Bub­ble and chic

The Guardian Weekly - - The Guardian Weekly -

All money is a work of the imag­i­na­tion. Pound coins, dol­lar bills and even the frag­ments of com­puter code known as bit­coins can do their work only be­cause of a col­lec­tive agree­ment that they will. So there is noth­ing un­nat­u­ral in the ef­forts of lib­er­tar­ian com­puter pro­gram­mers to in­vent their own money, and then to use these new cur­ren­cies to buy things, among them old-fash­ioned cur­ren­cies like dol­lars and eu­ros. Bit­coin, the old­est, best known and most valu­able, has lasted for nine years now.

Be­cause cryp­tocur­ren­cies can be anony­mous, it’s im­pos­si­ble to know how many peo­ple use them. Es­ti­mates from the Judge Busi­ness School in Cam­bridge sug­gest that there are be­tween 5 mil­lion and 10 mil­lion ac­tive users. Very few are us­ing it as cur­rency, or as a medium of ex­change. In­stead it is be­ing used as a means of spec­u­la­tion. The ex­change rate be­tween the bit­coin and the dol­lar has seen the price fluc­tu­ate crazily in the last three years, from $1,242 to $246 and back up above $2,800 again. Why not, when it is worth only what­ever buy­ers and sell­ers agree at any one mo­ment that it should be?

An­other ri­val cryp­tocur­rency, ethereum, has ap­pre­ci­ated by more than 40 times against the dol­lar this year. At cur­rent prices, the two to­gether are priced at a no­tional $66bn. There’s still lit­tle sign of any­thing ex­cept imag­i­na­tion to jus­tify this.

The pro­mot­ers of these tech­nolo­gies are filled with the mix­ture of ex­u­ber­ant greed and lib­er­tar­ian zeal that drove the ear­lier it­er­a­tions of the in­ter­net such as the growth of the world wide web. That is a dis­con­cert­ing prece­dent. There is a per­sis­tent be­lief among pro­gram­mers that un­der­stand­ing how code works means that they also un­der­stand the world out­side code. It is mis­taken. The web has turned out to be some­thing that no­body had imag­ined. It is both bet­ter and worse than we could then dream – and much more pow­er­ful. When all to­day’s bub­bles have burst, cryp­tocur­ren­cies may prove the same.

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