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{{a|book review|{{image|bitcoin is venice|jpg|}}}} | {{a|book review|{{image|bitcoin is venice|jpg|}}}}==Cryptopia== | ||
This is a massive, magnificent, learned, contrarian work. Few practitioners in modern financial services would not benefit from reading it, just for the challenge it presents. | |||
For anyone who wants to hold forth on cryptocurrency, for or against — and in financial services, that seems to be most people — this is an as good a foundational text as you could ask for. It does not pretend to be neutral: this is advocacy: the case for Bitcoin, put optimistically, and without barely a sideways glance to its many criticisms. There is no discussion of bitcoin’s relationship with terrorist financing and money laundering nor the widespread and pervasive fraud in the cryptocurrency sector. The authors might well say those issues are well canvassed elsewhere, and this is true, but to not mount any defence while claiming, explicitly, that bitcoin fixes everything, seems an oversight. Everything? Well, according to the authors, bitcoin does the following: | |||
* resists and disincentivises violence | |||
* remediates our criminally oppressive, unsustainable and unjust social order | |||
* cures the slow-motion collapse of “degenerate fiat capitalism” | |||
* prevents the degeneration of markets into oligopolies | |||
* optimises the transmission and clearing costs of energy generation | |||
* fixes the architecture of the internet | |||
* obliges us to think long-term, and not short-term | |||
* obviates regulatory incompetence | |||
[[ | ==== Financial services as a paradigm, and critiques from without ==== | ||
Like any communal activity in which there are things to be gained and lost — i.e., ''any'' communal activity — “[[financial services]]” is what [[Thomas Kuhn]] called a “[[paradigm]]”:<ref>{{Br|The Structure of Scientific Revolutions}} (1962).</ref> a community intellectual structure which develops its own rules, language, hierarchies, defeat devices, articles of faith, and credentialisation process, usually encrusted in so much obscurant flummery that it is impossible for non-initiates to get near it without being swatted away on ground of ''detail'' — insufficient grasp of buried, esoteric intellectual constructs that only the truly learned can know. | |||
This is an evolutionary design feature of any [[power structure]]. (I take it that “power structure”, “paradigm”, and “intellectual construct” are essentially synonyms, describing any self-organising, bounded community of common but esoteric interests). Power structures are in equal parts benign and malign: without ''some'' commitment to the cause — some unconditional trust and faith in the wisdom of elders — no bounded community consensus can take to the air in the first place. But once it does, the higher it flies and the more it ''[[scale|scales]]'' — and the more entrenched those elders become. The harder it is to assail them; the more there is for those with [[skin in the game]] to ''lose'' — the more ossified and moribund it must necessarily become. We see this time and again, with [[Power structure|power structures]] of all kinds, but financial services and law in very specific particular. | |||
We will, therefore, either get so close to the [[weeds]] that we can scarcely see beyond them — and once we do, those weeds being nourishing as they are, there is little incentive to ''look'' beyond them — or we won’t, in which case we never earn the intellectual credibility needed to be taken seriously by the elders within. | |||
This is why “cross-paradigm” arguments are so joyless and draining. They are failures of translation. [[Richard Dawkins]]’ amassed arguments against religion might be ''scientifically'' immaculate, but scientific method counts for naught within the magisterium of religion. The scientist who best understood this was Dawkins’s arch-nemesis, the late [[Stephen Jay Gould]].<ref>See Gould’s spirited attempt at reconciliation, {{Br|Rocks of Ages}}. </ref> ''There is no machine for judging poetry''. | |||
It is, at some level, a Catch-22. Paradigms endure because anyone with enough internal gravitas has too much invested in keeping them together to pick them apart. They paradigms strengthen as, progressively, they prefer form over substance, it being assumed that, over time, the substance has been proven out by the very resilience of the paradigm, and can be taken for granted. | |||
[[ | All that matters thereafter is [[Form|''form'']]. This is a circularity, but not a vicious one. | ||
==== On paradigms in crisis ==== | |||
This is not to say contrarians cannot be popular or correct — [[Gerd Gigerenzer|Gigerenzer]], [[Nassim Nicholas Taleb|Taleb]], [[Benoit Mandelbrot|Mandelbrot]], [[Kathleen Stock|Stock]], [[David Graeber|Graeber]], [[James C. Scott|Scott]], [[Jane Jacobs|Jacobs]], [[Rory Sutherland|Sutherland]] and others ply a healthy trade damning the absurdities of our institutions — but our institutions blithely carry on, regardless. | |||
Well, at least until real-world facts intrude: only when it becomes clear a paradigm not only ''should'' not work [[Paradigm failure|but, in practice, ''does'' not]], does it go into a crisis. In the worst case, it cannot recover and a wholesale redrawing of the landscape is on the cards: a new paradigm must be born, that accounts for the changed practical facts, with new rules, new elders and a new mandate. | |||
