On Money, Banking, and Bitcoin

(Sorry for the olde fashioned-sounding title. At times I fancy myself a [James Earl Jones voice] Philosopher of Great Import in the Grande Scheme of Thinges. Just humor me here.)

Money: what is it, who makes it, and how do I get some?

Money is a ledger. Nothing more. Nothing less. For money to work, somebody has to know how much of it there is, and where it is flowing. If this were not the case, there would be no point in issuing it. It would have no value (not that it has intrinsic value other than its functional value as scorekeeper of the economy) if it were completely ephemeral.

It is just a way of saying, "You have provided something of value, and so have I at some point. You have provided something of value to me so let me transfer some of the value of what I have provided to you in return."

In a perfect world, we would all trust each other and provide goods and services to each other for free. Everyone would find his or her niche, love doing what they do, and get rewarded with the products of other people in return just out of pure trust. But we don't live in that world (yet). We live in a world where we want verification that we are getting value in return for value. Money provides that verification. It keeps track. It is simply a ledger.

Let's not go into the whole history of money. Let's start well into it, in a period when a great technological advance moved money and the world into modern times, a period most people will recognize. In olden times, people used to exchange metals stamped by kings, banks, or other authorities. These were stamped with the image of the king or issuing authority. They were durable and relatively portable.

They were also very easy to lose or steal and limited in supply. The fact that they were limited in supply only became a problem when they were lent or borrowed. If you lend a coin at interest, the interest has to come from somewhere, from somebody else's limited supply of coins.

The need to borrow and lend money (and it is a need that won't go away in the crypto world) led to the creation of paper cash. This was a very weird idea when it first happened. Very weird. Most people couldn't even read and saw paper as a flimsy thing. But cash was a better technology that solved the problem of allowing the issuing authority to control the supply of money.

Fast forward. Bankers took over the cash supply in the early 20th century. When we look at the gory, violent history of that century, it's easy to see how that went.

Now we don't use cash so much any more. We still use it. We still use metal coins from time to time too, but it's mostly obsolete. Now banks simply issue digital tokens. They can issue as many of them as they want, pretty much. When someone takes a loan, money is created out of thin air. This is how it works.

Banks are, in essence, ledger keeping organizations.

In olden tymes, the problem was that money could not be lent efficiently. So cash was invented. Nowadays, the problem is that it can be lent far too easily. The constant pumping of money into the system leads logically to literal slavery. Basically, you have Harvard lacrosse alums issuing imaginary tokens to peasants who have to pay back more tokens. The Ivy League jocks can get all the money they want and need while simultaneously enslaving and surreptitiously taxing the working classes. It's brilliant in a cunning, totally evil kind of way that people have been convinced to play this silly game for almost 100 years.

But, you know, the problem persists: too much money. I know. It sounds weird but that is the problem on a macro scale. Everyone constantly needs more money, and nobody can ever really get comfortable, including the Ivy League jocks who print themselves jillions of imaginary digital tokens every year. It's nuts.

Fortunately, a better ledger technology now exists. It's the biggest advancement in money since somebody figured out that tobacco leaves or tea leaves or bales of hay could be counted. It's called cryptocurrency. It's replacing the current imperfect money system and solving the main problems created by that system: diminishing real wealth due to a ledger so byzantine and corrupt that nobody can really verify any part of it.

Bitcoin and other cryptocurrencies are about to change the world in more fundamental and profound ways than Steve Jobs could have imagined.

In my next post, I will introduce you to my friends Bob and Cindy (not their real names -- I chose the most white bread names I could just because... I don't know... it was fun and it sort of ties back the olde timey title of this post) because their stories illustrate why the crypto world is inevitable and hint at how it might look.