Cryptocurrency: Birkins for Geeks

By Michael Olenick, a research fellow at INSEAD. Originally published at Olen on Economics

Women bring pawnbroker Tabach-Bank their Birkins as collateral for loans. “We get socialites and a lot more divorcees in Beverly Hills than New York for some reason,” Tabach-Bank, CEO of New York Loan Company, told the New York Times.

Birkins are apparently a handbag by Hermès that cost thousands of dollars and can run into fix-figures. Unlike most hedge funds, Birkin bags consistently outperform the S&P 500 as an investment. Also, like hedge funds, only the rich and famous can buy them.

Google returns 567,000 results for “knockoff hermes birkin” which, predictably, cost slightly less and are more democratically distributed. Expert Tabach-Bank says he can usually tell a fake but “if you haven’t bought a fake, you haven’t been dealing in enough bags.”

Which brings us to cryptocurrencies. Assuming that you’re not trying to, say, channel large amounts of money out of China, purchase illegal drugs, or launch a libertarian enclave what’s the point? What’s wrong with the dollar? Or Euro? Or Renminbi? Or Venezuelan Bolívar. OK – pretty much everything is wrong with the Venezuelan Bolívar. But the rest are usually alright.

The whole fiat currencies suck argument doesn’t resonate because there are plenty of currencies to choose from and there’s a whole smorgasbord of stocks and other financial products if you don’t trust government regulators.

I have a theory: Bitcoins are digital bling.

Like most products based on brand value, Birkin handbags have an origin story. In 1983 Hermès CEO Jean-Louis Dumas was seated next to Jane Birkin on a flight from London to Paris when her straw bag fell to the deck.. Voila — a leather version, with a latch, at 1,000 times the price — seemed like a great idea. Sure they could’ve put a latch on the straw bag, or tied it with a string, or used a regular carry-on, or a grocery sack, but let’s run with the story.

Bitcoin also has an origin story. It appeared essentially out of nowhere, on message boards and in IRC chats, a series of theories and code to make and track a new cryptocurrency.

Researchers had theorized about making a type of digital gold but nobody ever seriously advanced the project. On Aug. 18, 2008, the domain name was registered and on November a link to a paper by the mysterious Satoshi Nakamoto describing a peer-to-peer electronic cash system was distributed on a cryptography mailing list.

By January 2009, with the world economy melting, Nokamoto mined the first block of bitcoins and sent ten to programmer Hal Finney. In 2016, Australian Craig Wright claims to be the real inventor, and had the cryptographic keys to back the claim up, but nobody’s entirely sure.

By now everybody knows the rest. Bitcoin came out of nowhere and went from worthless to, according to Google, $5,670 per bitcoin today. I’ll admit to telling my brother-in-law not to waste his money when it was at $200. Sorry about that Alex.

I was wrong then and I’ll admit to the possibility that I’m wrong now. Maybe it’s just me, or maybe I run contrary to the Winklevoss twins, but bitcoin seems like a digital tchotchke, ideal for illegal drug deals but not much else.

Then again, Birkin bags aren’t much more useful than the straw ones they sprung from.

Bitcoins, bling for the digital age.

Think about Wired’s guide to interviewing at Google: leave the Rolex at home. More updated versions say millennials especially favor casual dress and work environments.

Stripped of an ability to impress with bling or family background what’s an aspiring techie to do? Create and embrace digital bling, then crank the volume of it to 11. Sure the blockchain technology has genuine value, and the Birkin bag can no doubt hold lots of stuff, but the price of either far exceeds the utility value.

Does that mean Bitcoin and the rest will crash. I’d say yes but, after what I did to poor Alex, I wouldn’t listen to myself on this subject. I believe that Bitcoin is genuinely worthless but others don’t. You can buy a Tesla with it in Eastern Europe, certain forms of travel or hotels, or a college degree from Cyprus. Lots of links say Howard Johnson’s used to accept Bitcoin but a Reddit poster says they stopped when their bitcoins vaporized in 2011, one of the few times I’m willing trust Reddit because who could make something like that up. I didn’t even know HoJo still existed, though I digress.

