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Bitcoin: Difference between revisions
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{{a|crypto| | {{a|crypto| | ||
{{Image|Snake-Oil-Salesman|jpg|}}}} | {{Image|Snake-Oil-Salesman|jpg|}}}} | ||
===[[Bitcoin]] isn’t a [[currency]]=== | ===[[Bitcoin]] isn’t a [[currency]]=== | ||
[[Cash]], as you’ll know if you’ve had the pleasure of the [[JC]]’s [[Cash|frequent tedious perorations on the subject]], is a special, elusive thing. It is the foundational fabric of [[trust]] in the financial system — the leap of intellectual faith that all merchants make, that their goats, or furnishings, or hovercraft, can be fully and equally represented in economic terms by a thing of vanishingly immaterial aspect<ref>Want to go deeper? There’s an analogue between the separation of cash’s value from its [[substrate]], and the final separation of [[information]] from its [[substrate]].</ref> — printed paper, small items of minted copper, electronic impulses on a ledger — such that one can attend a market without the messy business of barter or other exchange of articulated things. A currency is a kind of derivative: an articulation of abstract, distilled ''value''. All other things being equal, if you accept a florin for a bushel of your wheat, you can expect to give that same florin to someone else for an equivalent bushel of ''their'' wheat. Thus, one needs a consensual ''trust'' in your token of value — that it really is worth something now, that it will be worth that same amount tomorrow, and that any other merchant you might find in the market tomorrow will share your opinion. | [[Cash]], as you’ll know if you’ve had the pleasure of the [[JC]]’s [[Cash|frequent tedious perorations on the subject]], is a special, elusive thing. It is the foundational fabric of [[trust]] in the financial system — the leap of intellectual faith that all merchants make, that their goats, or furnishings, or hovercraft, can be fully and equally represented in economic terms by a thing of vanishingly immaterial aspect<ref>Want to go deeper? There’s an analogue between the separation of cash’s value from its [[substrate]], and the final separation of [[information]] from its [[substrate]].</ref> — printed paper, small items of minted copper, electronic impulses on a ledger — such that one can attend a market without the messy business of barter or other exchange of articulated things. A currency is a kind of derivative: an articulation of abstract, distilled ''value''. All other things being equal, if you accept a florin for a bushel of your wheat, you can expect to give that same florin to someone else for an equivalent bushel of ''their'' wheat. Thus, one needs a consensual ''trust'' in your token of value — that it really is worth something now, that it will be worth that same amount tomorrow, and that any other merchant you might find in the market tomorrow will share your opinion. | ||
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====Asset==== | ====Asset==== | ||
At this point we might sharply contrast money with an asset. Money has nothing behind it: it its idealised form it is ageless, timeless, stable articulation of abstract value. It is fully transferable and utterly inert. If anyone who holds it | At this point we might sharply contrast money with an asset. Money has nothing behind it: it its idealised form it is ageless, timeless, stable articulation of abstract value. It is fully transferable and utterly inert. If anyone who holds it sits on it, it ceases to create value, and it's holder loses pace against all those whose money is working. Money is like a shark: it has to ''move''. Movement is the transfer of value for assets. | ||
We tend to confuse cash “the token” which we hold — which only exists as long as it is physically in our possession — in wallets, stuffed under the mattress, loose foreign coins in the sock draw or in that jar above the coffee machine in the kitchen that the kids call “the magic money tree”. When ever someone else holds “our money” is not, to us, money anymore — it is an asset: a legal claim against whoever holds it to pay us an amount of money and, usually, interest. | |||
====Intermediaries==== | |||
This is a good time to talk about intermediaries. Since money under the mattress isn’t working for us, we need easy ways to put these surplus value tokens to work for us. | |||
Most wage slaves don’t have time, energy or inclination to walk around the market looking for people to borrow their excess money, let alone broking a fair rate of return. Hence institutions evolved to intermediate that process: they would borrow from anyone with spare tokens, aggregate those sums, and lend them to businesses who needed them. The prerogatives of scale meant these intermediaries could centralise information about the borrowing and lending market, expertise about credit assessment, and they could lend at far greater scale than could any random punter with a few excess value tokens to put to work. | |||
These intermediaries are, of course, banks. It is important that lenders to banks trust them, to know what they are doing, and to manage their assets and liabilities so that lenders will get their excess tokens back. An important way that banks do this is to act as principal: your claim, they tell their depositors, “is against me. You need not worry whether the business I lend your money to pays it back. I will pay you back regardless.” | |||
This is all well and good as long as the bank has enough assets to repay its lenders, of course. A bank that loses its lenders’ confidence to repay their loans is stuffed. Rules and requirements emerged to ensure banks managed their balance sheets so that this would not happen, but the basic premise of banking — borrowing a lot of small amounts for short terms, and lending a limited number of larger amounts for longer terms — means that banks have a structural a tail risk, and periodically it comes back to bite them. Northern Rock. Lehman brothers, Silicon Valley Bank and Credit Suisse serve as recent examples. | |||
In any case we can see these intermediaries play a valuable, specialist role, as long as we trust them to behave honourably, extract no more than a reasonable fee, and refrain from blowing up. | |||
That kind of trust is already part of the financial system. We would hardly exchange goods and services at all if we didn’t trust each other. We would not use a common token of abstract value in that exchange — which after all may be a small piece of paper with writing in it — if we did not both trust in it's value as a medium of exchange. | |||
===It isn’t an asset=== | ===It isn’t an asset=== | ||
{{sa}} | {{sa}} | ||
*[[Bitcoin is Venice]] | |||
*[[Crypto-currency]] | *[[Crypto-currency]] | ||
*[[Non-fungible token]] | *[[Non-fungible token]] | ||