Digital billionaires Cameron and Tyler Winklevoss discuss their thoughts on the future of cryptocurrencies at a Museum of American Finance event, February 27, 2018.
Elsa Ruiz relinquish their monopoly over money any sooner than they will surrender their monopoly on violence. However desirable in theory it may be, Hayek’ s proposal to denationalize money was just a pipe dream. As the Nobel laureate economist wrote,“ Everybody knows that if such a private experiment promised to succeed, governments would at once step in to prevent it.”
Everybody knows, that is, apart from the speculators in cryptocurrencies. Some of them privately concede that bitcoin may never become money as such, but say that it will retain value as an asset in the same way that gold survived its demonetization. Bitcoin, in other words, has intrinsic value as a kind of digital commodity. A counter-argument is that gold has a very long history, an extraordinary durability and an inherent beauty which lends it enduring luster, while bitcoin is just a clever piece of open-source software.
Perhaps a cryptocurrency will one day establish itself as a new form of money— in the very long run. But if that time ever comes, bitcoin itself is unlikely to be a contender. Its technology is woefully inefficient. Transactions on the network are too expensive, too energy intensive and take too long to settle. Amazon won’ t take payment in bitcoin. The US government won’ t accept bitcoin for the payment of taxes. In short, bitcoin as money is going nowhere.
There is a Wall Street tale which supposedly originated with the California Gold Rush. Prospectors who found gold would spend some of their newfound fortune on a tin of sardines. When their luck was down, they would sell all their possessions, including the sardines. So the tin passed from one hand to another, until one day a naïve forty-niner opened it only to find that the sardines were rotten.“ Didn’ t you know,” said his companion,
“ those sardines were only good for trading, not for eating.” Bitcoin resembles the prospector’ s sardines. It is perfect for speculating, but not good as money.
For students of speculative manias, explosive price movements suggest another premonition, namely that the end is nigh. By April Fool’ s Day, bitcoin’ s dollar price was down around two-thirds from its December peak. When the tulip boom ended, the price of Gouda bulbs fell from 60 guilders to the equivalent of around 10 cents, a price decline of 99.8 %. Given that the crypto has soared far higher than humble tulips and has even less intrinsic value, a decline of even greater magnitude is not out of the question.
Edward Chancellor is the author of Devil Take the Hindmost: A history of Financial Speculation. This article is adapted from a piece published by Reuters Breakingviews.
16 FINANCIAL HISTORY | Spring 2018 | www. MoAF. org