Professor, I am Nigerian. While not a believer in Crypto's more esoteric predictions, I find it considerably superior, as a means of exchange, to the Fiat system imposed by the Nigerian government.
It offers me fair value for my foreign earnings (😔, not from 'that') while being (so far) invulnerable at attempts to impose currency controls.
I am empathetic enough to see your points, but, to be honest, you sound like a Spanish grandee fulminating against those English pirates would have in the 15th-century. Or a GOPer going red in the face at the Xi-Xi-Pee today (not 'China', obviously).
Yes, it is unfair. Yes, it threatens the current system. But as with all systemic revolutions, it is the losers in the current system and a few mavericks from the old who will best profit.
If my State can't stop me trading crypto, I am not about to be deterred by the idea that it consumes electricity, is linked to unsavoury types and threatens the Ancien Regime.
The first does not bother me, not like in the absence of crypto Nigeria would see better electricity. The second applies to my Fiat (and your dollar/Pound and Swiss Francs). Finally, the current system from my country (and the Western order that ultimately underpins it) threaten me with poverty. I've got to look to number one (me!). If that means being a crypto privateer then so be it.
Adam - Thanks for taking out the time to write such an insightful piece and all for free!
As someone who has increasingly become convinced of Bitcoin's value prop over the last 3-4 years, I am always on the lookout for thoughtful posts against Bitcoin to make sure that I am not missing any blindspots. In this post, I am going to argue against your article, simply for the sake of clarifying my own thinking around this topic
Reading through your article, think I can identify 4 clear lines of reasoning
1. Bitcoin Crowd’s claim about Fiat: Invalidating Bitcoin Crowd’s claim that Fiat is NOT backed by anything i.e. that It is in fact backed by private credit, the rule of law and the power of the state (Trolly McTrollface)
2. Bitcoin Crowd’s claim about Progress: Invalidation Bitcoin Crowd’s claim, that Bitcoin far from heralding a radical break with the past is the libertarian spawn of neoliberalism’s ultimately doomed effort to depoliticize money. That It is the morbid symptom of an interregnum (Stefan Eich / Gramsci)
3. Bitcoin Fundamentals: Bitcoin’s Artificial Scarcity is perverse (Tooze)
4. Bitcoin Fundamentals: Bitcoin’s Energy usage is wasteful and environmentally damaging (Alexander Clapp)
5. Bitcoin Fundamentals: Bitcoin being a game with the price being contingent on the next wave of participants (Koning)
Before we go into each think it is worth noting that 1) and 2) are not statement about Bitcoins fundamentals. They are simply statements on claims made by “The Bitcoin Crowd”. As such, while both the claims are correct, and indeed disprove claims made by “some” in the Bitcoin community, neither undermines the fundamentals of Bitcoin. Having said that lets dive in
On 1) Fiat being backed by private credit, the rule of law and the power of the state
Fiat is indeed backed by Debt and the system is actually quite innovative in the sense that it 1) Solves the problem of a Static monetary base (constricting growth/innovation) while also 2) Solving the problem of Inflation!
By backing the system with Debt and by ensuring that for each new Monetary unit issued there are equal amount of Goods and Services produced (via Debt) the system creates an Elastic monetary system while also making sure that there are never too much money chasing too few goods and services (which is inflation by definition)
It almost seems like Magic until you remember Hegel’s proposition that each Thesis contains within itself the seeds of Contradiction which only become apparent over time.
In this case, the contradiction built into Fiat system is the temptation to issue unlimited debt which “does not create” new goods and services.
If Debt was still being issued at high costs, to trustworthy individuals/businesses and being invested either in effective Technology or Productive capacity to improve Productivity or Production then we would not be standing where we are with the price of Bitcoin where it is
The emergence of Bitcoin is not a vote against the Fiat system which is “not backed by anything”. It is a vote against the Fiat system which is “backed by dubious debt” which is not being invested in the right places, is not driving productivity and is creating inequality
On 2) Bitcoin being the libertarian spawn of neoliberalism’s ultimately doomed effort to depoliticize money and a morbid symptom of an interregnum
First of all, love the eloquent framing. I have had similar thoughts about Bitcoin but have never been able to synthesise them in such a clear and compelling way.
I do agree that Bitcoin is 1) A symptom of Interregnum and that 2) it is also likely an attempt to depoliticize money. However just because it is not a progress forwards, does not mean that Bitcoin is not fundamentally un-sound. In fact if anything, it strengthens its case even further
History, imo, is not a straight line towards a higher, brighter future as claimed by progressivists but rather cyclical and nobody argues the cyclicality of the different “Types of Money” better than Ray Dalio when talking about the cycles between 1) Hard Money 2) Claims on Hard Money and 3) Fiat Money.