Apparently Bitcoin still works great for it’s original killer idea, buying pot.

At $5,600 per bitcoin, an early investor could buy an enormous amount of pot. Smoke enough of it and you might even believe there isn’t a bubble. Having lived through the dot-com bubble in CA then the housing bubble in FL I wouldn’t be surprised to see the price of bitcoin evaporate in a cloud of smoke.

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  1. Wukchumni

    When I first heard of bitcoin it was around $20, and now it’s closer to 300x as valuable, but it seems to have little usage in terms of who will accept it, and it isn’t as if you couldn’t just use a credit card instead when purchasing anything legit in terms of goods or services.

    If old school bitcoin in the form of all that glitters were to put in a similar performance of price rise, an ounce would be closer to $400k, and we would have a series of gold rushes all over the world, motivated not by new finds, but the ridiculously high spot price.

  2. milesc

    Important clarification, this sentence is mostly incorrect:

    > In 2016, Australian Craig Wright claims to be the real inventor, and had the cryptographic keys to back the claim up, but nobody’s entirely sure.

    Craig Wright was not able to prove publicly that he has “the cryptographic keys to back the claim up”, which would be trivially easy to do if he had them. For that reason, and his general demeanor, it is fair to say that everybody is entirely sure that he is not Satoshi.

    I would add that anyone forming any sort of an opinion about Bitcoin – particularly those quick to write it off – really ought to _experience_ it first. Spend $5 to see what it is and how it works. The Coinbase app on iOS and Android makes this incredibly easy. No need to go to the dark web to spend your $5 of bitcoin either — shop online for something legit (Etsy, gift cards, Overstock, wherever), donate to Wikipedia (or Wikileaks) or send bitcoin to a friend (ideally, on the other side of the world). There’s something genuinely compelling about the concept and _transacting_ helps brings it home. Then reassess. You have plenty of time — Bitcoin is not going anywhere and will almost certainly outlive all of us.

    1. Phillip Allen

      Bitcoin cannot exist outside of a functional energy and communications grid, preferably covering as much of the globe as possible. Said systems are unsustainable as constituted, and I doubt very much whether sustainable replacement systems are possible. Any tech based on a functioning electrical grid is doomed, including all things internet, e.g., bitcoin.

      1. IllusionOfChoice

        I would argue that’s also a requirement for modern fiat currencies. Without a communications system, how would their relative value be known?

        I’m hearing modern society is transient in your comment though. “Any tech based on a functioning electrical grid is doomed”. At least we can trade seeds – plus you can eat them!

        1. OpenThePodBayDoorsHAL

          Just a comment about Coinbase. Coinbase is a bank. You do not use the Bitcoin network when you are a Coinbase customer, they do, on your behalf. You do not hold your own private keys. When you “send” you are giving Coinbase an instruction to use the Bitcoin network for you. Right now, after 9 years, there are just 300,000 addresses with >1 Bitcoin. Coinbase is one of them.
          If/when the regulator awakes from their long slumber they will impose rules like capital adequacy, before Coinbase = Gox. You could use something like the Ledger Nano if you wanted to manage things yourself, but it’s awkward.

    2. Rates

      Bitcoin useful much in Puerto Rico where grids are down? Send bitcoin to victims down there to help? Oops, did you read that part about grids being down.

      At the end of the day, cash is still king. That old metal called gold might be useful too.

      1. milesc

        You can certainly donate bitcoin to e.g. the Red Cross to help those in Puerto Rico.

        Bitcoin transactions can be transmitted in all manner of ways (yes, even without traditional power grids and comms networks). I’m not saying it would be terribly useful now, to the people of Puerto Rico, except for the donations, but with education, integration and disaster planning, there’s no reason a cryptocurrency couldn’t continue to function locally even in such extreme circumstances. Of course cash and gold are much easier, of course!

