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====Trust as feature not bug==== | ====Trust as feature not bug==== | ||
{{Drop|A|nd trust in}} each other is a feature, not a | {{Drop|A|nd trust in}} each other is a feature of a community, not a bug, and not something that can or should be solved by [[technology]]. It is ''the'' feature, in fact, on which the whole edifice of civilisation is based. Farrington would have done well to read a bit more Graeber here. | ||
Currency has its antecedents not in [[barter]] between strangers, as is commonly supposed, but in ''[[credit]]'' amongst friends: currency would not work between hostile strangers because it is a personal promise of deferred satisfaction, and the a hostile stranger does not trust in promises or pieces of paper or bits of metal as abstract symbols. This is a matter almost of literary, and not financial, theory. Of shared meaning. I hand over my muskets for your blankets as their respective meanings to each of us is obvious, and does not depend on the other’s. Indeed it depends on a relative ''divergence'' in meaning: you must value muskets more than blankets, and I must value blankets more than muskets, or we have no deal. | |||
Given how fundamental this dissonance is to any market it is extraordinary how much hostility its necessary premise — there is no objective truth — generates. | |||
We can each arrive at our own values of guns and blankets and that is a fine thing. But it is not fine for tokens of abstract tokens of value such as printed promises to pay. Those we must agree about. | |||
In other words, for currency to work, there must be consensus as to its value. That is axiomatic. Hence, it is of no use between hostile strangers. | |||
===Bitcoin as metaphor=== | ===Bitcoin as metaphor=== | ||
[[Bitcoin]] does ''not'' fix this. It is axiomatic that bitcoin’s viability depends on community consensus in something that is, literally, not true. This is | {{Drop|[[Bitcoin|B]]|itcoin does ''not''}} fix this. It is axiomatic that bitcoin’s viability depends on community consensus in its value other than its intrinsic value. We must all believe something that is, literally, not true, and wilfully suspend of knowledge of what is true. This is how we use ''[[metaphor]]s'' — they are figurative ''tokens''. | ||
People must believe in Bitcoin as a ''token'' of value — in Farrington ’s view, of [[capital]] — whilst accepting it has absolutely no intrinsic value. | |||
As mentioned, this is also true of fiat currency. But here the prevailing paradigm, which currency plays a fundamental part, makes a difference. Within the “[[degenerate fiat currency]]” [[power structure]], fiat currency operates as a lawful means of discharging debts denominated in that currency. It necessarily has that value. If this feels circular, that’s because it is: the power structure defines both question and answer. By transacting in a currency you are committing to the metaphor: you are giving something of intrinsic value away for something of metaphorical value. You have bound yourself to the mast. The leap of faith has been made and completed: the economy works on the strength of promises calibrated by reference to that metaphor. | |||
[ | The same might be true of Bitcoin, but only to the extent debts are denominated in bitcoin. Mostly, bitcoin is traded not as a currency but as a commodity, for which the debt is denominated in fiat. | ||
===Agency as a sustaining life force=== | |||
{{Drop|T|hat a statement}} with no literal truth value can nonetheless hold a metaphorical one is by no means an impossible scenario: all literature depends on it. We do not struggle to reconcile our understanding of ''Oliver Twist'' with the fact that every word of it is, literally, false. | |||
Fiat currency has, near enough, pulled off the same trick. [[Bitcoin]]ers do not tire of reminding us of this. | |||
Like all metaphors, currencies generate their own momentum. When enough institutions have a vested interest in maintaining a metaphor as a viable means of furthering their own interests — if they are making enough money out of it — the currency will generally carry on, because too many agents have too much riding on its success to contemplate its failure. | |||
This is of course, the stuff that bubbles are made of: [[Enron]] was largely built of imaginative accounting for purely hypothetical cashflows. It survived for so long in part because so many of its enablers — law firms, accountants, management consultants, executives, employees, trading counterparties, academics, politicians, [[thought leader]]s, chancers and grifters — stood to gain as long as the fiction, that [[this time is different]], carried on. You don’t even need to believe the metaphor to enable it: you just have to believe you can get out ahead of it when it fails. | |||
Not every [[metaphor]] fails. The dollar has not. [[Bitcoin]], too, has proven resilient so far, and has acquired its own momentum as it as acquired first miners, and then brokers, trading venues, intermediaries, [[futures]] exchanges, [[exchange-traded fund]]s and their authorised participants, clearers and market makers. It even has its own ISDA definitions booklet. All of these [[stakeholder]]s stand to prosper as long as ''someone else'' believes the metaphor. | |||
