The 45th / 47th president and I don’t have much in common … but we both have kids who’ve gotten deeply involved in cryptocurrency.
Well, in the case of my own kids, a crypto-esque venture. Because technically cryptocurrencies don’t exist here in the real world, the world of things like cars and sandwiches and autumn leaves. But in most other ways, my kids’ currency fits the bill: it’s not issued by a government; it has little intrinsic value; the exchange rate can and has fluctuated through massive booms and busts.
My kids, and a bunch of their classmates at school, began conducting exchange through plastic spoons.
Some students started selling origami ninja stars for the price of three or four spoons. Two spoons might buy you a mint lifesaver. And there were more complex financial instruments: for a price of four spoons today, you could gain membership to a discount club, at which point you’d be able to purchase ninja stars for just two spoons each for the entirety of the next week.
My kids and I have a half-hour walk to school each morning, which gave them ample time to regale me with the details.
The supply of spoons was steadily increasing. Cafeteria workers would let each student take one spoon from the serving canister each day. Some students, feeling especially sly or crafty, might try to swipe three to five.
Soon my eldest was walking to school wearing a sweatshirt with several dozen plastic spoons bulging from each pocket. My youngest stashed some in a desk drawer in the bedroom.
“For seven spoons, _________ will draw a picture of your D & D avatar.”
“I mostly lend spoons to people if there’s something they need but they don’t have enough, and then they have to give me more back next week.”
“I kind of feel bad for the kids in other classes, actually, because they don’t even realize that they could be using spoons to buy things.”
Until, suddenly, the asset was worth nothing. No more trades with spoons, their teacher declared.
By fiat, the crypto-spoon economy collapsed.
And now my kids have drawers full of relatively useless plastic. (I mean, we could use the spoons as spoons, but I’d want to wash them thoroughly first! And how many picnics would we have to plan each year to go through that many plastic spoons?)
For most other cryptocurrencies, there isn’t a single figure who can simply declare the asset to be valueless, in the way that my kids’ teacher did. And yet. A currency can only have value if there are vendors selling real-world goods who perceive that asset to have value. If there’s not a dealer willing to trade an unregistered pill press for bitcoins (or one of the myriad other “currencies” that’s been concocted), along with a 401k investment manager willing to trade bitcoins for retiree dollars, then the system ceases to function.
The process by which an object retains value as a financial asset is entirely a matter of belief. (For a more thorough explanation of the process that links belief to prices, you should read my November 2022 essay on inflation, inequality, & hungry ghosts.)
Fine art, for instance, has intrinsic value because it’s nice to look at. But many investors have been treating fine art as a financial asset – they purchase paintings and then put them in windowless vaults underground because the painting is considered a store of value. (An asset that, like most cryptocurrencies, is relatively easy to conceal from government oversight – even if there were a wealth tax someday in the future, such taxes could be evaded.)
Fine art works as a financial asset works as long as everyone continues to agree that this particular painting is excellent and can be exchanged for other goods and services. But if everyone’s taste happened to change – if the artist were retroactively “canceled” or everyone simply realized that they didn’t enjoy looking at that painting – then it ceases to function as currency. Just because a person had hoped to be able to spend the painting doesn’t mean that anyone will accept it.
Government currency depends upon a similar level of trust and belief. We can exchange dollars for things because everyone continues to agree that dollars have value. Generally, we believe this because government agencies assure us that it will be so.
At one point in time, the U.S. government maintained this promise by stating that dollars could always be traded for gold – no matter what else happened, the dollar bill would never be worthless, because it represented an amount of a precious metal. (At which point you could reasonably wonder – what gives gold intrinsic value? – but the answer to that question would promptly return you to the realm of belief.) The U.S. government now maintains this promise mostly through the latent threat of violence. Inside the nation’s borders, vendors must accept this currency as legal tender.
If the government were to collapse – which is the underlying premise behind the rush to issue myriad alternate forms of currency – then this belief would dissipate and dollars would no longer have value. After a nuclear apocalypse, sealed cans of black beans would be more likely to be used as currency than paper money issued by the (former) United States government. (Which is akin to the currency systems prevalent in most prisons and jails, where goods and services are priced in denominations of soups or honey buns — “that tattoo would cost you three soups” — and you’re promising to make good by handing over three little cups of ramen noodles the next time you get commissary.)
Spoons are, arguably, a better currency than most forms of crypto. Sure, there was always the chance of abuse – what if some kid convinced a parent to swing by Walmart and pick up a party pack of identical-looking spoons, flooding the market? — but also, even though spoons do cost resources to manufacture, what with their being made of molded petroleum products, they don’t cost resources to maintain.
Each bitcoin, by contrast, is an electronic ledger of every person who has ever held it (which makes it somewhat strange that they would be considered useful for illicit drug deals – it’s as though every time a dollar bill entered your wallet, you were forced to permanently stamp it with your fingerprint). And bitcoins require a huge waste of electricity, by design. The current ownership of each bitcoin is continually voted on, with votes allocated based on how much electricity each participant is willing to waste. Waste more electricity, get more votes!
And so, yes, if you decided to waste more electricity than everyone else combined, then you would be allowed to vote that you own every bitcoin (which is why the system has to waste a lot of electricity to work, to make the cost of granting yourself that many votes very high). If at any moment a single person did expend that much (real-world, intrinsically valuable!) electricity on (incorporeal, assumed to have value only because other people also hold that assumption) bitcoins, then that person could cast votes indicating sole ownership of all the bitcoins.