    3. Tom_Doak

      Isn’t this the reason behind Bitcoin’s rise — simple curiosity? If they can manage to get even a small fraction of the world’s population to invest even $5 or $10 out of curiosity, that makes each coin way more valuable. That is, up until something newsworthy destroys confidence, and causes a rush to the virtual exits.

        1. Michael

          Hey – Let’s not insult sardines. Fresh sardines are tasty, simmered in olive oil.

          I live on the other side of the world and credit and debit cards work fine. There are negligible transaction fees so bitcoin could fix that but my accounts are based on stable currencies so there’s no chance of wild swings up and down.

        2. Watt4Bob

          I recently had an important user disregard all my warnings about opening unsolicited email attachments, resulting in his laptop’s contents encrypted.

          The only option for payment of the ransom was bitcoin.

          Rather than loose his important documents, some of which were necessary for him to enable payroll, we paid the .25 bitcoin ransome (aprox $1000).

          We purchased the BC from a colleague and were glad not to have to dive into the ‘normal’ purchasing process.

          1. milesc

            I hope the important user learned his or her lesson. If nothing else, the proliferation of such malware *should* encourage better computer hygiene and the regular backing-up of data!

        3. milesc

          Bitcoin is tiny in capital markets terms, with very little in terms of regulated swaps, options, ETFs or other financial instruments (i.e. the kinds of instruments that attract institutional investors) — but they are coming. Bigger markets, more liquidity, less volatility. LedgerX, for example, is a newly established (the first, launched less than one week ago!) CFTC-regulated Swap Execution Facility and Derivatives Clearing Organization. It’s happening, slowly but surely. Globally, too. A few short years ago, China banning Bitcoin would crash the price. That’s no longer the case (the recent ban on exchanges, pending new regs, barely registered).

          You should experience Bitcoin because you arguably owe it to your current and future readership! (If you would accept donations, you wouldn’t have to buy.)

    4. Mark P.

      milesc wrote: Craig Wright was not able to prove publicly that he has “the cryptographic keys to back the claim up”, which would be trivially easy to do if he had them … it is fair to say that everybody is entirely sure that he is not Satoshi.

      Sure. That said, some of the educated opinion I talked to claimed that for a number of reasons Satoshi Nakamoto had probably not been one individual, but a group of people. It was possible, they said, that Craig Wright had been one person among that group.

      1. milesc

        I doubt it. Almost nothing he does stands up to scrutiny. And let’s not forget that he claimed to be Satoshi Nakamoto. He bamboozled people in behind-closed-door cryptographic key signing ceremonies, refused to publish proof and trashed Gavin Andresen’s reputation in the process. Now he pumps an alternative cryptocurrency (Bitcoin Cash) and seems determined to lodge as many cryptocurrency related patents as possible.

        Occam’s razor, he’s a fraud.

  3. Jake

    Here’s an interesting link about crypto currency – a session at the recent Indy conference featuring Isabella kaminska from ft alphaville, Perry mehrling from Columbia uni and Rohan grey from my law network –

    By the way @nc , what’s the best way to suggest links to you? Comments or email?

  4. Mark P.

    bitcoin seems like a digital tchotchke, ideal for illegal drug deals but not much else.

    There are folks in Venezuela mining bitcoins and using them to buy groceries on Amazon.

    I’m not knocking healthy skepticism about digital fads. But after watching what happened in Greece, Cyprus and Greece, the idea of cryptocurrencies that governments and banks can’t control has some appeal.

    1. Michael

      What happened in Greece is the Greeks couldn’t devalue their currency, the euro. Bitcoin wouldn’t solve that problem.

      1. Mark P.

        What happened in Greece was that the Greeks didn’t have a currency of their own but the euro.

        Varoufakis could threaten as a last resort to reinstate the drachma but it was a threat absolutely without plausibility, because it would take a minimum of eighteen months to set up the electronic payment systems for that. Hence, the enemy absolutely controlled the Greeks’ currency with the result we saw.

        Had some alternatives to that situation existed, Varoufakis’s threat to the Troika might have had a little deterrent capability.

