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It started … if you’ll pardon the pun … a ‘bit’ over a decade ago, at least in its more popular manifestations – the spread of new talk of a strange new money form. Or was it a payment form, or a finance form, or something else? (It was of course all and more, as we’ll explain.) Like an ectoplasm – nay, a cryptoplasm – ‘chat group’ chat spilled over to internet, then popular media chatter. It was all about ‘tokens’ and ‘coins,’ ‘blocks’ and ‘chains,’ ‘ledgers’ and ‘DeFi’ and … oh yes, ‘disruption.’
But it all went beyond merely that. It promised value-retention in a post-crash dystopia of central banks’ putative ‘currency debasement.’ It promised (sometimes ironically) privacy – even for money-launderers, kidnappers, and terrorist finance. And it went further still – promising ‘freedom,’ riches, power, even … that pleonasm of all pleonasms and narcissism of all narcissisms … ‘self-sovereignty.’
What was this strange object or substance? ‘Coin,’ ‘token,’ even ‘bit’ all sound tangible, even harmlessly, charmingly fetishistic. Imagine a shiny ‘Gold Sovereign’ as if in a Dorothy Sayers novel or James Bond film, save stored somewhere ‘out there’ in cyberspace where it cannot be stolen or taxed… And if that sounds a bit too ethereal, well, we could virtue-ize the virtual with names like ‘Etherium.’
The wonder and mystery of it all, enhanced by its Pavlovian associations with what could look like ‘The Future’ – geometrically growing computing power, ever-more sophisticated cryptography, the romance and adventure of hacking and ‘meme’-spreading and ‘finance-democratizing,’ the sheen of ‘high’ tech and ‘fin’ tech and ‘digital culture’ – only added to its aura. Like a nuclear-activated ‘Blob’ in some ectoplasmic ‘50s science fiction film, Cryptoplasm spread to bid fair to eat everything. And so an entire community of Cryptopians grew and grew ever more fruitful and multiplied.
But what was the ‘fruit’ of this ‘fruitful,’ other than simply more seed-sowers? How was it anything other than self-referential self-replication and –multiplication? How could it ever be, in finance parlance, anything other than Ponzi-processual, a Cryptopian version of ‘greater fool’-fooling, speculative pseudo-investment?
The answer, under-appreciated as always, was that it could not. Indeed, Crypto-Whatever was doomed from the start to fare worse even than Junk-Bonds, Subprime-This-and-That, and other objects with unheeded warning-label names such as ‘Junk,’ ‘Sub,’ and the like. For unlike these previous propositions, whose ‘value proposition’ was merely remote, the Cryptopians’ value proposition was all but non-existent. There was near literally ‘no “there” there.’
Why might one say that? We should unpack it a bit. So: what is a ‘value proposition’ and how might it underlie some forms of ‘junk’ but not crypto junk?
Well, it’s the promise of some growth of wealth in the productive, or ‘real’ economy, which can then underwrite claims on such wealth in the claim economy – that is, the financial economy.
Junk bonds were claims on the value-recoupment then promised by reorganizations of bloated and poorly organized firms. Subprime mortgage instruments were claims on the value-recoupment promised by higher-risk/higher-reward lending enabled by better credit-risk organization (the ‘slicing and dicing’ you heard of with wearisome repetition). These promises were of course overblown. But at least they were grounded. The problem lay more in the … pun coming … ‘tethering’ than in the value that fad-objects were tethered-to.
Not so with the Cryptopians’ charmed objects. Sure, the ‘coin’ called ‘Tether’ – like subsequent so-called ‘stablecoins’ – was tethered to something. But alas, it was mainly tethered, directly and indirectly, to precisely what new ‘coins’ were meant to replace – real coins, real money … sovereign currency. What then did it have to offer in its own right? What was its non-parasitic ‘value proposition’?
Things were of course worse for most other Cryptopian offerings. For these all relied upon ‘network effects’ for their prospective value yields, and ‘network effects’ were in this context nothing but Ponzi effects. The value of current holdings, that is to say, was nothing more than the price-rises hoped to be generated by more people’s becoming holders. You could ride only the Keynesian ‘foam’ on the wave, in other words, there was no real water.
To what real wealth-generation – what actual production – after all, is a Bitcoin’s price linked? It can’t be the algorithmic puzzle-solving (euphemistically dubbed ‘mining’ to make you think ‘digital gold’) to which Bitcoin issuance is tied. For the puzzles themselves are gratuitous, designed for no reason other than to contrive Bitcoin scarcity – a scarcity hoped to keep Bitcoin ‘valuable’ in contrast to central banks’ putative ‘currency debasement’ (long the goldbugs’ senescent trope).
But money is worth nothing if not widely used (not merely ‘purchased’) and recognized in payment. And widespread payment using a particular money will never occur unless that money’s supplies are deliberately modulated – flexibly expanded and contracted to retain stable proportions to goods and services commanded by money over time.
Central banks are quite good at this now. ‘Precious’ metal pegs, ‘Taylor Rules,’ and other ‘barbarous relics’ are not. And in this sense dear Bitcoin’s as barbarous as it gets. For at least we’re unsure of how much more gold there is here on earth, whereas we know now that nearly 19 million of the available 21 million Bitcoin that will ever be ‘issued’ have been issued – and are overwhelmingly held by a shockingly small number of oligarchs – Cryptogarchs – in China. That’s not the makings of a money. It’s a scam past its sell-by date.
