Bitcoin
Opinion ~Julian Baggini
"Ridiculous sums of money are exchanged by a technological elite while everyone else eyes up three-for-two deals in Aldi"
“If it works, I’ll give you a million quid.” Until recently, I had only heard words like these from the lips of violent mobsters in 70s heist films, uttered in dingy boozers or dark back streets. Recently, however, it was said to me by an unthreatening middle-aged man sitting opposite me in a south London craft coffee shop. The only South American narcotic involved was my Guatemalan flat white.
If you’re after fast money today, there’s no need to take the risk of international organised crime when there’s plenty of it flying around: cryptocurrencies and blockchains. The two worlds are not so far apart, of course. One of the main attractions of cryptocurrencies such as bitcoin and Ether is that they facilitate money laundering. But those running them need not dirty even a fingernail, while backers are not mafiosi but investors, looking for drab non-executive directors like me.
I was told that the new business aimed to raise millions of pounds in the next few months by an ICO. “Look it up,” the man opposite told me. I did. Despite their name, initial coin offerings are sales of non-physical tokens of new cryptocurrencies. I find this mind-boggling: you invent a currency and then get people to give your real money in exchange for it. Quantitative easing may be printing money, but at least governments are guaranteeing it.
Q&A
What is bitcoin and is it a bad investment?
Bitcoin is the first, and the biggest, "cryptocurrency" – a decentralised tradable digital asset. Whether it's a bad investment is the $97bn question (literally, since that's the current value of all bitcoins in existence). Bitcoin can only be used as a medium of exchange and in practice has been far more important for the dark economy than it has for most legitimate uses. The lack of any central authority makes bitcoin remarkably resilient to censorship, corruption – or regulation. That means it has attracted a range of backers, from libertarian monetarists who enjoy the idea of a currency with no inflation and no central bank, to drug dealers who like the fact that it's hard (but not impossible) to trace a bitcoin transaction back to a physical person.
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It might sound like sorcery, but according to Miko Matsumura, co-founder of the Evercoin Cryptocurrency Exchange, we’re currently seeing about 30 new ICOs per day, raising more than $3bn this year.
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I was way out of my depth, but you don’t turn down an easy million pounds for nothing without at least thinking about it. My first thought was that my interlocutor was a fantasist, but he provided a good reference: a bona fide, respected academic and entrepreneur who had an option on the future business and said my man was “the right kind of crazy”. Fair enough: the people making the big money today are more likely to be eccentric nerds than sensible bank managers.
No longer is the old adage “If it sounds too good to be true, it probably is” reason enough to dismiss such get-rich schemes. Even my potential accomplice admitted cryptocurrencies were sort-of Ponzi schemes, albeit legal ones that many have already successfully played. Bitcoins bought for about $1,000 a year ago are worth over $11,000 today. The recent history of international banking and finance has shown us that as long as people believe something is true for long enough, the lucky, the ruthless and the shameless can earn fortunes. There is a perverse rationality in riding the wave of irrational exuberance – if you know when to jump before it crashes on to the shores of sanity.
And yet I remain reluctant. Maybe this is all just too new and weird for me, and this is really the birth of a world-changing, legitimate sector. But I also feel a desire not to be sucked into a world in which ridiculous sums of money are exchanged by a technological and financial elite while everyone else is eyeing up three-for-two deals in Aldi and wondering how to pay the mortgage, if they are lucky; the rent, if they are less so; for the hostel if they’ve completely lucked out. It is a world in which the connection between cash value and intrinsic value is opaque at best, non-existent at worst.
What’s more, I don’t want to get rich through something that is too good to be sustainably true because, as recent history has also shown, ultimately other people will pay for my Dom Pérignon. The recklessness that led to the last financial crisis is still being paid for through the austerity that has hit ordinary people hardest, while the quantitative easing supposed to solve the crisis has increased the wealth of people who already hold the most assets. When the cryptocurrency bubble bursts, there are no prizes for guessing who’ll pay the heaviest price.
Perhaps my greatest fear is the damage that could be done to what Faust would have called my soul. I felt the hypnotic power of unimaginable wealth and the fear of missing out, and I don’t want to fall under its spell.
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Then I realised that all that I wanted to avoid, I was already mixed up with. The awful truth is that many of us have got caught up in the unreal world of speculative finance.
It started back in 1985, when Margaret Thatcher presented a vision of society in which “owning shares is as common as having a car”. Thirty-two years later, the share-dealer mentality has turned more and more of us into speculators. Our houses are not homes but investments. When moving we can’t help worrying about whether we’ll end up winning or losing out. Most renters haven’t rejected the game, they just can’t get at the table. We are also forced to speculate with our pensions, as we are faced with many options, all with different risks. Students dependent on loans have to decide if a university degree is a good investment.
After the last crash, many of us railed against “casino capitalism” but we’re all living in the casino now, feeding the slots while complaining about the brash high-rollers at the roulette wheel. Individuals like me refusing to up my stakes change nothing. Somehow, we’ve got to shut this gambling house down.