I published this video this morning. In it, I argue that cryptocurrencies are nothing of that sort because almost none are ever used to facilitate trade – for which they are wholly unsuited because of their uncertain values. They might just be highly volatile assets. Alternatively, they might best be seen as mechanisms to undermine the state.
The audio version of this video is here.
The transcript is:
Cryptocurrencies aren't currencies. That needs explanation, of course.
I'm worried about crypto. I don't believe in it. I should lay my cards straight on the table because the whole of the crypto market seems to me to be devoid of any meaning, content, purpose, or value. But let me explain why these things are most definitely not currencies.
A currency is used as a medium of exchange between willing participants in a marketplace. I suspect the amount of crypto so-called currency that has been used for this purpose in proportion to the total crypto, whatever you call it, that exists is absolutely minute. Cryptocurrencies are not used for trading.
What I can say for certain, though, are two things. One is that they are not created by a government. And the only way that you can be sure that what you offer in exchange for something else has value is if it is offered by a government who has backed it up with a promise to pay, as is true of almost all the world's major currencies.
And secondly, this money cannot be used to pay tax in almost any country in the world, and therefore it lacks that aspect of being a currency as well.
So, in the sense that these assets, if that is what they are, are anything, it's not currency.
And in fact, anybody who thought they were going to use them for currency would be most incredibly unwise, because the value of crypto goes up and down like a yo-yo. More often than a yo-yo, it in fact seems, because most yo-yos sit lying redundant on toy shelves around the world, whereas crypto is moving all the time, and in entirely volatile ways.
So, this supposed currency has, in fact, got the most incredible rates of inflation and deflation built into it, when compared to the value of other goods and services, to make it wholly unsuited for the task of actually being used for the purpose for which it is given a name.
It's not a currency then, but is it a store of value?
Well, again, I genuinely don't know the answer to that because of course that trading volatility that exists around crypto suggests that this is a speculative asset at best, but a speculative asset that frankly most people don't really understand.
It's created as a consequence of a computer solving a mathematical algorithm - the so-called mining process, which absorbs vast amounts of electricity.
No one knows who does this mining. There are no quoted companies who admit to making profit from this. There are no known companies who in fact engage in this activity. And yet it takes place, we are told.
Who gets that profit? How do they profit? Where do those profits go? That is an enormous mystery.
Is it even an asset? Because is there double entry surrounding its production? If we end up with an asset, a debit, who's got the credit? If we can't answer that question, I'm not even sure that this is as such a meaningful asset in the context of the double-entry bookkeeping that defines all the terms of trade the world over.
But worse than that, there's something more sinister about this still, because we know that this supposed asset is traded through the blockchain. Now, ignore the fact that we know that people lose their blockchain passwords and so on, and therefore are locked out of accounts which supposedly have millions of pounds in them, or they throw their computer away and their purse of crypto assets was on that computer, which is now in a rubbish skip somewhere that they can't find.
Ignore all that dimension, and just say, is it there at all? Because we've seen crypto exchanges fail, and with those failures, well, these assets have disappeared as well.
So, my question is, why are there some people, most especially on the far right of American politics who are so desperately keen to promote crypto as if it is something of immense value? And, my answer is that I can only find one political explanation for crypto, and that is that it undermines the role of the state.
The state is defined by its ability to create money and its consequent ability to impose tax because the two are intimately related, as I have explained in other videos. If you take away the power of the state to create money, and therefore you deny it the right to tax because it can't find the money that somebody else has created or supposedly transacted in, or made profit in, or whatever else, if you take that power away from the state, then does the state continue to function?
We know full well that there are many people on the American far right who have no faith in democracy, no faith in the power of the US Constitution, no faith in the right of, well, government to govern. Are they promoting crypto as the way to undermine the state, just as they're trying to deny funds to the American Internal Revenue Service, its equivalent of HM Revenue and Customs, so that it can't tax?
My belief is that that is possible, and their investment in crypto assets is driven by this desire to create something beyond the state, which they believe will undermine the state, and therefore leave them with power. If that's the reason for crypto, a great many people are being hooked into a ghastly scheme from which we will all lose. And that is my concern about the whole of the crypto bubble.