These are all reasons why Cryptopia was always no more than a castle in the air. But now there’re additional reasons for the castle’s overdue crumbling. For one thing, regulators worldwide are now onto the scam, and cracking down. They too have seen all of this before, and have simply been waiting till now to see whether the fad would end quickly enough on its own. Now that it hasn’t, they’re stepping in as they do always when ‘Wests’ grow too ‘wild.’
China’s moves have of course been the most visible, both because the government’s less in thrall to industry pressure and non-Party utopianism, and because so much ‘mining,’ which is astonishingly energy-draining, carbon-emitting, and hence environment-degrading, occurs in its borders. But other jurisdictions are now moving rapidly too, throughout Europe and North America in particular. El Salvador’s desperate move to monetize Bitcoin ‘for reelz’ – tellingly, only because it can’t manage its own currency – will not slow, but will hasten that.
For another thing, and more importantly now, central banks worldwide are at last recognizing that they themselves can and should offer what little good the new payments technologies promise without surrendering the indispensible features that make ‘money’ money. Among those are sovereign full faith and credit, legal tender assurance, and supply modulability – the extensibility and contractibility noted above.
You can have cryptographic privacy protection, real time clearing and settlement, and transaction record indelibility without sacrifice of those indispensible features of all bona fide, non- … another pun coming … bit-player monies. Central banks see this, and are thus working up plans for their own central bank digital currencies (CBDCs).
Once again China is acting fastest and biggest. But it is far from alone as the Banks of England and Japan, the European Central Bank, the Fed, and a host of others now enter the field. Indeed Sweden is already pulling ahead, with the e-krona in trial use since early last year.
As a developer of public digital payment platforms and associated digital currencies (which always are simply what ‘counts’ in a practice or system of value and payment accounting), I am no skeptic of digital currencies and digital ledgers. Indeed, I think they are bringing us full circle back to the public accounting in which all monies originate, in a multi-millennial process that I’ve called, in these pages, ‘from ledgers to tokens and back.’ But the point here is less about tech than what tech in fact promises and how it is used.
Cryptopia was always a scam and mirage. Cryptography and other benefits offered by payments modernization are not. ‘Self-Sovereignty’ and other faces of steroidal narcissism and rightwing ‘libertarianism’ have likewise been scams and delusions from the get-go. Legitimate privacy and both citizen and ‘consumer’ autonomy are not – as any victim of a consumer ‘data-harvesting’ or algorithmic telemarketing company can tell you.
But these legitimate benefits are and have always been vouchsafed, not by feudal or neo-feudal sub-sovereign landlords or warlords or oligarchs, but by citizens acting collectively to provision themselves individually – that is, by citizens acting as states, as democratic republics, as constitutors of every legitimate res publica (public entity). Lest you think this claim fanciful, let me remind you that we’ve been here before…
Paper currency itself, as I’ve argued both in my scholarship and in these very pages, used to be privately issued in the US. By the mid-19th century, there was a veritable Babel of ‘wildcat banks’ offering multiple ‘wildcat currencies’ here in the US. There was no US-issued paper dollar, only privately issued paper dollars. In a rapidly growing economy plagued by specie (precious metal) scarcity, this form of flexible-issuance-enabling innovation was a godsend. But it wasn’t yet optimized.
The problem was the wildcat currencies fluctuated wildly in value, both over time in relation to purchasable goods, and over space in relation to one another. This was inimical to long-term functional currency status just as over-abundant incommensurable dialects and over-frequent meaning-changes would be inimical to a functional lingua franca. (Currency Babels are as literally counterproductive as are idiomatic Babels if your aim is to produce a Tower together.)
This want of what I have elsewhere dubbed spatial and temporal uniformity rendered the US’s paper currency system unsuitable for long-term stable integration of sub-national markets into one single national market – the aim of our nation’s founders and our Constitution’s framers. It also rendered prosecution of any national project – like holding the Union together during the Civil War – quite impossible. (The Union, too, was the ‘Tower’ – the political integration on which economic integration depended as always.)
President Lincoln and Congress did not conclude from this, however, that paper currency (as distinguished from metal coinage or bullion) was a bad idea. They understood the modulability benefits mentioned above. So instead they concluded that ‘wildcat’ issuance of multiple paper currencies was a bad idea, at least after the ‘proof of concept’ – that paper was better than metal – had been well established. Hence they enacted a Currency Act, a Legal Tender Act, and a National Banking Act over 1862-64 to establish the ‘Greenback’ dollar bill that remains to this day the world’s most successful publicly administered paper currency.
We are now in the crypto equivalent of the wildcat paper currency era. We’ve reached the time that the public takes over to optimize what the private sector has fragmentedly proved possible – viz., an operable central-bank-managed digital currency, a CBDC. Farewell, then, with thanks, to the inspiration afforded us all by Cryptopia. And hello, with determination now to speed-up development, to the Digital Greenback.Get the best of Forbes to your inbox with the latest insights from experts across the globe.Robert Hockett