In summary, Bitcoin is indeed the libertarian spawn of neoliberalism’s effort to depoliticize money. But that is exactly the point!! Such a spawn is required as an anti-thesis to control of money by Central bankers/State in the hopes that an emergent Synthesis will reveal the solution. Bitcoin might not be the solution, but it sure is pushing everyone to see the reality for that it is and to find one
On 3) Bitcoin’s artificial scarcity being perverse
Again, thank you for bringing this up as this is something that has been troubling me and still troubles me. Any student of Economics history reading into the Gold Standard, Inter-war period and the Great Depression will indeed agree that an Inelastic Monetary System with a capped supply can wreak havoc
Seen from this lens, a global monetary system with Bitcoin as the reserve asset and no Elasticity would indeed be devastating. Ppl would horde capital (bitcoin) and growth/innovation would grind to a halt.
While I do believe that Bitcoin is far from being a Global Reserve asset, I do believe that the final Monetary system built on Bitcoin (if it comes to it) will not be Inelastic. Bitcoin will indeed form the Base Layer of money but there will be a system of Credit built on top which will alow it to be elastic
Which begs the natural question of why move to Bitcoin if the system ends up being Elastic through credit creation? (same as Fiat). Not going down the rabbit hole of current debt in the Fiat system being unpayable without extreme measures and requiring a Monetary system, the answer imo lies instead in the Transparency and Openness of an Elastic Credit system built on top of Bitcoin. An open system will reduce information asymmetry and allow for banks to be held accountable. The ease of opening up a Bank with a Monetary System built on Bitcoin (you and would be able to open a Bank on Bitcoin standard) would also mean that 1) Banks will proliferate 2) No bank will likely be too big to fail 3) Bank runs will still happen but will not bring the system to collapse while making sure bad banks go out of business
On 4) Bitcoin’s Energy usage being wasteful and environmentally damaging
Yes Bitcoin uses a lot of energy but this energy is not as much to “Mine” new Bitcoin but to provide “Security” for the network. The new bitcoins created are simply a reward for miners who invest in physical equipment/energy to provide for this “Security”. Andreas M. Antonopoulos has a lot of great resources explaining this so I guide you to them without going to much in detail here
Seen from the lens of Security, the energy usage makes a lot more sense. If one was to make an argument against Bitcoin’s energy usage then rather than pointing to Bitcoin’s high energy usage one should instead try to quantify the energy expended in 1) Maintaining the Global USD system (US Military) or 2) Mining, Storing and Transporting Gold or 3) Handling all the Cash required to run the USD system
Yes Bitcoin uses a lot of energy, but has any robust system of Money in history not used energy?
On 5) Bitcoin being a game with the price being contingent on the next wave of participants
Yes that is true of Bitcoin. But that is also true for all Free Markets (whether Financial or Commercial)
- What is the price of Bread? - It is the price which the next buyer is willing to pay
- What the price of a Microsoft Stock? - It is the price which the next buyer is willing to pay
In both cases the, the Bread and the Microsoft Stock will not sell if there is no buyer on the other side. However in both cases people buy them knowing full well that they can be 99.99% guaranteed that if required to sell there will always be a buyer willing to buy as long as the Fundamentals underpinning Bread and Microsoft stock do not change i.e. as long as ppl need food to survive and as long as Microsoft’s business remains sound and Cashflow+
With Bitcoin its the same. As long as it remains Secure, Unhackable, Unbannable, Uncopiable, Divisible, Scarce and as long as the ppl with power in the Fiat system continue to abuse it there will always be demand for it
So a sound argument against Bitcoin (as an asset or money) would have to to built on the invalidation of its fundamental properties and surrounding environment above. I would love to see a piece from you tackling Bitcoin from this angle
Thanks once again for continuing to dedicate your time to send out these thought provoking pieces
does it really matter how people like to gamble their own money , be it the official sharemarkets or property markets or art collection or gold or currencies etc ?
its their choice...let them spend ans invest and gamble their money how they choose...
“Energy is the only universal currency: one of its many forms must be transformed to another in order for stars to shine, planets to rotate, plants to grow, and civilizations to evolve.”
Mark Blyth summary of this be like: I don't like it because global warming and stuff but some shit happened and some people thought about it. Don't ask me about it - can't / won't tell.
Enclosed text of Alexander Clapp on Balkan is totally disappointing. It is a black and white image of Balkan that nobody believes anymore. A waste of time and space.
Professor, I am Nigerian. While not a believer in Crypto's more esoteric predictions, I find it considerably superior, as a means of exchange, to the Fiat system imposed by the Nigerian government.
It offers me fair value for my foreign earnings (😔, not from 'that') while being (so far) invulnerable at attempts to impose currency controls.