        1. Basil Pesto

          wasn’t Galbraith developing, with some feasability, a plan B to withdraw from the Euro? (presumably entailing a return to the Drachma)

  5. Disturbed Voter

    Haha … this! Yes, a private digital currency can be stolen or be devalorized during a fork. The head fake is the notion that “it isn’t government controlled” yet we know that the Feds got ahold of a lot of Bitcoins during a criminal suppression operation, and can use those to manipulate the market, same as gold and silver. And there are countless versions now of digital currency … so the notion that it isn’t “fiat” is wrong too.

    There is no free lunch, and no completely escaping government, even if you are an actual criminal. The Ayn Randians are cranks. Some early joiners made out from the scam. Hence the desire by many other scammers, to start their own early “ponzi scheme”. But seemingly without culpability, because by nature the later “coins” are harder to generate. The supply is effectively finite … but more honest than simple IOUs. What makes government IOUs work, is the police force … even though digitally, they can make as much liquidity as they want. They can’t make wealth (no free lunch). So yes, the dollar is superior, as the least stinking turd.

  6. Jim Haygood

    Cryptocurrencies are to fiat currencies as passively managed funds are to actively managed funds. Passively managed funds are gobbling up market share from actively managed ones.

    Cryptocurrencies are managed according to predictable algorithms, whereas keystroke-and-rag-paper relics are managed by carbon-based “meat computers” that are prone to egregious errors of judgment.

    Don’t regard cryptocurrencies as having arisen merely because blockchain technology made them possible. Rather, panicked central banks quadrupling and quintupling their balance sheets forever destroyed confidence in their discretionary management ability.

    Bypassing PhD know-nothings so they can’t hyperinflate the means of exchange is Job #1. Yes, a Stanford eclownomist can be replaced by a network of chips. Easy. And better.

    A great irony is that while the ultimate quantity of a given cryptocurrency is limited, the number of competing ICOs is unlimited. It’s not unlike the Internet bubble of the 1990s, in which dozens of profitless tech start-ups were thrown up against the wall. Most didn’t stick, but five tech giants now rule the world.

    BTC or GTFO. :-)

    1. OpenThePodBayDoorsHAL

      Folks let me give a state of the industry for those who might be interested.

      Now that there are billions of dollars in the hands of some very capable technologists they have a war chest to invent and sustain a very different format for the creation, storage, and movement of value. Yes we are at a similar stage to the runup to 2000 in tech, but the more important analogy is the runup to the creation of protocols like TCP/IP and HTTP. I’m old enough to recall when you could not send an email to someone using AOL if you were on Compuserve, then the protocol SMTP was agreed, now we no longer worry about sending email ANY>ANY. We’re at the same stage with cryptocurrency, standards are emerging. Right now we’re also at the stage where more and more functions go down into the “OS”, I’m also old enough to remember having to put a floppy disk in my computer so my printer would operate, that function of course is now in Windows.

      So instead of isolated islands of value (Bitcoin, Ethereum, and the hundreds of others), instant interop between them is coming very soon. A superset of that interop will be provided by “atomic cross-chain transfers”, also right on the horizon.

      On scalability, distributed ledgers are really unsuited to scale. So the propeller heads have built tightly-coupled “offchain networks” like Raiden, this means the main networks will be used largely for large transfers but payments for $0.01>$10,000 can operate instantly with no fee.

      But the most exciting/threatening development is decentralized exchange, where there is no central point where digital currencies trade. These (0x, Kyber) will mean governments no longer have a centralized place (like BTC-e) to shut down. This cat is out of the bag.

      So I think the movement will be to people asking which kind of asset do they want to own. Which currency do they want to be denominated in. The choice is between debt-addled bank money issued by the most corrupt institutions in history, backed by violence, and used as a means of repression, control, and to worship failed and uniformly wrong “economic” models, or an unlimited choice of value types, instantly and infinitely transferable, designed to behave and incent and reward in any way imaginable.

