STAFF NEWS & ANALYSIS
Read the Alternative Media to Understand Bitcoin … and Money Generally
By Staff News & Analysis - January 15, 2015

Much more than digital cash … The rise and fall of the crypto-currency is good news for authors at least … BITCOIN may well be the world's worst-performing currency. In 2014 it lost more than half of its value against the dollar, beating even Ukraine's hryvnia and the Russian rouble. But measured by the number of new books it has inspired, bitcoin is top of the pile. Nearly 200 titles about the crypto-currency came out last year, according to Amazon. Another dozen will hit the shelves in the coming months. – Economist

Dominant Social Theme: Bitcoin is mixed up with drug-dealing and other nefarious acts.

Free-Market Analysis: Bitcoin is not worth what it used to be mostly in our view because of various "raids" by authorities that have tied the crypto-currency to bad actors and "drug dealers."

But we want to make another point. This Economist article shows us once more how one can write an article about money in the 21st century that sounds authoritative but actually leaves out or distorts most of the salient points. More in a minute.

The main thrust of the article is that the "bitcoin revolution" may be a very slow-moving one. We have no quarrel with this: We were doubtful of past years' bitcoin mania and still have suspicions about where it came from, why it was launched, etc.

But leaving these questions aside, there is certainly something to be said for bitcoin's ongoing durability (at a lower price) and whatever level of anonymity it can preserve. We continue to bear in mind, of course, that the anonymity program TOR was developed by the US Navy, possibly in conjunction with DARPA.

The article excerpted above doesn't get into these details. It cites several books on bitcoin and focuses mostly on bitcoin's potential longevity and expansion.

More:

Brian Kelly, an investment manager and talking head on CNBC, takes several stabs in "The Bitcoin Big Bang" at explaining how the crypto-currency works, only to confuse the reader with his odd metaphors: "Let's call the first bitcoin a socialite named Genesis." Dominic Frisby is a comedian and a financial writer who in an earlier book outed himself as an anarcho-capitalist. In "Bitcoin: The Future of Money?" he suggests that bitcoin will change the world as we know it because governments will be unable to raise money for long wars if the currency is widely adopted. "It is a force for peace," Mr Frisby insists.

For any book on bitcoin to be worth reading, though, it has to delve further: into the crypto-currency's ideological and technical roots, for instance, or what it adds to the narrative of money, or even what its economic and political impact may be. The currency's dollar price may be three-quarters down on its peak, but the underlying technology also provides plenty of intellectual fodder—and is unlikely to go away. So there is plenty to write about if you are serious.

Paul Vigna and Michael Casey, two journalists at the Wall Street Journal, are certainly serious. In their new book, "The Age of Cryptocurrency", they don't waste time projecting millenarian political beliefs or searching for bitcoin's elusive creator, Satoshi Nakamoto, though they argue that the crypto-currency's quasi-religious "creation myth" has been an important factor in creating a community around the project. Before he went offline in 2011 without leaving much of a trail, Mr Nakamoto had cleverly combined ideas developed by others with his main invention: the "blockchain", a public ledger of all bitcoin transactions. The blockchain lives on the system's global network and is maintained and protected by "miners", operators of specialised computers who are rewarded with bitcoin for their efforts.

Rather than begin their book with a breathless account of how bitcoin could change everything, Messrs Vigna and Casey start with a brief account of the centuries-old debate about the nature of money. The "metallist" school sees money as a commodity, a thing with its own inherent value—which governments should leave alone as much as possible. By contrast, "chartalists" view money as a complex system of credit relationships, which allows value to flow within a society. For these people currency is just the token around which the monetary system is arranged. And governments have a role to play in managing this system and thus the economy.

This philosophical division is also present in the debate about bitcoin. Libertarians treat it as a scarce commodity that needs to be "mined" (to create bitcoin and maintain the blockchain, miners solve mathematical puzzles, meaning that bitcoin is willed into existence by burning energy. But for a growing number of geeks and venture capitalists bitcoin is less a currency than a technology that can be used to transfer money and other assets cheaply and securely.

Messrs Vigna and Casey predict that bitcoin's main calling will indeed be as a disruptive payment system. Before the crypto-currency, societies had to rely on banks and other centralised institutions to keep track of payments and guarantee the financial system. This position as gatekeeper has allowed these institutions to capture much economic rent. The blockchain technology cuts away the middlemen by taking over the role of ledger-keeping. "At its core, crypto-currency is not about the ups and downs of the digital currency market," the authors write, but "about freeing people from the tyranny of centralised trust."

We can see from the above cites that recent books on bitcoin seem to be a mixed bag. Some are written naively while others apparently take a more sophisticated view. To say libertarians treat money as a scarce commodity that has to be mined is certainly simplifying the point. So far as we know there are plenty of libertarians that are comfortable with the idea that money can be something other than gold or silver – and even that fiat is okay, provided it is regulated by the market not by the government.

In the last graf, the article makes the point that society has had to rely on banks and other centralized institutions to "keep track of payments and to guarantee the financial system." In fact, these are the rationales of those officials that want to justify our current extensive system of monopoly central banking but that doesn't make it true.

The "reliance" was not a matter of voluntary utilization of a superior model but of brute force generated out of the determination of the state in conjunction with financiers to impose a centralized monetary system.

It was British jewelers, for instance, that created the central bank of London by guaranteeing the English king war loans in return for the imprimatur of the state on the funds they had in mind producing. They sought the monopoly power of the state, in other words.

In the US prior to the Civil War wildcat banking thrived. Almost anyone could start a bank and many did. The extensive regulatory apparatus so visible today was little applied. Whether more lost more money then than now is at least an arguable supposition. Banking has not always been so massive, so authoritative, so emphatically partaking of the state's position of monopoly power.

The article also explains how various authors are looking at the future of bitcoin. "The currency may not be a must-use in rich countries with well-developed payment services, but it could help the poor world's 2.5 billion unbanked to connect to the formal financial system."

In fact, this sounds more like a threat to us – the idea that bitcoin, like some sort of gateway drug, can lead one toward the gnashing jaws of the modern money business.

And the technology may also undermine other centralised institutions in the "trust business", such as stockmarkets, or give the sharing economy a boost (some have speculated that in future taxis may be not only self-driving, but self-owned—meaning they are effectively owned by the blockchain).

The history of this article is doubtful and its conclusion worrisome. All in all, it confirms our perception that one is not likely to find a good deal of monetary truth in the major media, even the most sophisticated versions of it.

After Thoughts

What will happen to bitcoin is as yet questionable, but one might learn a lot more about its underlying truth by reading articles about it in the alternative media. The mainstream media is simply too wedded to a 20th century central banking model.

Posted in STAFF NEWS & ANALYSIS
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