I am empathetic enough to see your points, but, to be honest, you sound like a Spanish grandee fulminating against those English pirates would have in the 15th-century. Or a GOPer going red in the face at the Xi-Xi-Pee today (not 'China', obviously).
Yes, it is unfair. Yes, it threatens the current system. But as with all systemic revolutions, it is the losers in the current system and a few mavericks from the old who will best profit.
If my State can't stop me trading crypto, I am not about to be deterred by the idea that it consumes electricity, is linked to unsavoury types and threatens the Ancien Regime.
The first does not bother me, not like in the absence of crypto Nigeria would see better electricity. The second applies to my Fiat (and your dollar/Pound and Swiss Francs). Finally, the current system from my country (and the Western order that ultimately underpins it) threaten me with poverty. I've got to look to number one (me!). If that means being a crypto privateer then so be it.
Who; Whom, 🤷🏾♂️.
That was really great/useful/clarifying, thank you!
Fully and completely enjoyable! Thank you.
Adam - Thanks for taking out the time to write such an insightful piece and all for free!
As someone who has increasingly become convinced of Bitcoin's value prop over the last 3-4 years, I am always on the lookout for thoughtful posts against Bitcoin to make sure that I am not missing any blindspots. In this post, I am going to argue against your article, simply for the sake of clarifying my own thinking around this topic
Reading through your article, think I can identify 4 clear lines of reasoning
1. Bitcoin Crowd’s claim about Fiat: Invalidating Bitcoin Crowd’s claim that Fiat is NOT backed by anything i.e. that It is in fact backed by private credit, the rule of law and the power of the state (Trolly McTrollface)
2. Bitcoin Crowd’s claim about Progress: Invalidation Bitcoin Crowd’s claim, that Bitcoin far from heralding a radical break with the past is the libertarian spawn of neoliberalism’s ultimately doomed effort to depoliticize money. That It is the morbid symptom of an interregnum (Stefan Eich / Gramsci)
3. Bitcoin Fundamentals: Bitcoin’s Artificial Scarcity is perverse (Tooze)
4. Bitcoin Fundamentals: Bitcoin’s Energy usage is wasteful and environmentally damaging (Alexander Clapp)
5. Bitcoin Fundamentals: Bitcoin being a game with the price being contingent on the next wave of participants (Koning)
Before we go into each think it is worth noting that 1) and 2) are not statement about Bitcoins fundamentals. They are simply statements on claims made by “The Bitcoin Crowd”. As such, while both the claims are correct, and indeed disprove claims made by “some” in the Bitcoin community, neither undermines the fundamentals of Bitcoin. Having said that lets dive in
On 1) Fiat being backed by private credit, the rule of law and the power of the state
Fiat is indeed backed by Debt and the system is actually quite innovative in the sense that it 1) Solves the problem of a Static monetary base (constricting growth/innovation) while also 2) Solving the problem of Inflation!
By backing the system with Debt and by ensuring that for each new Monetary unit issued there are equal amount of Goods and Services produced (via Debt) the system creates an Elastic monetary system while also making sure that there are never too much money chasing too few goods and services (which is inflation by definition)
It almost seems like Magic until you remember Hegel’s proposition that each Thesis contains within itself the seeds of Contradiction which only become apparent over time.
In this case, the contradiction built into Fiat system is the temptation to issue unlimited debt which “does not create” new goods and services.
If Debt was still being issued at high costs, to trustworthy individuals/businesses and being invested either in effective Technology or Productive capacity to improve Productivity or Production then we would not be standing where we are with the price of Bitcoin where it is
The emergence of Bitcoin is not a vote against the Fiat system which is “not backed by anything”. It is a vote against the Fiat system which is “backed by dubious debt” which is not being invested in the right places, is not driving productivity and is creating inequality
On 2) Bitcoin being the libertarian spawn of neoliberalism’s ultimately doomed effort to depoliticize money and a morbid symptom of an interregnum
First of all, love the eloquent framing. I have had similar thoughts about Bitcoin but have never been able to synthesise them in such a clear and compelling way.
I do agree that Bitcoin is 1) A symptom of Interregnum and that 2) it is also likely an attempt to depoliticize money. However just because it is not a progress forwards, does not mean that Bitcoin is not fundamentally un-sound. In fact if anything, it strengthens its case even further
History, imo, is not a straight line towards a higher, brighter future as claimed by progressivists but rather cyclical and nobody argues the cyclicality of the different “Types of Money” better than Ray Dalio when talking about the cycles between 1) Hard Money 2) Claims on Hard Money and 3) Fiat Money.