      Here’s just one example:

      So you can ask yourself: are you happy to be a subject of a currency managed solely for the benefit of billionaire monopolists, used as a tool of repression, war, and corporate control, or do you have a different idea? For the moment the user experience with these new monies is clunky, scary, and weird but that is changing fast.

      The last way authorities will have to suppress these, since they cannot control their creation and exchange, will be to outlaw their ownership. They already outlaw having certain strings of numbers on your computer (child porn JPEGs are just one example). But we’d need to go full George Orwell 1984 to do that, and I just don’t think they’ll be able to, they’ll battle at the bank money/crypto border as long as they can but I think they’ll lose.

    2. BoycottAmazon

      baseball cards vs. bushels of wheat is a better comparison.
      The first, perishable, has value based on a human quirk. The later has the value of an entire economic system and the monopoly on domestic violence behind it.

  7. Lozza

    Just because the use for Bitcoin in the past was mainly for drugs and the dark web does not mean that there are no useful uses for it. I can see Bitcoin being used in the future for example for international payments, where currently exchange houses and banks charge huge currency and transfer fees (example of foreign remittances from Gulf countries to India/Philippines). Also online shopping may be a good development where you shop from the US in for example on a site in Japan. No problem if they accept Bitcoin, then you don’t need to pay for these transaction and exchange fees to Visa and your bank.
    And probably many more uses will be invented in the future. Maybe mirco payments to websites, where I pay 0.00001 Bitcoin for an article.

    1. Yves Smith Post author

      You seem to have missed that Bitcoin exchanges charge fees and banks are getting heavily involved with the authorities. Either they will be in the cyrptocurrency business, which means fees, or they will make sure it is plenty illegal.

    2. False Solace

      The primary use for bitcoin at this point is probably money laundering, which is why Chinese authorities have cracked down. And to say that you could transact with a Japanese website in bitcoin and pay no fees to anyone is beyond the pale. You’re just paying them to whatever site hosts your bitcoin wallet instead of an FDIC insured institution.

      Not to mention the obvious scams that have arisen around bitcoin “banks” and “vaults”, where the site owners periodically claim they’ve been robbed and force unaffected account holders to bail them out. There are so many shysters in the business you need your head examined if you think sinking actual money into it now is a good idea. If you’ve personally managed to profit, count your lucky stars and walk away while that’s still true. As Yves says, bitcoin is prosecution futures.


    The irony is that the huge valuation of bitcoin is precisely why the whole venture is a house of cards. The idea of a net-native, borderless, untraceable like physical dollars digital currency isn’t inherently bad, and if managed right can fill certain gaps in the global economy.

    The problem is that what has turned into, more so than a technolibertarian symbol of conspicuous consumption or a dark net trading tool (currency of choice for ISIS!), is a get-rich quick scheme. The bitcoin forums, subreddits, facebook groups, etc., are full of cringey accounts of people who dumped their savings into bitcoin, certain that the fiat currencies will all collapse and because they got in on it before the plebs, their coins will explode in value overnight and they’ll become millionaires.

    Now, even ignoring the fever dream of such a scenario, or bitcoin’s numerous security problems, or the fundamental issue of what makes a currency valuable, is that it’s committing the classic libertarian error of thinking of currency as a commodity. Currencies are exchange media, to create a constant valuation standard across an economy, and what makes for a useful exchange medium more so than value is stability. Instability in a currency makes people trepidatious to use it, as it presents a huge risk to how much you can exchange for it. This, because of all the people treating it like an investment, is the biggest problem for bitcoin as a currency. It fluctuates wildly, with valuation zig-zagging like mad even within a single day. Not an issue for long-term investments, but horrible for currencies. So if the utility as a currency isn’t there, or at best is being actively hurt, then the only thing keeping the value up is the fever dream, a bubble in its purest form. Which means it would not take much to pop.

    1. YankeeFrank

      Bitcoin has popped several times, as have many other cryptocurrencies. And yet they keep coming back. By now, roughly 7 years into the experiment, they are here to stay. And they work just fine for payments. Sure it fluctuates, but more often in one’s favor than not.

