Financial History Issue 125 (Spring 2018) | Page 18

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