“Cryptocurrencies” have crashed hard, with Bitcoin down by more than 50% from its peak. But, says Dominic Frisby, Bitcoin still has a future – it is the ideal money for the internet era.
You might call it the cable that changed history.
In the mid-19th century there were various attempts to lay cables across the Atlantic Ocean between Britain (Ireland) and the US.
It took several failures, numerous bankruptcies and over ten years before they got it right.
But eventually they did and on July 27 1866 Queen Victoria broadcast a message to US President Johnson…
Money is a form of communication technology
Here’s what the first transatlantic cable said:
Osborne, July 27, 1866
To the President of the United States, Washington
The Queen congratulates the President on the successful completion of an undertaking which she hopes may serve as an additional bond of Union between the United States and England.
Executive Mansion Washington, July 30, 1866
To Her Majesty the Queen of the United Kingdom of Great Britain and Ireland
The President of the United States acknowledges with profound gratification the receipt of Her Majesty’s despatch and cordially reciprocates the hope that the cable which now unites the Eastern and Western hemispheres may serve to strengthen and perpetuate peace and amity between the governments of England and the Republic of the United States.
To send a message by ship could take ten days or more; now it was a matter of minutes. So somebody came up with the slogan “two weeks to two minutes”.
Transmission speeds improved rapidly; Morse code became words and it was soon possible to send multiple messages at once. By the end of the 19th century, Britain, France, Germany and the US were all linked by cable.
Personal, commercial and political relations were altered for all time.
Back then gold was money, of course, as were paper notes representing gold. You couldn’t send gold down the cable, however, nor paper. But you could send a promise.
And, within a fortnight of Queen Victoria’s message, that’s what two parties who trusted each other did. An exchange rate between the dollar and the pound was agreed and then published in the New York Times on 10 August.
That is why, to this day, GBP/USD exchange rate is known as “cable”.
My purpose with this story is to illustrate a point: what is money, but a form of communication?
Look at a £20 note (if you still use them) and you will see the words “I promise to pay the bearer”. Of course, promises disappear; gold doesn’t. The two are quite different forms of money: one is belief, the other is real.
Nevertheless, since the dawn of civilisation, we have been using promissory money. In Ancient Mesopotamia, people used mud tokens, representing sheep or barley, baked inside clay balls to log debts owed. They found it more efficient to draw pictures of the tokens in the mud for the same purpose, which is how the first system of writing developed.
In Ancient China, people recorded their debts on bits of leather; after the invention of printing they started using paper.
Today the promises are recorded and exchanged between trusted third parties on computers.
Millions, probably billions, of promises are sent across the internet every second, transferring as quick as words, probably quicker. Not only does (promissory) money evolve with communication technology, it is often the spur, the impetus for communication technology to evolve.
Now bitcoin, with its blockchain, obviates the need for trusted third parties altogether – that is one of many reasons it is so special. Here is a money communication network backed instead by mathematical proof and the most powerful and resilient computer network ever known to man: the trusted third party is the blockchain.
Why would you not want to own a share of such a breakthrough technology? That, effectively, is what owning some bitcoin is – owning shares in a new monetary technology. And it’s not like they are doing any roll backs.
Money has evolved like language
I want to explore this idea of money as communication further.
It’s often said (by me at least) when considering politicians: look at what they do, not at what they say. What we do says more about us than what we say – what we do with our money says even more.
And what we do with our money communicates value, not just between buyer and seller, but across the economy. What is the price of this thing? What is its value? The answer is constantly being sent and received, digested and acted upon; and so does the economy constantly, incrementally evolve and develop with each new signal: the how, why and when, of what needs producing and where.
Money, then, is like a language, constantly evolving and changing. Nobody is really in charge – it wasn’t really planned, it has just constantly evolved. The architects of fiat money did not plan what we have today, they just used it to get out of a tight fiscal spot – extenuating circumstances at the time.
Similarly, nobody planned the language we speak today. Language is hard to plan and regulate, try as many have over the years – and still do.
The English we speak today is a long way from the English of Chaucer, Shakespeare or Dickens. There are probably fewer words; certainly fewer tenses. Grammar is simpler. Yet English is far more widely spoken. The network has grown.
Mandarin may have three or four times more native speakers, but English is more widely spoken. There may well come a time when everybody in the world speaks it. It is the dominant linguistic network.
Meanwhile, other languages fade away. Cornish has gone. Few now speak Welsh or Gaelic. The local dialects of France and Italy are disappearing. Similarly, there are no doubt a plethora of African, Asian and American languages that are on the way out, if they haven’t already gone.
The question to ask is this: how scalable is the language? English has the potential to become the default language of the world. Despite having more native speakers, that’s unlikely to be the case with Mandarin. It’s certainly not going to happen to Gaelic, Neapolitan or Swahili.
How many different monies have there been in history? Shells, whale teeth, metals, paper, cigarettes, mackerel packs, cognac, Zimbabwe dollars, reichsmarks, denarii, farthings, shillings. Most have died. Only gold goes on.
But, as with transatlantic cables, you can’t send gold over the internet. Only golden promises between trusted parties.
Bitcoin is money for the internet
The US dollar is the global reserve currency. You can send that over the internet. But it’s hard for people who aren’t American to get US dollar bank accounts. Foreign exchange fees are expensive. Money transfers can take several days sometimes.
It’s a national currency that is used internationally. A country – and several do – could use it as their national currency, but they would be importing US monetary policy too, and so subjecting themselves to US political whims. Which is why most countries with their own political agenda issue their own currencies.
Thus, though “international”, as a national currency, the US dollar is limited by its national borders and its politics. The same goes for any national currency.
But language is not limited by national borders – or at least English isn’t.
If only there was an apolitical, borderless currency for the borderless economy that is the internet, then that really would be scalable in a way that no national currency is. A network that has evolved organically, and is constantly growing.
You don’t need a bank account to start using bitcoin. You only need a phone with an internet connection. We are not far off that point when everyone who wants one has one.
My argument is this: if money is language, then bitcoin is English. It has a potential to scale that no other currency has.
Just as an aside on how quickly money evolves – it’s worth remembering that as recently as the 19th century, the pound had greater global recognition than the dollar. In emulation of Jules Verne’s Phileas Fogg, who went Around The World in 80 Days, in 1889-1890 American journalist Nellie Bly went on a trip around the world in 72 days.
She took pounds, but she also brought some dollars, “as a test to see if American money was known outside of America”. She went east from New York, and did not see American money until Colombo, Sri Lanka, where $20 gold pieces were used as jewellery. They accepted her dollars – but only at a 60% discount.
It’s a bit of an ask – though possible – to get people to accept bitcoin in the physical world. But that is not what it is for. It is money for the internet.
For more on this:
Dominic’s film, Adam Smith: Father of the Fringe, about the unlikely influence of the father of economics on the greatest arts festival in the world is now available to watch on YouTube.