      1. PKMKII

        I would attribute that more to the tenacity of the bitcoin faithful than anything to do with inherent utility. As the joke goes, “This is good news for bitcoin”; seemingly any event related to bitcoin is spun by the community as increasing its value, so they keep buying and hoarding and propping the value up. But it’s nowhere near enough to get us close to the vaunted realm of cryptos displacing sovereign fiat currencies.

        1. YankeeFrank

          Gold has very little inherent utility as well, and yet it has been the measure of wealth for millennia.

        2. Typing Monkey

          Perhaps cryptocurrencies will not displace sovereign currencies (although I wouldn’t rule that out just yet–they are still very new, and they have a long way to go), but they don’t need to in order to be valuable. They only need to find a market niche in a hundred trillion dollar market.

          The internet went through a buble stage (as did railroads, automoblies, and telecommunications, among other industries), and it crashed, and it didn’t replace face-to-face communication or brick and mortar shopping or whatever else its proponents touted during the iniitlal years. But it remained, and it continues to be used, and the internet tocks as a whole now trade at a higher valuation than they did during the bubble as the underlying reality eventually caught up to the original market hype.

          As an aside, has anybody made any predictions as to when Bitcoins will actually crash? I’m betting that this wil occur once interest rates rise sufficiently (put another way, once there is sufficient demand to mop up excess savings). That may take quite some time…

    2. BoycottAmazon

      Yep, I don’t go buying groceries without thinking about how much of my time it costs to buy each item. How is that going to be possible with an item that swings wildly in value. Even in inflation mad Brazil of the 19980s, everyone could more or less estimate out where the value of things in the currency would be weeks in advance.

      Hording is probably part of the problem too. I don’t want to get sick to my stomach because I blew a fortune in between the cashier and my car. If there is a persistent weakening, then the flood gates will open in reverse.

      There is no liquidity guarantee either. One thing about cash is in theory it’s illegal to refuse their tender, though it’s enforced in the breach.

      I had cops called on me for using cash to buy groceries. What about a currency who’s primary business is money laundry?

      Last comment. My friend who did counter-trade dealings, said the margin built in to the business made it much less efficient than direct trade, so that it only worked as a tax dodge. I’m getting the feeling that the same applies to these coins, they are only attractive as a commodity to dodge taxes. When the man figures out how to bust chops on what should be an easily traceable item, then the trap will spring and plain old cash or physical gold (or even rice futures) is going to look damn good compared to that digital tail.

  9. financial matters

    There is also the cryptoruble, CryptoRuble

    “According to the official, the state issued cryptocurrency cannot be mined and will be issued and controlled and maintained only by the authorities

    While the announcement means that Russia will enter the cryptocurrency world, it is in no way an affirmation or legalization of Bitcoin or any other decentralized cryptocurrency. On the contrary, Putin quite recently called for a complete ban on all cryptocurrencies within Russia.

    The statement from Putin seemed apparently to contradict the earlier comments from other ministers who seemed pro-crypto, but only with regulations, as well as Putin’s recent meetings with Buterin and others. Now, with the issuance of the CryptoRuble, the apparent contradiction has been made clear.”

    Russia is also part of a reported Chinese plan to install a new international monetary order that excludes U.S. dollars. Under that plan, China could buy Russian oil with yuan and Russia could then exchange that yuan for gold on the Shanghai exchange. yuangold


    US sanctions against Iran and Russia are also driving these moves as countries look for alternatives to the US dollar and the SWIFT clearing system so that they can avoid economic blackmail.

    1. financial matters

      Update on the cryptoruble, Update

      “Bitcoin and other cryptos can be taken as payments, made a part of my business’s accounting and all of that and the Bank of Russia only has to deal with regulating the flow of rubles throughout the domestic economy. It becomes more immune to external attack like late 2014.
      Putin is both defending the ruble for internal Russian use while at the same time making it easy for capital to move across borders without it affecting domestic monetary policy.