This is another importance of intermediation: these intermediaries all take their skim, or earn a crust of the intellectual activity of ''attending to bitcoin'', just as they once attended to [[Enron]], or tranched [[synthetic credit derivative]]s, or whatever hysteria happens to have a hold of quotidian minds for the time being, and preserving that income compels them to support the metaphorical narrative. | |||
But for [[Bitcoin]], this is yet another irony in a phenomenon apparently constructed out of them: the very institutions that vouchsafe this metaphor’s continued viability — a set of incentivised trusted intermediaries — are exactly the institutions it is explicitly designed to undermine. The whole point of [[Bitcoin]] is to jettison the need for trusted intermediaries. That is the program. | |||
==== Bitcoin as a token capital ==== | ==== Bitcoin as a token capital ==== | ||
{{Drop|[[bitcoin|B]]|itcoin is ''capital''}}, then, not ''currency'', at least not as we are used to thinking about it. [[Bitcoin]] is more like ''gold''. | |||
Its scarcity is more or less fixed, and it gets progressively harder to extract more of it from the earth. In this way the “mining” [[metaphor]] is correct. It holds its value wherever it is. It does not depend for viability or validity upon the “implied violence” of central banks, nor the indebtedness of investment banks nor the custody and connectivity of other [[Rent-seeking|rent-extracting]] intermediaries. You can take it, sort of, off the grid. | Its scarcity is more or less fixed, and it gets progressively harder to extract more of it from the earth. In this way the “mining” [[metaphor]] is correct. It holds its value wherever it is. It does not depend for viability or validity upon the “implied violence” of central banks, nor the indebtedness of investment banks nor the custody and connectivity of other [[Rent-seeking|rent-extracting]] intermediaries. You can take it, sort of, off the grid. | ||
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Nevertheless, this is where I part company with Farrington, though it may be one of those “agree to disagree” scenarios. | Nevertheless, this is where I part company with Farrington, though it may be one of those “agree to disagree” scenarios. | ||
Perhaps this is the [[nocoiner]]’s fundamental misapprehension: have we been slating | Perhaps this is the [[nocoiner]]’s fundamental misapprehension: have we been slating [[Bitcoin]] for lacking qualities it isn’t even ''meant'' to have? If it is not a currency, then criticisms that it isn’t very good at the sort of things currencies are meant to be good at fail, defeated by the simple objection, ''so what?'' | ||
Farrington correctly sees a “fiat currency” as necessarily an instrument of [[indebtedness]]: a person who holds it has a promise for value from someone else. He doesn’t say so, but he may regard [[indebtedness]] as, in itself, a form of compulsory trust — trust on pain of enforcement by the state, i.e., ''violence'' — and therefore intrinsically undesirable. | |||
Davi5Graeber might agree about currency, and monetary indebtedness, but not indebtedness in general. To the contrary, mutual, perpetual, rolling ''non-monetary'' indebtedness is exactly the glue that binds a community together. It creates ''voluntary'' trust. That kind of trust — credit — is fundamental to how any functioning civilisation works. Discharging that sort of indebtedness releases us from our ties and obligations to each other — thereby dissolves the “community of interest”. One of the things that Graeber finds so pernicious about monetary [[indebtedness]] is that it is quantifiable: it sets a precise value for loyalty, and therefore a price at which loyalty may be discharged. The vagueness and irreconcilability of “social” indebtedness makes this a lot harder to do. There is always something on the table. These are the ties that bind. | |||
====Cash as an anti-asset==== | |||
Cash, on this view, is a tokenised, accountable unit of trust. That is a glass-half-full way of describing [[monetary indebtedness]] — not financial indebtedness to or from a specific person, as arises under a loan contract, but disembodied, ''abstract'' indebtedness ''in and of itself''. This is quite an odd concept. | |||
A banknote is, on this view, not an asset, but an ''anti-asset'': something that has a negative value in and of itself, and which, therefore, only generates value ''when you give it away''. I can discharge a private debt I owe by transferring away my public token of indebtedness — cash — to the lender. We can see there that to hold cash, and not use it to acquire capital, discharge debts, or create indebtedness in someone else, is wasteful. | |||
There is an important distinction here between ''holding'' cash physically and ''putting it in the bank''. | |||
When, and while, you hold cash physically, for all intents and purposes, the money is not available to the financial system. It is disengaged. You have an “indebtedness” to yourself. It cancels out. It is meaningless. Worthless. Valueless. If you are robbed of physical cash it only creates a (negative) value when it is taken away, because it deprives you of the value you could have created by giving it away to someone else, in return for an asset. | |||
So holding cash in person is a ''non''-investment. It is to ''disengage'' capital from the market. Since the value of capital is a function of the time for which it is productively engaged, a capital instrument you have ''disinvested'' should progressively waste away. So it does. Cash in your wallet, relative to a capital asset in productive use, must depreciate over time. That is the consequence of inflation. It has nothing really to do with central bank policy or fractional reserve banking. | |||