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I have never been in doubt that crypto currencies are a Ponzi scheme. However the first thing I noticed when I first read technical papers proposing the idea was the vast amount of computing power needed to implement them and the resulting waste of resources. This alone is reason enough to reject them.
Agreed
https://justenergy.com/blog/crypto-energy-consumption-crypto-energy/#:~:text=Of%20course%2C%20crypto%20is%20more,is%20a%20big%20energy%20user.
In particular
Of course, crypto is more than just Bitcoin. The energy consumption of all crypto assets combined is between 0.4% and 0.9% of annual global electricity usage, or 120 and 240 billion kilowatt-hours per year. That’s more energy usage than all the world’s data centers combined. Crypto is a big energy user.
I have little doubt that cryptocurrency is a legacy of neoliberalism; it is first an attempt to privatise currency. Second, I am not sure whether it is intended consciously or unconsciously; or whether they are not just greedy but plain stupid; but the intent of cryptocurrency in effect, if fully successful – is to undermine the function and power of the State.
Period.
Your post on LinkedIn for this seems to have the wrong link ( it goes to your other post about Tories)
I strongly agree with your crypto comments.
The currently seems to be a correlation with bitcoin price and the Nasdaq, which presumably says something but I’m not sure what.
Sorry
I think I posted too early this morning….
I woke with the dawn but did not mean to do so
Getting rid of the state as much as possible maximises the ability to exploit people. Privatising the means for trading also does this as it facilitates extortion. Not a lot different than exploiting a monopoly situation such as the provision of water and sewage treatment services, captive users made to pay for excessive handouts to shareholders. Scammer & Co it would appear want to promote asset tokenisation which uses blockchain processes, see page 19 of Labour’s “Financing Growth: Labour’s Plan For Financial Services”:-
https://labour.org.uk/wp-content/uploads/2024/01/Financing-Growth.pdf
https://hedera.com/learning/tokens/what-is-asset-tokenization
Thanks for your cryptocurrency insights Richard. Cryptos seem to me to be the end product of extreme capitalism; speculation in its purest form. And they bring the immense downside of wasting vast amounts of energy in a resource constrained world. In the past I have thought cryptocurrencies cannot succeed because ultimately governments want to control money and therefore governments will eventually undermine cryptocurrencies. However if (as you point out) governments start to promote cryptocurrencies as the way to undermine the state then maybe they have a (temporary) future as world governance starts to crumble. A very worrying thought indeed. I’m sticking with bricks and mortar.
If you can’t buy any goods and services with “crypto” then surely, by definition, it is not a currency at all because it has no trading value.
However, if you are able to start buying stuff with it then it has a value that is directly related to established currencies like euros, yens , pounds etc. In that situation, it would not be “crypto”.
Or am I missing something?
Tell me what you can but with it except illicit drugs then
And where you can, tell me in how many cases the price quoted is not sterling translated?
But if you can really by illegal drugs with cryptocurrency, surely that alone gives it some sort of “value” in the sense that you can then sell the drugs for euros, yens or pounds and make some sort of profit that can be measured.
I must confess I’m dubious that any respectable drug dealer or manufacturer would accept crypto currency in exchange for his/her product.
So could crypto currency be used as a kind of IOU? “OK, I’ve given you a hundred thousand smackeroonies of crypto currency for your heroin. Now you can’t actually spend any of that in Tesco but there is a mechanism by which you can exchange what I’ve given you for actual money that can buy an equivalent amount of frozen marguerita pizzas in Tesco to the value of the heroin.”
Whichever way I look at it I can’t see how crypto can be both a “currency” (ie it can buy stuff and double the amount can buy twice as much of the stuff) AND “not a currency” (ie its “true value” can’t be defined by standard currency conventions).
“if you are able to start buying stuff with it then it has a value that is directly related to established currencies like euros, yens , pounds etc”.
You phrase is “directly related”; the real point of euros, yens , pounds is that fact that the State stands behind them; in order to have that authority the State has to be the sovereign issuer of its currency, with the capacity to enforce the use of its currency, principally by taxation, and the power to prosecute forgers. They guarantee you can always buy and exchange the currency, as long as the State exists. Who or what stands behind cryptocurrency? Please explain. If you can’t explain authoritatively, you already have your answer.
The very feature that bitcoin fans extoll is the thing that prevents it being a currency. Fixed/ limited supply.
