may impose endangered plastic rodent regulations on us all. Or maybe some high-minded EPA functionary will leak the information to animal-rights group PETA, causing the inflatable mouse doll store to be vandalized when my car is parked nearby within paint-tossing range.
I’m more worried about government abusing its police powers than I am about individuals abusing their purchasing powers.
My taking delivery on 1,000 rounds of 9mm ammunition is information the government does not need to have.
No thank you to Homeland Security agents in body armor rappelling from helicopters into my backyard target range demanding an explanation for my blowing holes in 1,000 empty beer cans. And they’d probably be accompanied by a Department of Health and Human Services counselor insisting I go into a treatment program for drinking 1,000 cans of beer.
That’s the case in favor of cryptocurrency. But I feel guilty (or feel like I should feel guilty) because I don’t support or advocate cryptocurrency. I don’t even find the idea of cryptocurrency very interesting. In fact, I have no use for the stuff.
As of this writing, the market value of one bitcoin is about $2,500. But if you wanted to buy the banged-up Volvo station wagon that I got for my teenage kids to bang up some more and you offered me six bitcoins for it, I’d tell you to bite me.
This is because I feel ignorant. I am confused by the mathematical intricacies used to form the computer-programmed blockchains that underlie cryptocurrencies.
Of course, I’m confused by lots of things. I’m confused by women, which didn’t stop me from marrying a delightful one. I fly on airplanes all the time while having no idea why they take off or how they land.
But I am particularly sensitive to confusions concerning money. The history of money is a history of increasing confusion – much of it deliberate.
When the medium of exchange was barter, we were doing things like trading goats for pigs. Unless we were so stupid that we fell for the old “pig in a poke” trick, what we saw was what we got.
The move to “commodity money,” with prices set in coins made of something valuable – gold, silver, copper – complicated trade. Yes, making change was easier. (No more having to pay for a goat by fishing a ham and three pork chops out of our pockets.) But it raised new questions. How to assay the metal content in coins? Who to trust to mint them?
The advent of “fiduciary money” – pieces of paper redeemable in coins – meant further confusions. Who really had those (possibly dodgy) coins? Where did they keep them all? Did they have enough?
And then came “fiat money.” This, as I mentioned, is what the government prints when it feels like it. Most of the money in the world today is fiat money. We’ve got it because the government says we’ve got to.
No intrinsic value is involved in fiat money, just a pronouncement of Existentialism from central banks. Trillions and trillions of dollars, euros, pounds, and renminbi are singing, “We’re Here Because We’re Here Because We’re Here Because We’re Here.” (A popular tune in the trenches during World War I – appropriately enough, since WWI was when fiat money came into global use.)
By now, anybody who isn’t confused by currency is simply insane. And the extra confusions of cryptocurrency aren’t the anti-psychotic medication that’s needed.
Cryptocurrency even adds a kind of unwelcome mysticism to the already baffling material and philosophical aspects of money. Some regard the blockchain with almost religious awe, as if it were the work of mythical “Geek Gods” high upon Mount Laptopus.
An article by Marco Iansiti and Karim R. Lakhani in the January issue of the Harvard Business Review claimed that blockchain technology “has the potential to create new foundations for our economic and social systems.”
No, it doesn’t.
I give you this from Wikipedia, where information was drawn from more extensive 2015 and 2016 articles in The Economist, Fortune, and Wired: “A blockchain is a decentralized and distributed digital ledger… authenticated by mass collaboration powered by collective self-interests… This allows the participants to verify and audit transactions inexpensively.”
One small step for man, one giant leap for accountants!
The blockchain is a tremendous, life-changing innovation – if you’re a CPA. Throw those green eyeshades in the air! Dance around your spreadsheets with wild abandon!
Yes, the blockchain is confusing, but what it is, even more so, is boring.
However, it’s also supposed to be secret and secure. I don’t think so. There is the cryptocurrency “blooper reel” to be considered:
In 2013, the Chinese bitcoin trading platform GBL suddenly shut down – a $5 million “bitcon.”
In 2014, the Mt. Gox bitcoin exchange declared bankruptcy after “losing” $473 million worth of customers’ bitcoins. (Did Gox look under the couch cushions?)
In 2015, a cryptocurrency called Paycoin was offered through something called “ZenPortal.” In a Zen-like experience, 10,000 clients were left to meditate on being freed from the worldly burden of having $19 million.
In 2016, the founder of the Florida cryptocurrency market Cryptsy was accused of misappropriating millions of dollars and then fleeing to China, perhaps to go to work for GBL.
And then, $53 million in Ethereum cryptocurrency disappeared from Ethereum’s “Decentralized Autonomous Organization,” which turned out to be a little too decentralized and autonomous to qualify as being organized.
But let’s chalk that up to experience. What’s half a billion dollars among virtual friends? Every new technological development has its missteps. Such as the time inventor Thomas Edison electrocuted Topsy the elephant to prove that alternating current is more dangerous than direct current.
(Edison’s actual involvement in frying Topsy may be, like the security of your cryptocurrency account, dubious. But it’s one of those stories – such as Cryptocurrency Is the Money of the Future – that we journalists call “too good to check.”)
Cryptocurrency on the World Wide Web does not create monetary security or secrecy.
Money has always involved insecurities and secrets. Banditry, after all, was invented long before cash was. When we were trading goats for pigs, it was hard to hide them under a mattress. They squeal and bleat. Bandits would steal the pork roast and the Libyan hamburger.
But you can shoot a bandit. You can shoot a computer too, for all the good it will do in getting your goat back, which is why I stick to beer cans.
The Internet is an enormous hacking industry serviced by a small global interconnected computer network.
These hackers can hack anything. According to major news outlets, Russian hackers hacked into the American electoral system, right down to the level of presidential primary ballots.
I’ve been covering American elections since 1972, and I am absolutely clueless about what goes on with presidential primary ballots (and so are all the political reporters I know). Talk about encryption – local politicians have primary voting shenanigans sealed in a crypt.
And yet here were the Russian hackers in Yoknapatawpha County, Mississippi – probably unable to understand a word of English as it is spoken by Mississippians – figuring out which yokel supporting Hillary would beat which hayseed supporting Bernie to become a Mississippi delegate to the Democratic National Convention.
And right now, some dateless, pear-shaped 16-year-old wearing emoji pajamas is in his bedroom, with the floor covered in empty Snickers wrappers, logging on to make himself a Darknet billionaire. I hope Walgreens accepts cryptocurrency in payment for acne cream.
I have an old friend, Michael Farr, president of Farr, Miller & Washington investment consultants, who tells a story he calls, “How Ignorance Saved Me a Fortune.”
At the end of 2000, Enron was rated “most innovative large company in America” by Fortune magazine’s Most Admired Companies Survey. Michael thought it might be a good buy. He asked his top team of analysts to look at Enron.
A week went by and Michael heard nothing from his analysts. He talked to them and they said, “We’re still working on it.”
Another week went by. Nothing. “We’re still working on it.”
Two more weeks went by and Michael called his analysts on the carpet. He said, “A month ago, I asked you to look at Enron. And I haven’t heard a damn thing.”
Michael’s analysts said, “Do you remember what you told us when you hired us?”
Michael said, “Um… no.”
“You told us,” the analysts said, “the first thing to do is figure out how a company makes money.”
“And?…” said Michael.
“We’ve been doing nothing but look at this company for the past four weeks, and we can’t figure out how Enron makes money.”
Enron’s 2001 bankruptcy cost investors more than $68 billion. Michael hadn’t invested.
He says, “If I hadn’t been feeling ignorant, I’d be broke.”