Farrington and | But before that, [[paradigm|paradigms]] have a habit of shapeshifting, reframing anomalies around their fringes and boxing on. You cannot defeat a paradigm with a purely theoretical argument: you must ''punch it in the mouth''. In this way Karl Popper’s idea of falsification doesn’t really describe the way science progresses in practice. But — ironically — the falsification paradigm hangs on, not yet having been punched hard enough in the mouth. | ||
==== Outsiders to financial services ==== | |||
So we should listen to the theoretical arguments of outsiders like David Graeber and Allen Farrington, but not be surprised if they don’t carry much water. They can still, in their way, shape and direct the way even experts think about the world. And bitcoin is in no sense a spent disruptive force: it may not yet have thrown a telling punch, but this is not to say it won’t. Allen Farrington is clear: soon enough, it will. | |||
[[David Graeber]] was, properly, an outsider: an anarchist anthropologist and one of the leading conceivers of the ''Occupy Wall Street'' movement.<ref>https://novaramedia.com/2021/09/04/david-graebers-real-contribution-to-occupy-wall-street-wasnt-a-phrase-it-was-a-process/</ref> Allen Farrington is, in one sense, not — he is a well-read industry insider who would not tear it all to the ground, but would rather “make finance great again” by restoring capitalism to its Venetian apex — but in another sense he ''is'', because his means of doing so would be with [[bitcoin]], and by destroying what he sees as the “strip-mining” mentality of the capitalism yielded by fiat currency. | |||
As a grand vision, that is pretty anarchic: more so, even, than than Graeber’s. | |||
Yet Farrington cautions against excessively theoretical approaches which, he says, got us to where we are — this may be an attempt to disarm the elders as aforesaid — but there is some irony, for his own defence and exegesis of Bitcoin is intensely theoretical, and where it stretches to its potential, charmingly, but hopelessly, utopian. What he has on his side, for now, is Bitcoin’s sustained defiance of the elders of finance who have predicted seventeen of its last two implosions. At the time of writing, despite [[FTX]]’s collapse, [[Sam Bankman-Fried|Chauncey Gardiner]]’s conviction and with Binance at least on the defensive, bitcoin is surging back toward historical highs. This, perhaps is the proof of the pudding: you can’t, as fellow contrarian, but bitcoin antagonist, [[Nassim Taleb]] would say, “lecture birds how to fly”. | |||
You can, however, supply a plausible account of why, against the odds, they do. | |||
This is Farrington’s proposal. | |||
===On debt and assets=== | ===On debt and assets=== | ||
{{Quote|“Since bitcoin is a digital bearer asset and not a debt instrument — ”}} | {{Quote|“Since bitcoin is a digital bearer asset and not a debt instrument — ”}} | ||
This is where I think I part company with Farrington, though it may be one of those “agree to disagree” scenarios. | Farrington believes that bitcoin is an asset, not ''just'' a currency and as it has independent existence it is not tethered to a bank or a central bank, it need not “degenerate” the way fiat currencies do thanks to central bank monetary policies and investment bank grift. | ||
[[Bitcoin]] is pure abstract, tokenised ''capital''. It is to ''actual'' capital what a [[non-fungible token]] is to art. Only ''generalised'': whereas an [[NFT]] is a token for a specific item, bitcoin is a token for just “capital” in the abstract sense of general value — a shared community resource, before it is transmogrified into any particular form. | |||
This is “capital” as a [[Platonic form|platonic essence]]: a Midichlorian life force. You know, like the ''Force''. | |||
It is certainly quite a different thing to a [[fiat currency]]. As Farrington sees it, fiat currency implies [[indebtedness]]. It needs the agency of banks to create and discharge that indebtedness. It centralises everything and makes everyone dependent on the [[power structure]] that is [[fractional reserve banking]]. It ''compels'' “trust”, whether you want it or not. | |||
''Compelled'' trust, as David Graeber might say, is ''violent extortion''. | |||
By contrast, the [[bitcoin]] ethos is, of course, not to ''trust'' trust — not ''compelled'' trust, anyway — and to decentralise and disintermediate where possible to remove any need for even voluntary trust. This was the problem a [[Permissionless blockchain|permissionless]] decentralised ledger was devised to solve. A financial system that functions without the need for mutual trust. That is its basic use-case. | |||
[trust as bug and trust as feature] | |||
==== Bitcoin as a token capital ==== | |||
Bitcoin is ''capital'', then, not currency, at least as we are used to thinking about it. It 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. | |||
This view, that bitcoin is a sort of [[non-fungible token]] for platonic capital is, I think, fundamental to getting a purchase on where bitcoin maximalists are coming from. If we think about bitcoin as on-chain gold rather than on-chain cash, we have a closer starting point, though as Farrington argues, a dematerialised electronic communication can do a bunch of really useful things that a lump of metal cannot. | |||
[confusion of the token with the real thing. Ontological looseness of NFTs.] | |||
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 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. | |||
But | 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 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. | 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. | ||