Financial History Issue 115 (Fall 2015) | Page 27
DIGITAL GOLD
Reinventing Money in the 21st Century
By Nathaniel Popper
© Ted Soqui/Corbis
The virtual currency Bitcoin is often viewed
as a bolt out of the blue — an idea that
came fully formed from the mind of its
mysterious creator, Satoshi Nakamoto,
who first released the idea in 2008. Nathaniel Popper’s book, Digital Gold: Bitcoin
and the Inside Story of the Misfits and
Millionaires Trying to Reinvent Money,
uncovers the true history of Bitcoin, including the many years of experimentation that
made the technology possible. Much of the
most important work began in the 1990s in
an early online community known as the
Cypherpunks. The Cypherpunks were concerned about maintaining personal privacy
in a digital world. One of the main goals of
the Cypherpunks was to create a new kind
of digital cash that would not leave a trail
of personal details like a traditional credit
card statement. These ambitions to create
a new digital money led to many experiments that failed at the time but were later
harnessed for Bitcoin. This excerpt from
Digital Gold provides some historical perspective for these Cypherpunk experiments.
The notion of creating a new kind
of money would seem, to many, a rather
odd and even pointless endeavor. To most
modern people, money is always and
everywhere bills and coins issued by countries. The right to mint money is one of the
defining powers of a nation, even one as
small as the Vatican City or Micronesia.
But that is actually a relatively recent
state of affairs. Until the Civil War, a
majority of the money in circulation in the
United States was issued by private banks,
creating a crazy patchwork of competing
bills that could become worth nothing
if the issuing bank went down. Many
countries at that time relied on circulating
coins from other countries.
This was the continuation of a much
longer state of affairs in which humans
engaged in a seemingly ceaseless effort
to find better forms of money, trying out
gold, shells, stone disks and mulberry bark
along the way.
The search for a better form of money
has always been about finding a more
trustworthy and uniform way of valuing
the things around us — a single metric that
allows a reliable comparison between the
value of a block of wood, an hour of carpentry work and a painting of a forest. As
sociologist Nigel Dodd put it, good money
is “able to convert qualitative differences
between things into quantitative differences that enable them to be exchanged.”
In the 1990s, an online community,
known as the Cypherpunks, began working
on several free-wheeling experiments to
create a new kind of money for the digital
age. The money imagined by the Cypherpunks looked to take the standardizing
character of money to its logical extreme,
allowing for a universal money that could
be spent anywhere, unlike the constrained
national currencies we currently carry
around and exchange at each border. As
privacy activists, the Cypherpunks also
wanted money that would be harder for
governments to track than transactions in
the existing financial system.
In their efforts to design a new currency,
the Cypherpunks were mindful of the
characteristics usually found in successful
coinage. Good money has generally been
durable (imagine a dollar bill printed on
tissue paper), portable (imagine a quarter
that weighed 20 pounds), divisible (imagine if we had only $100 bills and no coins),
uniform (imagine if all dollar bills looked
different) and scarce (imagine bills that
could be copied by anyone).
But beyond all these qualities, money
always required something much less tangible, and that was the faith of the people
using it. If a farmer is going to accept a
dollar bill for his hard-earned crops, he
has to believe that the dollar, even if it is
only a green piece of paper, will be worth
something in the future. The essential
quality of successful money, through time,
was not who issued it — or even how
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