Benjamin Franklin, Revolution & the Real Meaning of Cryptocurrency
Kai has an excellent article critical of block chain. “Ten years in, nobody has come up with a use for blockchain.” It is quite the opposite of its Miseaan/Austrian “scarcity theory” basis. Young people (mostly) are creating money so they can use it. They are creating money to relieve scarcity.
Back in 1726, Benjamin Franklin went into business as a printer — of paper money. He wrote an essay in 1729 praising it. The colonies were hamstrung by lack of currency and money. So, cities, and states issued debt notes. Like English tally sticks, or in the modern world, a check, endorsed over to someone else, these paper debt notes were used as money in the colonies, mostly with great success. This actually fits precisely with modern understanding of money — in the modern world all money is debt. All money originates by the creation of a loan, with the deposit of the loaned amount covering the loan amount.
So, there is an accounting identity between debt and credit balances in the world economy. Among other things, this means that when the deficit is paid down, money someone is using to live and buy things is destroyed…It’s a little known fact that England has not retired debt from its war with the rebel colonies for precisely this reason. British bankers figured it out long ago, and it was key to Britain’s success as an empire that their money supply expanded. In 1764, Britain’s Currency Act banned such money. Ben Franklin later told the British that this was the real reason for the American Revolution.
Look at Bitcoin and ICO’s. The younger generation is chafing at its inability to get funding for what it wants to do. This isn’t just true in the USA: it’s true all over the world- in Africa-in China and in Russia. An ICO is little different than a paper note that Ben Franklin printed for use as colonial money. Cryptocurrency mining is analogous to a printing press for money. The parallel does have differences. In the case of ICOs, it’s more like a stock; it’s not a bond created by a state or government. Creation of money through investor valuations and stock offerings in companies that create value is one of the oldest forms of money creation.
This form of money creation is very ancient. It goes back to the ancient Assyrians. There are tablets that record the discussion of what value an investor would assign to an enterprise. Today, we do these valuations in venture capital rounds. Modern day VCs & CEOs would recognize perfectly what that ancient Assyrian investor was going through in his valuation exercise.
Cryptocurrencies like Bitcoin, Litecoin and many others are more similar to the old colonial money — except that cryptocurrencies are issued by people with no formal allegiance to a government. The idea of cryptocurrencies like Bitcoin was to create a new currency for use by those without allegiances to anything but libertarian commerce. But in the modern world, one of the primary functions of a state is to issue currency. So cryptocurrencies could also be thought of as a kind of declaration of statehood. With that declaration comes responsibilities, if you want others to follow along.
What needs to be looked at for cryptocurrency is how to serve this need for money creation that smart, enterprising (mostly young) and talented people have. You have to hand it to people like Lubin and Buterin. They may not understand all the historical parallels, etc., but what they are doing is virtually the same as what Ben Franklin did in 1726. If a revolution ensued after an attempt to stamp paper money out 38 years later, could the world see something similar with these?
Cryptocurrencies are in a growing pains stage. They can be stabilized by careful redesign. That means that the principals like Lubin and Buterin and others will need to understand money. I think that people like Cameron Winklevoss and Tyler Winklevoss can help play a role in that, along with everyone else who is excited about it.