Compare that to cash you put in the bank. This ''is'' invested: with the bank. You have given the bank your token of abstract indebtedness in return for ''actual'' private indebtedness for which the bank pays you interest — usually not much — as a return for your investment. Prudential regulation obliges the bank to sit on a portion of the cash its customers give it — to keep it disengaged, in reserve to manage the demand of those investors who wish to cancel their investments — but that capital reserve, too, will waste away, while the bank must still pay interest on it to customers. This is what bankers mean when they say “capital reserves are expensive”. | |||
The bank will lend all the cash it can to its borrower customers — giving away these tokens of abstract indebtedness in return for an investment in their ''actual'' private indebtedness. The borrowers, in turn, will want to use that physical cash quickly, because if they don’t, it wastes away, while they pay the bank interest for the privilege of holding cash. | |||
Nowadays the supply of actual printed money that can waste away in your pocket (economists call this “M1” money stock) is dwindling. Most currency exists electronically on a bank’s ledger, but the difference between the liabilities a bank has to its depositors — a positive number — and the claims for repayment it has against its borrowers — a negative number — represents “under the mattress” cash. A negative energy ''until you give it away.'' | |||
But let's not get distracted. That M1 money cash flies around the system, perpetually depreciating as it goes. It is a hot potato — everyone wants to pass it on as quickly as they can, as it weighs on anyone who holds it like a dark energy. The faster it flows, the better the economy performs. | |||
Holders can stick it in the bank or give it away in return for capital — that is, ''invest it'' — in something that will be productive over time in an a way that an inert cash instrument in your pocket will not. | |||
===Bitcoin as generalised capital=== | |||
{{Drop|T|he thing about}} particular capital assets is that they are awkward. They are not to everybody’s taste. They are idiosyncratic; fallible: they take up space, require refrigeration, can rust, go off or go out of fashion. They cost money to maintain and store. They can be invisibly encumbered.They are bad things, therefore, to use as a medium of exchange. There will always be friction, cost and doubt. They will always be subject to a ''[[haircut]]''. | |||
But, despite the conventional (fairy) story of the history of money, money did not come about in the first place as a substitute for the inconvenience of barter.<ref>{{author|David Graeber}}’s book is compelling that this is a fairy story with no grounding in reality.</ref> Currency was ''always'', from the outset, a means of creating [[indebtedness]]. | But, despite the conventional (fairy) story of the history of money, money did not come about in the first place as a substitute for the inconvenience of barter.<ref>{{author|David Graeber}}’s book is compelling that this is a fairy story with no grounding in reality.</ref> Currency was ''always'', from the outset, a means of creating [[indebtedness]]. | ||
This is because indebtedness is not | This is because [[indebtedness]] is not — in the [[capital strip-mining]] paradigm, at any rate — intrinsically a bad thing. | ||
Indebtedness is ''bad | [[Indebtedness]] ''is'' bad, in the [[Crypto-Venice]] [[paradigm]] for a list of reasons Farrington sets out in detail. If only we could find something that was both an asset ''and'' had the abstract, fungible, transparent, clear nature of a currency — but, critically, ''did not depreciate or imply any form of indebtedness'' — all would be well in our new Crypto-Venice. | ||
But there is a paradox here. A capital ''asset'' derives its value from ''what it is'': its shape, substance, composition, idiosyncrasy, perishability and consumability. On its power to transform: on the change it can make in the real economy. | But there is a paradox here. A capital ''asset'' derives its value from ''what it is'': its shape, substance, composition, idiosyncrasy, perishability and consumability. On its ''power to transform'': on the change it can make in the real economy. | ||
A non-degenerative “''digital asset''” that weighs nothing, does nothing, has no calorific content, occupies no space; that is good for nothing but merely stands as an independent abstract symbol of those qualities by which we judge the worth of things that ''have'' those qualities — in other words, things that are “capital” — ''is not an asset''. It might ''look'' like one, but only courtesy of a magic trick. It depends on misdirection. It depends on the master magician’s sleight of hand. Its value holds only as long as the illusion. It depends on consensus. | A non-degenerative “''digital asset''” that weighs nothing, does nothing, has no calorific content, occupies no space; that is good for nothing but merely stands as an independent abstract symbol of those qualities by which we judge the worth of things that ''have'' those qualities — in other words, things that are “capital” — ''is not an asset''. It might ''look'' like one, but only courtesy of a magic trick. It depends on misdirection. It depends on the master magician’s sleight of hand. Its value holds only as long as the illusion. It depends on consensus. | ||