The miracle of fiat money is the creation/destruction of money that keeps prices stable.
Use of bitcoin as a currency would be VERY deflationary.
Here’s the eleven year old essay the Single Transferable Party numpties need to read including a key quote and very much applicable to crypto-currencies as you say Clive:-
https://neweconomicperspectives.org/2013/02/real-dollars-and-funny-money.html#more-4882
“But this just brings us back to the original knot we were trying to untangle, namely: It’s pretty obvious that as we create more and more of these REAL goods and services, we’re going to need more and more dollars in our money-lake—otherwise, one of two things will occur: (a) the dollar value of everything we own will begin to fall precipitously (deflation) because the same number of dollars has to be allocated to more and more stuff; or (b) we’ll have to begin producing FEWER real goods and services to keep prices aligned with the amount of money in the lake. This is called “shooting yourself in the foot,” although it would be more accurate to infer the aim is directed considerably higher.”
Correct
I fully agree with your post and the comments above.
There is already a battle over utility of the money that we have already created by the rich who award more of it to themselves and do not want to pay taxes.
Crypto-currencies will just further put the rich into an unassailable position.
But also, the crypto system seems to be very risky to me when the monetary system is already unstable and requires central banks to make good private losses at public expense.
So, if crypto grows, do state banks have to pick up the tab when there is crypto-crash?
What we see is the inchoate nature of the crypto idea.
The current monetary system for its faults offers offers more order and resolution even to billionaires. And to expect it to bail out two monetary systems when they crash (and whether trad money or crypto, there will be a crash because greed will make it happen) is just asking too much in my view.
Crypto is just another example of how wealth has detached itself from society at large and also how I.T. is so easy to abuse by greed.
I have followed developments in the network marketing/MLM industry since joining Kleeneze (the only one with a proper retail model) in troubled personal financial times (it saved me!).
The latest “programme” is crypto based – and the declared aims are to keep all earnings out of the tax system.
The “dream” of MLM is to make a fortune – and if you can also not pay tax on your fortune then you are in heaven….
I’m watching this monster explode and am not liking what I am seeing….
What is MLM? Sorry to be dim….
MLM stands for Multi Level Marketing – more commonly called Network Marketing in UK.
A poorly understood, often badly misused, marketing system to move products from a manufacturer to the consumer via a network of agents. You get paid on your own sales and those of the team (network) you introduce.
Also known as a personal development programme with a reward programme attached because to be successful challenges you to do things many find hard. Like selling….
With right products it can work really well eg Kleeneze.
This crypto programme sells “shares” in companies that carry out real life activities eg an Uber “clone”, a Zoom “clone” with all transactions done using blockchain and crypto currency.
This is a really good piece on the history and aims of the crypto bros to establish crypto as a new gold standard and why this is becoming such a big issue in the US Election
https://washingtonspectator.org/paranoia-on-parade/ Paranoia on Parade: How Goldbugs, Libertarians and Religious Extremists Brought America to the Brink
A more recent article https://washingtonspectator.org/peter-thiel-and-the-american-apocalypse/
‘A Harris victory is a necessary but insufficient condition to avoid a catastrophe. Biden must act now to provoke Congress to resolve the debt ceiling situation, ideally permanently. A prospective Harris administration must educate itself on the perils of gold-standard revanchism, and understand that cryptocurrencies are neither innovative nor neutral, but rather instruments of warfare which will be used by our adversaries to upend the world order. The system, as they say, is “blinking red,” and if there ever was a “Flight 93 election,” it’s this one. May we have both the wisdom and capacity to intercept these threats before it’s too late.’
So, the promise of crypto is to create another supply of money to overcome the the perceived limits of the existing supply?
It’s like saying ‘You’ve maxxed out your credit card, so here’s another but you’ll have little control over this one and no recourse when we come to collect the bill’.
Yeah right.
Anyone who falls for that must be an idiot. And there are enough of those to go around for sure.
And, if course, if that currency goes pear shaped, I can always supply another one. While there is a limit on the number of “coins” that can be “mined” for a given crypto currency, there is no limit on the number of crypto currencies that might exist.
Yup. They’ve laid the narrative that the Fed’s printing money has caused untold problems – inflation. