Goldfinger


Over the past months, digital currency has been on a tear. I’m specifically talking about some of the seventy or so flavors of bitcoin that pullulate the internet.

The name is not a differentiating factor, because all currencies are tendentially digital, with the exception of a few analogs—notes and coins—that sit in wallets and purses.

Money is fascinating because it is in essence a belief system—in a world of facts, factoids, and fake news, pretty much everyone believes in money, in particular the power of money.

The use of notes and coins has been going down steadily for a couple of decades, and during the pandemic it tipped straight down as online sales boomed. In the UK, a decade ago sixty percent of transactions were made in cash, but by 2019, only twenty-three percent survived—the rest, i.e. the vast majority, were digital, using debit and credit cards or other digital forms of payment.

Post-pandemic, I expect that number to have increased. I observe my peers at gas stations, stores, or restaurants, and seldom see a cash payment. About ninety percent of my total transaction volume is digital, and I’m pretty fond of analog—I suspect your digital footprint may be higher.

Humans are in fad mode—the pandemic appears to have increased our appetite for crazy shit, as evidenced by extreme positions on practically everything, from the US election to climate change and Miley Cyrus, by way of Democrat pedophile ships in the Suez.

The GameStop fad was part of it (still is, if you follow the markets), as is crypto. The smart money knows there’s an issue when something goes mainstream, and speculation on various bitcoin flavors, Ethereum being one of the most popular, is rife.

The quantum leap of Ethereum in 2021—a game for all the family.

One bitcoin is today (right now) worth 39,589.33 €, about forty-eight thousand dollars, Ethereum is around ten percent of that. Folks are plunging into the wild ride with the same enthusiasm that got them into the subprime mortgage bubble and tulipmania.

The madness of money and popular delusion is well-described by Charles Mackay, but here’s a cool add-on from John Maynard Keynes, after he was recalled to the government in 1943.

Here I am back in the Treasury like a recurring decimal… …most people’s only idea was to get back to pre-1914. No one today feels like that about 1939. That will make an enormous difference when we get down to it.

Bitcoin has drawn comments from caustic comedy kings such as Bill Maher, who recently claimed it was pointless and no one understood it, even if they said they did—again, a good indication of the direction of travel.

We’re peaking on a bubble—you can’t make everyone rich unless what they own is worthless; but for Bill and his audience, a brief clarification, since I understand it. There are three reasons why bitcoin has thrived: the first is greed, the natural tendency of humans to jump onto bandwagons—this is just another Klondike; the second is more structural, because the commodity is in short supply and all transactions are traceable—not so much to a particular person, but to ensure we cannot spend more coin than actually exists.

The world’s nations have provoked this by systematically devaluing their currencies against any underlying physical support—traditionally, this was gold, again a commodity in short supply, but it could be silver, diamonds, or even cod—the only prerequisite is that the support level matches the weight above it, and over the decades, the roof crashed into the basement.

Aristotle wrote that money must be “durable, divisible, consistent, and convenient and possess value in itself.” Here the intrinsic value of bitcoin fails, but then so does a five hundred euro note, if its base of support—such as gold, for which it is a surrogate—fails.

The final reason for the success of bitcoin is the anonymous—or more accurately pseudonymous—nature of transactions. In a world where tax is universal and any relatively minor financial transaction requires explanation, the ability to buy and sell undercover—even if no underhand activity is involved—is popular.

Cryptocurrencies are now undergoing serious scrutiny under the ESG—Environmental, Social, and Governance—microscope, particularly since it transpired that much of the bitcoin mining is being done in China.

Pseudonymity—the new big word—is of course a good way of hiding your dosh from the taxman. However, this can only work if the currency is transactional and there is some assurance of stability—seeing your bitcoin life savings wiped out due to their collapse in value against the dollar or the euro is not a pretty sight.

A fascinating complement to the increased use of digital is the paradox of banknotes: digital transactions take an increasingly higher share of the market, but the value of NIC, or notes in circulation, has increased. In dollars, euros, and pounds. Notes in circulation? Under mattresses and in safe deposit boxes, more like.

Crypto and the banknotes sounds like a good name for a band, but they may actually be, if you excuse the pun, two sides of the same coin.

The India Road, Atmos Fear, Clear Eyes, and Folk Tales For Future Dreamers. QR links for smartphones and tablets.

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