      Forex recycling needs are dramatically lowered because the central bank no longer has to deal with the build up of foreign currency reserves which have to be maintained and invested. Those reserves are now floating around in crypto-space waiting to cross whatever border they need to next.

      Some may flow into the Ruble, some may flow into crypto-loans, housing, etc. But, the central bank is alleviated of managing huge piles of money because the economy no longer depends on the supply of their currency.

      Putin gets this. If he doesn’t then someone in Russia’s government does. “

      1. Yves Smith Post author

        This makes no sense and if this is accurate, it means Putin does not get it.

        The purpose of foreign currency reserves is to defend the currency. Period. They are not hard to invest. Put them in Treasuries and be done.

        None of these cryto currencies have enough float to be useful for anything and no bank FX desk would accept them in a central bank or Treasury support operation.

      2. BoycottAmazon

        Looking for the closing quote mark to “Bitcoin and other cryptos….
        and who’s being quoted?

        1. financial matters

          Tom Luongo. He’s a regular contributor to Russia Insider and also at Seeking Alpha and Newsmax Media. He has a blog, Gold Goats ‘n Guns and does a monthly investment newsletter through Patreon.

          This is the preceding paragraph.

          “Think of it like this. I have a business in Moscow with clients in Astana. They can pay me in bitcoins which I can exchange for rubles when I need to or use to pay my suppliers in Minsk. My client never has to go to his Kazakh bank and exchange Tenge for Rubles (yes, I know the Kazakh currency name off the top of my head). I never have to go to my bank and exchange Rubles for Belorussian Rubles.”

  10. blennylips

    More ammo for your thesis a few days ago via ZH:

    A Look Inside The Secret Swiss Bunker Where The Ultra Rich Hide Their Bitcoins

    I got interested in BC early on — Sweet sweet maths! Anyone else remember “bitcoin faucets”? Good times!

    In early 2013 I was amazed to find that my parents, having raised 9 kids on a modest salary, had managed to leave each child a hefty chunk of tax free inheritance. No {family blog} way that was going into the stock market!

    A real adventure, getting funds from a staid US bank into an exchange — every one had limits. As BC was creeping towards $100 for the first time, I frantically stuffed that channel to extract the digital gold that oozed slowly out the other end. Those were the last I ever bought.

    That modest investment has funded my retirement at something like 666% return. Now the problem is timing the exit, as always!

    I enjoy you take on this and many other topics, thank you Yves.

    1. financial matters

      Thanks for this excellent article by a very skilled economist. Also many great comments.

      This is from a comment by Eric

      “Emergence of money was not based on market exchange but wergeld and then state. The story of money starts with the imposition of a unit of account and some financial instruments. This financial instruments were first uncollateralized unconvertible financial instruments (in Egypts and Mesopotamia via shubati), went to collateralized financial instruments (gold coins), then convertible financial instruments (convertible paper money) and then back to unconvertible financial instruments. Both states and private sector have issued monetary instruments.”

      I think this is what China is trying to do with its yuan/gold experiment. It is trying to enter the international market at the ‘convertible paper money’ stage.

      I think the main problem with a gold based system is that there is not enough gold to cover all the transactions. But once the yuan becomes more accepted they could move to the ‘unconvertible financial instrument’ stage. Similar to the trip the USD took.

      1. OpenThePodBayDoorsHAL

        We’ve only had monopoly currencies enforced by legal tender laws for about 100 years, and they only work on the top 20 or so countries. Ask to pay for something in Vietnam with USD and the response will be “yes, please”.
        Re the hand-wringing over a Chinese gold- or oil-backed yuan, it’s pure hype, the last ones to leave the gold standard got smashed, so would the first ones to start one up. Everybody else would just hit Ctrl-P, materialize debt money from thin air, and exchange it for free gold or oil.

        1. BoycottAmazon

          Byzantine Empire not only had monopoly coinage, but an effective MMT based economy. It’s the primary reason why they were able to hold stand up for so long in a far more dangerous and hostile environment than Western Rome.

