Crypto coins and pieces of eight
Will past and future money dance on the grave of the present?
Jerry Schuitema | 24 June 2016 00:49
SWELLENDAM – My father was a gold miner. I spent some time underground as an onsetter; my younger brother worked at the Chamber of Mines, and my older brother, Berend, was a “shift-boss” for a number of years. Apart from sharing his mine-official internship with Roger Kebble, Berend in his blog, the Golden Threadhas captured some fascinating and valuable historical anecdotes of mining turbulence in the 60s and 70s. It was as if we were all drawn to gold exploration and mining; understanding and fascinated by its ancient allure in many things, but primarily in its then still unassailable position as the ultimate store of value and supremacy over paper money.
So it is with some bemusement that I have been following the mining of another unit of value – bitcoin. What? No headgear? No kilometres-deep shafts; no incline shafts, tunnels and ore-passes? No “ngolovans”, “hoppers”, “giraffes”, locos, skips and cages? No miners, rock-drillers, blasters, surveyors, riggers, and “skippies”? No man-made mountains of rock, slime dams and sinkholes? No surrounding towns, hostels, compounds and warrior-like camaraderie both underground and in dingy pubs and shebeens?
None of that stuff! You can create this unit of value by “simply” sitting at a computer and cracking a code. The inverted commas confirm the idiom that simple things are not always easy. It has become increasingly difficult, and demanding massive processing power. This is captured in an explanation on a leading crypto currency website, CoinDesk which says: “In traditional fiat money systems, governments simply print more money when they need to. But in bitcoin, money isn’t printed at all – it is discovered. Computers around the world ‘mine’ for coins by competing with each other”.
The term “mining for bitcoin” is therefore no co-incidence. Like gold, it has to be discovered and exploited through massive effort and resources: just in a very different form. In comparing the two as a unit of value and potential means of exchange, it invokes a computer game image of Blackbeard with a gold-plated sword doing battle with Darth Vader with a lightsaber.
So now we have three potential forms of money, each with their own element of fiction. If you strip gold of its ancient allure, its historic backing of paper currencies and its investment and adornment image, you could certainly posit the Keynes view that it is a “barbarous relic”. If you interrogate bitcoin’s mysterious and anonymous founding, creation structure and block chain security, you could equally have some qualms. But both do not come near the degree of fiction that permeates fiat currencies. Debt is a fiction. It is nothing more than a promise to pay sometime in an ever-delayed future – a very empty promise considering the increasing extent to which the gap between debt creation and the means to pay is beyond redemption.
As fellow columnist, Magnus Heystek has mooted, many believe it must perish. The only question is which will survive and will there indeed be a battle between Blackbeard and Vader over the corpse? Blackbeard seems to be stirring under tons of derivative froth, with some believing he may emerge as early as this year. And Vader’s saber light has grown brighter with mineable bitcoin reserves being halved.
Perhaps they won’t square off against each other. Perhaps they will join forces to replace the deceased. I understand Blackbeard pretty well, but I must confess that I am still a novice at understanding Vader.
I am of the generation that bridged the age of deprivation and the age of abundance. It was a bridge that by its very nature implied some fundamental shifts in socio-economic constructs. Few of those momentous shifts have been more profound than the rapid pace of technology. It’s a concern shared by many, albeit in no small number by those frustrated with the latest smart-phone – only to be disdainfully helped by a 12 year old. But there are many too who have deeper concerns – about losing their jobs to some machine; or having their academic achievements made redundant by apps and algorithms. It has even disturbed the vestiges of policy makers, economists and advisors, facing disruption of conventional metrics that either inform, or ill-inform their decisions.
In its most significant feature of all, we should not fear technology but rather the stifling of it. And that is in block-chain technology that is wielding a lightsaber into the parasitic fat which is smothering value-creation. The scalpel has three shapes:
- promising to restore integrity to the global means of exchange;
- spawning new companies with very different organisational structures than their typical equity-based counterparts and
- New methods of funding enterprise.
In the first, we may still be a long way from bitcoin or other crypto currencies becoming a real threat to fiat currencies, but even a casual follower of topical events will be aware that our debt-driven means of exchange is simply unsustainable. In that contest, crypto currencies have to firmly establish their integrity in facing an establishment onslaught. Despite the latest DAO hacking crisis, bitcoin itself is gradually overcoming suspicions around its mysterious formation and while it cannot be blamed for how villains use it, abuse will simply add weight to detractor arguments, especially from vested financial services.
The second – the growth of so-called “insurgent”, or “disruptor” company models holds even greater promise. They take us back to ancient principles of value creation which is that cell I spoke of in this Moneyweb article.
The third – that of crowd-funding is perhaps the most exciting of all. It is still very early days, but last year alone, it raised nearly $35 billion dollars, a near 6-fold increase in three years. It is challenging conventional equity markets and is certainly a threat to venture capital.
The three together are mutually supportive and represent a formidable force that give a whisper of a different, more equitable, more credible, and more values-driven tomorrow. Of course, they can fall (and have already fallen) prey to the same speculators, predators, mercenaries and villains that have savaged the global economy and whose actions encouraged the birth of these alternatives in the first place.
Their future depends on their integrity. That cannot be cemented and maintained by doing more of the same.