In summary, Bitcoin is indeed the libertarian spawn of neoliberalism’s effort to depoliticize money. But that is exactly the point!! Such a spawn is required as an anti-thesis to control of money by Central bankers/State in the hopes that an emergent Synthesis will reveal the solution. Bitcoin might not be the solution, but it sure is pushing everyone to see the reality for that it is and to find one
On 3) Bitcoin’s artificial scarcity being perverse
Again, thank you for bringing this up as this is something that has been troubling me and still troubles me. Any student of Economics history reading into the Gold Standard, Inter-war period and the Great Depression will indeed agree that an Inelastic Monetary System with a capped supply can wreak havoc
Seen from this lens, a global monetary system with Bitcoin as the reserve asset and no Elasticity would indeed be devastating. Ppl would horde capital (bitcoin) and growth/innovation would grind to a halt.
While I do believe that Bitcoin is far from being a Global Reserve asset, I do believe that the final Monetary system built on Bitcoin (if it comes to it) will not be Inelastic. Bitcoin will indeed form the Base Layer of money but there will be a system of Credit built on top which will alow it to be elastic
Which begs the natural question of why move to Bitcoin if the system ends up being Elastic through credit creation? (same as Fiat). Not going down the rabbit hole of current debt in the Fiat system being unpayable without extreme measures and requiring a Monetary system, the answer imo lies instead in the Transparency and Openness of an Elastic Credit system built on top of Bitcoin. An open system will reduce information asymmetry and allow for banks to be held accountable. The ease of opening up a Bank with a Monetary System built on Bitcoin (you and would be able to open a Bank on Bitcoin standard) would also mean that 1) Banks will proliferate 2) No bank will likely be too big to fail 3) Bank runs will still happen but will not bring the system to collapse while making sure bad banks go out of business
On 4) Bitcoin’s Energy usage being wasteful and environmentally damaging
Yes Bitcoin uses a lot of energy but this energy is not as much to “Mine” new Bitcoin but to provide “Security” for the network. The new bitcoins created are simply a reward for miners who invest in physical equipment/energy to provide for this “Security”. Andreas M. Antonopoulos has a lot of great resources explaining this so I guide you to them without going to much in detail here
Seen from the lens of Security, the energy usage makes a lot more sense. If one was to make an argument against Bitcoin’s energy usage then rather than pointing to Bitcoin’s high energy usage one should instead try to quantify the energy expended in 1) Maintaining the Global USD system (US Military) or 2) Mining, Storing and Transporting Gold or 3) Handling all the Cash required to run the USD system
Yes Bitcoin uses a lot of energy, but has any robust system of Money in history not used energy?
On 5) Bitcoin being a game with the price being contingent on the next wave of participants
Yes that is true of Bitcoin. But that is also true for all Free Markets (whether Financial or Commercial)
- What is the price of Bread? - It is the price which the next buyer is willing to pay
- What the price of a Microsoft Stock? - It is the price which the next buyer is willing to pay
In both cases the, the Bread and the Microsoft Stock will not sell if there is no buyer on the other side. However in both cases people buy them knowing full well that they can be 99.99% guaranteed that if required to sell there will always be a buyer willing to buy as long as the Fundamentals underpinning Bread and Microsoft stock do not change i.e. as long as ppl need food to survive and as long as Microsoft’s business remains sound and Cashflow+
With Bitcoin its the same. As long as it remains Secure, Unhackable, Unbannable, Uncopiable, Divisible, Scarce and as long as the ppl with power in the Fiat system continue to abuse it there will always be demand for it
So a sound argument against Bitcoin (as an asset or money) would have to to built on the invalidation of its fundamental properties and surrounding environment above. I would love to see a piece from you tackling Bitcoin from this angle
Thanks once again for continuing to dedicate your time to send out these thought provoking pieces
Thank you Professor.Very clarifying.
You emphasize politics behind money. At times there is religious fervor too. Some of the supporters of Bitcoin exhibit this behavior. Same for some followers of Elon Musk and Tesla. No wonder Tesla owns Bitcoin and accepts it for payment. See this article. https://www.bloomberg.com/opinion/articles/2021-03-02/coinbase-ipo-coin-the-crypto-exchange-is-a-100-billion-cult?utm_source=twitter&utm_content=view&utm_campaign=socialflow-organic&cmpid%3D=socialflow-twitter-view&utm_medium=social&sref=AmDJk8FR
does it really matter how people like to gamble their own money , be it the official sharemarkets or property markets or art collection or gold or currencies etc ?
its their choice...let them spend ans invest and gamble their money how they choose...
“Energy is the only universal currency: one of its many forms must be transformed to another in order for stars to shine, planets to rotate, plants to grow, and civilizations to evolve.”
― Vaclav Smil
Mark Blyth summary of this be like: I don't like it because global warming and stuff but some shit happened and some people thought about it. Don't ask me about it - can't / won't tell.
Enclosed text of Alexander Clapp on Balkan is totally disappointing. It is a black and white image of Balkan that nobody believes anymore. A waste of time and space.