Be limited/scarce

It must engender trust in me that everybody else wishes to own it and values it just as much as I do.

That this fictitious value we place on this essentially non- utilitarian object (money, no matter in what form) is something collectively shared by everybody else in our society.

That the power of the State (King, Dictator or Elected Republic) will encourage and enforce this trust.

FOLLOW THE MONEY

SO, WHAT IS BITCOIN?

WHERE IS THE GRIPE?

IS THE AUTHOR THE TRUE LUDDITE??

CONCLUSION

Arjun Bhagat is former president and chief executive officer of R.M Software India (Pvt.) Ltd (RMSI).

NEW DELHI: Bitcoin has no purpose other than being ‘Money’. Money is a purely political/social/economic construct. For it to do its job, it must necessarily have the following traits:Because all modern money has no intrinsic utility value per se (coins made of metals that cannot be eaten, worn, lived in or driven; or paper or lately, bits and bytes on a computer disk) TRUST is the essential raw material from which all money is minted.Trust requires two ingredients:This enforcement will occur in multiple scenarios. Ensure no counterfeiting or unauthorized minting (because that would destroy its perceived scarcity).Communicate in no uncertain terms that stealing money - this basically non-utilitarian object - will engender retribution equal to, if not harsher than stealing someone’s car, or horse or house or food - things that traditionally have utility and are thus considered to be of value to its owner.Provide explicit as well as implicit guarantees to uphold the ‘value’ of money if ever it were to come under stress.Money is, in its essence, a collective fantasy of value, but one which serves tremendous economic and social purpose. For it is money that has allowed the complex modern world of specialization to develop, by allowing us to move beyond the obvious and significant limitations of barter or exchange.One unspoken, but essential truth about modern money is that this - otherwise valueless piece of metal, paper or bits -bytes - provides a ‘free ride’ to its creator/minter. Essentially, when a new unit of money (which costs a fraction of its universally perceived value to create) is ploughed into circulation, the creator gets to purchase goods and services of actual inherent value from the collective us that makes up society2.And traditionally, that creator has always been the State. But in return, there is another, real cost that the State, as the creator of money, must be ready to commit to each individual in this society that has agreed to buy into this figment of value we give this otherwise worthless object called money. And that is enforcement, something that consumes real societal resources in the form of materials, people, organizational costs, and sometimes blood.If you look at a cryptocurrency such as Bitcoin, all its traits are exactly replicated to serve the purpose of money. Absolutely nothing else. It is easy to store and will not degrade. It is limited. It is easy to exchange. It has no utilitarian value other than that others perceive it as holding value. Essentially, people have built a collective TRUST in its worth.Money. Money. Money.The essential gripe one has is that in our institutions of State - our Central Bankers, our Congress, our Law Enforcement and our Administrators, we are essentially being led by a coterie of highly intelligent, well-meaning – but in this particular sphere – luddites. And because they are for all intents and purposes out of their depth, they have allowed a bunch of very smart techies to create gobbledygook and obfuscation around what has been considered the most basic of crimes since King Alyattes of Lydia first created coinage in 640 B.C. Lydia; that of counterfeiting and/or minting money, take your pick.Imagine for a moment, if a Wells Fargo Bank or Chase were to go and print a green paper note, the size of a hundred- dollar note adorned with ‘In God we Trust’ on one side and ‘With the full backing of Jamie Dimon’ along with his portrait on the other. What reaction would we expect from those institutions of State listed in the paragraph above? And how long do we believe such a hypothetical Jamie Dimon would be allowed to walk the streets of America a free man?And yet, that is precisely what we have let the creators of cryptocurrencies such as Bitcoin do! Not just that. It actually gets worse. Our confused leaders have concluded it to be necessary to expend energy, treasure and resources – legal, administrative, law enforcement, human, travel, you name it - to protect this (otherwise completely worthless) artifact when people dabbling in it find they have been robbed of it by others dabbling in it! Global hunts have been carried out, as have arrests. Why? Can you imagine the hue and cry that would go out if in our thought experiment of a Chase minted currency, the bank executives were to trot over to the FBI claiming that a million $100 Chase notes that they have ‘printed’ were stolen and hence the FBI needs to find the culprits who have committed a $100 million heist and see them in jail.Just look at the free ride that the creators of this newly minted money called Bitcoins get. They, not the State, get to capture the initial value of this worthless object, effectively increasing the circulation of money in the system, thus actually debasing all our currencies (on the margin) while getting the State to ensure that the TRUST in it is enforced on all of those that choose to participate in its storage and circulation.And only because they use complex words such as “cryptocurrency; no ultimate controller/creator; (what a load of manure... someone somewhere, even if its multiple individuals or organizations first mine/generate that bitcoin. Always.) blockchain technology; purely algorithmic; decentralized; blah blah blah”, the leaders that inhabit our institutions of State sit back in bewilderment as a multitude of new wannabe high tech money-minters sprout up like mushrooms in a wet forest. Any surprise why ‘entrepreneurs’ from around the globe are working feverishly to create ‘new/improved’ cryptocurrencies which they are rushing to market?And why not? It’s the