Bitcoin is Venice: Difference between revisions

* resists and disincentivises violence

* remediates our criminally oppressive, unsustainable and unjust social order

* cures the slow-motion collapse of “[[degenerate fiat capitalism]]”

* prevents markets degenerating into oligopolies

* optimises the transmission and clearing costs of energy generation

* fixes the internet’s fundamental architecture  

* obviates regulatory incompetence

 

A common reservation about Kuhn’s idea of the paradigm is its ultimate vagueness: at what level of abstraction does it operate? How local is it? The best answer is that it is a fractal — it can operate at the level of a department in a bank, a branch, a corporation, a geographical market or even an industry. Just as any ecosystem is a complex metasystem of interacting subsystems, and components so is a market — however you define it —a complex metasystem of an inchoate, indeterminate, undescribable complex of subsystems, all of whom interact with and react to each other. It is necessarily non-linear and literally ineffable, which is why no supervising power can tame or even predict it, and all those who try eventually fail.

{{Drop|T|hat an artefact}} with no intrinsic worth can nonetheless keep a metaphorical one is not an impossible scenario: all literature depends on it. It is, near enough, the trick that fiat currency has pulled off. [[Bitcoin]]ers do not tire of reminding us of this.  

Currencies generate their own momentum and when enough [[systemically important]] institutions have enough vested interest in maintaining them  as a viable thing — 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 it's failure. This is of course, the stuff that bubbles are made of — Enron was largely built of imaginative accounting treatment, but survived for so long in part because so many — law firms, accountants, management consultants, executives, employees, trading counterparties, academics, politicians, [[thought leader]]s —stood to gain as long as the fiction, that [[ this time is different]], carried on.  

intermediaries, [[futures]] [[exchange -traded fund]]s and their authorized participants, clearers and market makers. It even has its own ISDA definitions booklet. 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 and preserving that income compels them to support the narrative.  

Yet another irony in a phenomenon apparently constructed out of them: the thing that vouchsafes this decentralised platform’s viability may be exactly the sort of institutions it is meant to undermine.

{{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''.   

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 say 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.  

Graeber 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 is so pernicious about indebtedness is that it is precisely 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.

====Currency as an anti-asset====

Currency, on this view is tokenised, accountable unit of trust. That is a glass-half-full way of describing 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.  

Currency is, on this view, not an asset, but an ''anti-asset'': something that has a negative value in and of itself, and which, therefore, you can only generate value from ''by giving 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 a bad idea.

There is an important distinction here between ''holding'' cash and ''putting it in the bank''.   

When, and while, you physically hold currency, for all intents and purposes, the money is not there. You have an “indebtedness” to yourself. It cancels out. It is meaningless. Worthless. Valueless. (If you are robbed of 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 invested, you would expect a capital instrument you have ''disinvested'' to progressively waste away while it is disengaged, and so it does. Cash in your wallet — a loan to yourself — generates no return (how could it?) so, 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 under which the bank pays you interest — usually not much — as a return for your investment in its capital. It must sit on a portion of the cash its customers give it, 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 punt out all the cash it can to borrowers in the form of loans — giving away these tokens of abstract indebtedness in return for an investment in ''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 have to 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.  

They can pass it on by sticking 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. Capital. An ''asset''.

 

The 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 are bad things to use as a medium of exchange.  

This is because indebtedness is not an intrinsically bad thing.

Indebtedness is ''bad'' for a list of reasons Farrington sets out in good 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.

 

Farrington’s argument might be that indebtedness is intrinsically pernicious, but this is a hard argument indeed to make out, and involves tearing down more than just the tenants of “[[degenerate fiat currency]]”. For mutual indebtedness, and intra-community trust is the special quality that lifts human society out of a Hobbesian nightmare

The nature of indebtedness creates obligations of mutual trust. Trust in a community is a series of continuing, undefined, interlocking, and ''perpetual'' dependencies. Monetising indebtedness has the effect of financialising it, in a bad way.