But after that happened, it would be difficult for other people to maintain the belief that bitcoins were valuable. One person would get to have every bitcoin – each ledger would list that person’s name at the top as the current owner – but the bitcoins could no longer be exchanged for anything in the real world. Even though it would have cost a lot of (real-world!) electricity to pull of the heist.
What a sad outcome!
Indeed, this (sad!) tale has unspooled with several popular cryptocurrencies. For example, I believe ether is the second most common cryptocurrency, after bitcoins, and in 2016, shortly after the ether cryptocurrency was released, someone found a way to vote that they had personal ownership of most of the currency. In response, the developers declared, by fiat, that the original currency was valueless, and that everyone should instead switch to using a new cryptocurrency … that they also named ether.
Maybe I was being a bit misleading when I wrote, at the beginning of this essay, that most cryptocurrencies don’t have a single figure who can declare the currency to be valueless. They often do.
So, the systems include constant surveillance to determine who “owns” which coins … and incredibly slow transaction speeds (I get frustrated when it takes a gas station pump more than a few seconds to verify my credit card number, but cryptocurrency transactions can take several hours to process, again, by design, because each transaction necessitates a vote based on intentionally wasting electricity) … and waste … and most are subject to the imperious whims of whomever first created each currency.
So I don’t think that investing in a cryptocurrency venture would be a good idea. I understand why people would use a currency other than U.S. dollars in jail (where U.S. currency is banned) or in schools (where the teachers probably would have put a stop to the various origami-ninja-star ventures sooner if students had been commandeering their classmates’ lunch money).
Anyone creating a currency that they claim can serve as an alternative to the U.S. dollar – trying to convince people that their new creation has value, so that people will be willing to exchange real-world goods and services for it – has a vested interest in the U.S. dollar functioning less well as a currency over time.
And, yes. The 45th / 47th president is part of a team releasing a new cryptocurrency.
The person whom a majority of U.S. voters recently elected to protect the value of U.S. dollars has publicly announced that he will profit if U.S. dollars lose value.
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I love the study of economics because it’s so simple. With basic math, you can make predictions about what people will do.
Obviously, it doesn’t work. The math itself is simple, and so the math part of economics works great, but it often fails to tell you what people will do because the underlying assumptions are wrong.
Economics is the study of finite resources, and all resources are finite, beginning with time. Time is constrained, for all of us. In economics we typically price goods and services in terms of money, under the assumption that money can be converted into time – if you pay someone to do your laundry, then you gain access to the time that you would have spent doing the laundry! – but the real world is not so simple.
Consider a scenario: Chappel Roan wants to go thrift shopping!
She used to love thrift shopping! Once upon a time, her access to money wasn’t commensurate with her fashion sense. Now, however, she has described feeling stalked when she attempts to go to a thrift store, and she can afford to pay (more than!) full price for clothing. But a thrift-shop find and a dress from a stylist aren’t equivalent goods. Even if the two dresses look identical, one would be composed of fabric and stitching and the narrative memory of finding it in a thrift store and feeling elated that you get to have it for only six dollars. That’s not the same as a physically indistinguishable object that you didn’t hunt for. The dresses might look the same, and the texture of the fabric on your skin might be the same, but they’re not fungible.
The math for economics works best when objects are fungible – that is, when objects are identical and interchangeable. Dollars in your bank account are fungible – there’s no difference between the 403rd dollar in your account and the 627th dollar. Money in a digital registry isn’t special.
But because we are creatures of memory, very few things in our lives are fungible. Research psychologists discuss the “ownership effect,” where our narrative relationship with physical objects increases how much we value them. Nor is time fungible: after all, spending time is how we live. As a parent, there are definitely moments when I’m frustrated by how long I spend doing laundry; at other moments, I remember that the phenomenon of being alive is inherently inefficient (a bonfire could convert calories into heat much more efficiently than my own body can!), and that I’d value our shared world less if my presence here cost me no effort.
Every twinge of sentiment that you feel toward a particular letter written to you by a lover, or a particular photograph of your friends & family, or a particular memento from a trip you took, is an indication that the standard assumptions of economic math won’t work to calculate your values.
But from an outside perspective, I’d argue that the standard assumptions of economics are probably more accurate for the 45th / 47th president than for me. For example, sex with someone who likes you is definitely not equivalent to sex with a stranger. Those aren’t fungible activities; you can’t assign a monetary price to the former. But, whether you agree that such transactions should be legal or not, there are market prices for the latter. And based on past behaviors, including at least one widely publicized episode of monetary exchange for a sexual encounter with someone who has stated that she had no emotional attachment in the event, I think it’s fair to assume that we could assign asset prices to many of the 45th / 47th president’s predilections.
Much like Ronald Reagan, the 45th / 47th president was elected to run the government after staking his reputation on the claim that the government cannot do things effectively.
After claiming that government agencies are inherently wasteful and incompetent, he’d look pretty silly if the government functioned well! Whereas if government programs are haphazard and ill-executed during his presidency, he will be proven right.
Especially within the realm of currency exchange. If dollars function well, and the U.S. government is a trustworthy entity that definitely will not default on its debts or obligations (in the way that many of the 45th / 47th president’s private business ventures defaulted and refused to pay people for work that had been contracted and already performed), then cryptocurrencies will lose value. Cryptocurrency exchanges are inherently wasteful and ill-conceived. They are only worthwhile if governments are even less trustworthy than the small groups of developers and major investors who control each form of cryptocurrency.
I suppose I should feel grateful that there’s so little subterfuge going on here. But it’s a bit grim to have an incoming president who has openly advertised his incentive to make our government fail.
Frank Brown Cloud 