There’s one simple – inarguable – fact about Bitcoin and crypto in general that ought to give everyone a moment’s pause. It is that no one can explain it intelligibly in less than 10 minutes – if at all.
Anything opaque that ought to be readily understandable is inherently suspect. Not necessarily bad – but suspect. Cryptic contracts filled with legalese which even intelligent people who can read and understand Shakespeare cannot understand, for instance. Time-share spiels. There are many such examples.
Everyone understands that money is a medium of exchange because everyone understands that you can exchange money for something that isn’t money. That money has value precisely because other people are willing to accept it – whatever its form – in exchange for that which is not money.
In this sense, Bitcoin and crypto generally qualify as money since people are willing to accept them in exchange for things – goods and services – that are not money.
So far, so good.
People also accept Federal Reserve Notes in exchange for goods and services. They do so because they believe they are receiving money – which has value to them because they, in turn, can exchange it for goods and services as well.
Neither of these forms of money has any intrinsic value, however. Absent the willingness of people to accept Federal Reserve Notes in exchange for goods and services, all you’ve got are pieces of paper that have next to no value at all, in and of themselves.
With crypto, you haven’t even got that.
The problem – the danger – with both of these forms of money, then, seems to be that they only have value to the extent people are willing to accept them in exchange for things that do have intrinsic value; i.e., goods and services or any other tangible thing (such as land).
Both crypto and Federal Reserve Notes have another – dangerous – commonality that relates to their having no intrinsic value, as such. Both being created things of no intrinsic value of which a potentially limitless amount can be easily created – presto! – by those in a position to create them.
The Federal Reserve has a legal monopoly on the creation of Federal Reserve Notes – those pieces of paper that have no intrinsic value in and of themselves. And it has the ability to create as many as it likes.
The more of these “notes” the Fed creates – “issues” is the term the Fed prefers to use, to imply there is a fixed amount and that the “notes” are merely being . . . issued – the less the value of the “notes” already in circulation, since more of them are chasing fewer goods and services that do have intrinsic value, both because they are intrinsically valuable for whatever they are and because it is not possible to simply “print” more goods and services. The limited supply of goods and services imposes a kind of floor on the devaluation of these things whereas “notes” can be devalued to worthlessness via the simple act of making more of them, presto-style.
There is no legal monopoly on the issuance of crypto – but it does seem to be under the control of cryptic entities; enter the difficulty explaining where crypto comes from and who controls it.
Then there is this business of “mining” it – which is as understandable as quantum mechanics. How does one “mine” something that has no physicality? Who, exactly, is “mining” it – and how do we know that whatever-it-is that’s allegedly being “mined” actually is – or even exists, at all?
We go on say-so. So long as people say they are willing to accept crypto as money, then it functions as money.
But it is not at all clear how crypto is a sounder form of money than Federal Reserve Notes because it appears to be just as subject to devaluation by dint of printing (or “mining”) more of it. Some proponents say there is a set limit to the quantity of crypto that can be issued that correlates to the “mining” of it. But if you understand – or can explain – this, you are a smarter man than I am.
Perhaps the most worrisome thing about crypto, though, is precisely related to the thing which has made it so attractive to so many.
It is – so it is said – “decentralized” (i.e., not under the control of some centralized government-corporate nexus, such as the “Fed”) and thus represents a return of control to the average person over his financial affairs – as well as anonymity. Again, so it is said.
But it is, it actually?
Crypto is issued by . . . whom, exactly? Due diligence prompts the wanting of – the needing of – an understandable answer to this simple question. And anonymity?
Cash – even if fiat – is inherently anonymous because of its physicality. A dollar bill is one of trillions – literally – and not tied to any specific individual. So long as the individual can exchange a dollar bill for goods and services without having to also produce identification and have the exchange recorded, the exchange is completely anonymous. No one else knows you fed a dollar bill into a soda machine in exchange for a can of Coke.
And if you receive dollars in exchange for your goods and services – or as compensation for work – no one else knows the exchange has been transacted, absent any requirement that it be recorded and the parties to it identified.
Cash also has the intrinsic value of being the support of a black market in goods and services as well as the exchange of labor, etc. Put another way, physical cash is an effective way to keep the government out of your financial business – and the push to eliminate it in favor of some form of digital money speaks volumes about the government’s motives in that respect. If money becomes digital, it is no longer physical and so no longer anonymous. The Internet will know you bought a can of Coke – the moment you bought it. It will know everything about every exchange you and everyone else makes.
How, then, will the government not also know of it?
Which circles us back to crypto, which is necessarily digital. Which ought to give everyone a moment’s pause. Are we quite sure we want to trust in the assurance that it is “decentralized” and “anonymous.” That we want to buy into a medium of exchange that is inherently suited to eliminate anonymity?
Perhaps not. “Blockchains” and “wallets” and such. But I wish someone could explain how, exactly, this works – and in a way that anyone of average intelligence could easily understand.
Until then, I remain on guard – and prefer money I can hold in my hand and (ideally) which has intrinsic value, such as that based on (or which actually is) silver and gold, actually mined – and which cannot be mined in unlimited quantities by cryptic centralized “issuers” thereof.
. . .
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