biggest, potentially quickest way to free-ride yourself to riches. Counterfeiting has always been a profitable - albeit risky - endeavor. Until now. Because for the first time, our institutions of State have allowed their confusion to give a free pass to every tech emperor who actually has no clothes, just as long as he clothes it in enough high-tech jargon of unshackling the world from centralized State power, or advancing human freedom, or making the world a global village or...Today, for example, there are a number of countries that do not have the technological capabilities or resources to print their own paper currencies. (One needs to use special paper, ink, embossment, threads etc. to make them long lasting, difficult to forge, resistant to moisture etc. etc.) So, they outsource their creation to specialized printers in some far away country. But, you will not find them allowing the benefit of the initial value of that newly minted money to flow to the mint that prints it, just because they have some technological prowess that the client state does not. And yet, that is precisely what we have allowed the ‘printers’ of a bitcoin to get away with today. Absurd.Ever heard of a Ponzi scheme? Ever read about the virtually infinite variations to that, carried out by hucksters and crooks over the centuries across different geographies? Well, at its essence, they all invariably work in exactly the same way. You raise money from ever larger pools of new bait to pay off old bait, who then sing your praises, thereby bringing in yet new bait, all the while siphoning off your cut of the spoils until the music stops and the whole fraudulent edifice comes crashing down. Forget all the variations. All the new-fangled terminology, or the new methods of entrapment. Dig to the essence, and a Ponzi scheme is essentially just that; a Ponzi scheme.The same holds true here. Dig to its essence and cryptocurrency is nothing but counterfeiting/minting money. These newly minted objects serve absolutely no other purpose. Period.A counter argument I expect to hear is that, by making the claims I am making, I am trying to stymie progress. Come in the way of harnessing technology and its ability to further enhance commerce, or any kind of trust-based interaction between two strangers.A second counter argument would try to lump bitcoins (and its ilk) along with any new software or hardware developed by any technology company and ask why single out just this kind of technological development as being something wrong?Let’s address each one separately.On the first point, I am in the camp which sees true value in cryptocurrencies, including using blockchain technology for managing and enforcing complex agreements that go well beyond anything we can currently imagine or what money in its current form can do. However, the free ride value that comes from its initial creation and insertion into society belongs to the State, which then takes on the obligation to uphold its future trustworthiness, for that is all that will allow its continued circulation and flow of value. As a tax payer whose resources will be expended (already have been in fact) to uphold its value, I do not wish to see a bunch of (anonymous or not, why should that matter?) initial free riders get to capture its value only because they ‘mined’ it first. That is a direct transfer of wealth from society to a few - technically savvy - private actors.On the second point, the essential difference between a bitcoin (cryptocurrencies) and most other new software or hardware technology creations is that the former is the only one that has no other inherent traits or utility except to mimic money.To bring clarity, let’s use some analogies that have held true for the past three millennia. Once gold and silver were minted into coins, it did not mean that a jeweler could no longer produce something of intrinsic value that people would not pay for. They just could not produce money. It needed to provide utility, in the form of individual value for its consumer, beyond what money does; a medium of universal trust (a collective fantasy) and universal convertibility (tradable into any other good or service that actually has individual utilitarian value) . So, jewelry serviced one’s desire for vanity, through its beauty as well as advertising one’s wealth and stature and therefore was never considered to be money, even if both were made from the same raw material.The same is true for once money got printed on paper. That did not make it illegal for a painter or photographer or lithographer to create beautiful prints on paper that could then be sold to others. They just could not create something that had as its utility only the traits attributed to money.So, for that same reason, to conflate a bitcoin with an Apple phone or a Zynga game application that requires tokens to be purchased is a false one. Because the distinction between the two has been understood since hundreds of years before Christ walked the earth. The inherent difference between something that provides individual utility and satisfaction and something that is purely a medium of trust and exchange in order to grease the wheels of commerce.Cryptocurrencies have real and potential value to further unleash the human potential and allow members of society to trade, signal and enforce trust in currently unimaginable ways. The implication of this is that they could provide a step function in allowing human communications and contracts to work with significantly less friction, with all its attendant advantages.But, these essentialized new objects need to be created, maintained and regulated by the State. And just like a non-academic ruler of yore would employ financial and mathematical wizards to run his treasury, so too should today’s institutions develop and nurture the requisite technical talent within the State to develop - and capture the initial value of - this new form of money. Because essentially, this is a public good, based on public trust. And a lack of understanding is no excuse for allowing what is effectively a ‘criminal’ act to be committed, by a few very smart individuals, much less supported and enforced at societal expense.