          Tang (China) Empire in 730 BC had paper currency/promissory notes. Paper money issued as a monopoly by government in China by the Song.

          Qing Dynasty, being primitive at first, did away with paper money till the very end (when the British run Maritime Customs took over the treasury function, they issued the first Qing paper notes). I believe there was a link earlier this week in NC to an article in the SCMP about how Qing Empire Economy collapsed not due to opium trade, but their failure to grasp MMT.

      2. ChrisAtRU

        Also good to remember here that The Euro is effectively a modern day implementation of a gold standard – via monetary union a.k.a no fiscal union; with no LOLR; or ability of member states to issue/create €.

        Gold standard created center-periphery malaise which was duly replicated by Euro construct.

        Chartalists were not surprised.

        Pavlina Tcherneva’s “Chartalism and the Tax-Driven Approach to Money” is another excellent read here.

  11. Rand

    IMHO, the real impact of BitCoin is not BitCoin, but the underlying blockchain tech, which enables decentralized transparency in recording things with these cryptographic tokens, like monetary transactions. That tech seems unhackable, though poor implementations of smart contracts (programs written in it) have “lost” people their tokens, and poor “wallets” and exchange programming can be hacked.

    People have compared the future impact of blockchain to the web itself, enabling a brand new style of economy, without centralized banks and government. Of course, without identification, illegal use and misuse are unchecked. So the blockchain community has an answer: use its tech for identification, building reputation via trusted entities.

    Most of the new tokens are founded outside of the law. But the real revolution comes when they are used inside of the law, and Initial Coin Offerings (ICO’s) start to replace stock offers, when debit/credit cards are merged with tokens, when buying something from a business earns you a little ownership of that business.

    BitCoin pioneered a world beyond itself. For more reading on the blockchain world, see this:

    1. False Solace

      It seems very hackable to me. You just need to control 51% of the mining pool, which thanks to mining pools and mystery pools is entirely possible and has been threatened in recent years and months.

      1. Mark P.

        It seems very hackable to me.

        You’re confusing bitcoin and blockchain.

        It’s a more complex subject than I want to get into here. But ….

        [1] Yes, it happens most of the blockchain tech currently existing has been created by people mining for — and incentivized by — bitcoin.

        [2] Nevertheless, blockchain tech doesn’t have to be hackable. We’re going to see blockchains running private factories, supply chains, oil rigs, networks, and etcetera, and that blockchain tech will be entirely private and unhackable.

        [3] In fact, the long-term payoff for blockchain tech is that it provides a secure capability to do machine-to-machine payments and services. Those machine-to-machine payments may be made in bitcoins or they may be some other currency.

  12. Wukchumni

    Ever notice how in every article you read about bitcoin, they feel compelled to post a photo of a tangible looking version, for some reason?

    1. Mel

      That’s part of a bigger picture (haw haw). One of NC’s charms is being one of a very few blogs that doesn’t need to stick a humungously gargantuan stock photo on each post. The posts are well enough written that you can distinguish one from another by reading them.

  13. MyLessThanPrimeBeef

    The climax of a carnal knowledge experience – that’s how Ms. Birkin’s singing was known for.

    How that relates to bitcoin, perhaps we figure out the mystery together.

    Je t’aime.

    1. milesc

      In the Swiss municipality of Chiasso, yes!

      Eslewhere, not yet (except via a middleman who will convert your bitcoin to fiat before paying your tax bill in fiat).

      1. BoycottAmazon

        Hmmm, is that Swiss tax bill written/prices in bitcoin? If not, then he’s paying in fiat, the authority is just doing him the favor of exchanging it as their rate, instead of a rate he might get elsewhere.

  14. Crookbond

    Isnt money laundering, ransomware and drug payment market big enough for Bitcoin to be valuable? that is a distinct use case which never goes away and is where all the value will be.

  15. Middleclassdad

    A friend of mine bought a $25 shirt with bitcoin. If he used 1 bitcoin, does that mean his shirt is now worth $5,000?

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