A ten part series exploring the design of an invisible technology: money.
The (in)famous American economist Alan Greenspan once said that “in the absence of the gold standard, there is no safe store of value”. The gold standard is a monetary system where a country’s currency or paper money has a value directly linked to gold. The system is no longer used, with America being the last major country to renounce it in 1971. Yet gold bullion, also known as gold bar, still holds its allure to investors as a safe store of value. In recent years, a new store of value has arisen in the form of a virtual precious metal cryptocurrency called Crypto Bullion.
To understand Crypto Bullion also known as CBX, you first need to understand the basics of Bitcoin, the most common cryptocurrency around today. Bitcoin is a peer-to-peer technology that operates with no central authority. A network of Bitcoin users manage transactions and the issuance of Bitcoin collectively. Bitcoin is earned through a process called mining, where miners use computational power to solve complex algorithms that secure the network and are rewarded with Bitcoin. The value of Bitcoin is not pegged (tied) to any fiat (government backed) currency and so its value is derived from the faith or trust that people place in it. This led to a massive fluctuation in the currency's price in the early days with Bitcoin enthusiasts still waiting for the currency to stabilize. Money has become an invisible technology that requires our collective faith to function. Crypto Bullion is similar to Bitcoin but also claims to emulate the properties and supply of gold, as there are less than one million CBX coins in circulation today. This leads to an interesting question: can the properties of a precious metal really be emulated in a virtual world?
Precious metals are defined by their rarity in the biosphere. We speak ubiquitously about rarity in the physical world: the critically endangered snow leopard is rare, the corpse flower and its somewhat pungent smell is rare and the Italian white truffle which can sell for more than $300,000 a kilogram is rare. Rarity often equates to high value. Virtual rarity, which is found in the new technosphere, is less well understood. What is both rare and virtual?
Money has become an invisible technology that requires our collective faith to function.
Lets leave the world of cryptocurrencies for a minute and talk about American hip hop group Wu-Tang Clan. More specifically their 2015 album Once Upon a Time in Shaolin. When it came time to share their six years of secret recordings, the Wu-Tang Clan decided to do something special: release only one singly copy of the album on a CD. They destroyed every other digital and physical copy they had of the work. The CD was auctioned off to the highest bidder, with the legal stipulation that the purchaser is not allowed to commercially exploit the music until 2103, although it can be released for free. To the dismay of many Wu-Tang fans, Martin Shkreli, a globally vilified pharmaceutical executive, purchased the album for $2 million. In an even stranger turn of events, there was allegedly a clause in the purchase contract of the album that would allow members of Wu-Tang and/or Bill Murray to steal the album back with no legal repercussions. At any rate, the physical music stored on the CD is extremely rare but if it ever makes it into the virtual world and is uploaded to the Internet, there is a chance that it could be shared for all of humanity to enjoy, making its rarity and monetary value next to nothing.
Just like the Wu Tang Clan album and Crypto Bullion, gold is a rare commodity but with two main differences: gold cannot be digitally created or replicated and gold is a physical element found on the periodic table. It is a resource that can be sculpted and formed to create new and powerful products. If you are reading this article on a computer then it's highly likely that gold has been used in the construction of the computer. Money is not on the periodic table. It is an abstract idea.
The Native American proverb summarises this dilemma well: "When the last tree has been cut down, the last fish caught, the last river poisoned, only then will we realise that one cannot eat money". This unfortunately includes Bitcoin, Crypto Bullion and a myriad of other new and alternative currencies. Rarity can exist both in the physical world and the virtual world, but we must understand that physical rarities will always trump that of the virtual. If we run out of resources in the biosphere they are gone forever. If we run out of virtual resources, we can always program some more.
Read the whole Alternative Currencies, Alternative Realities series.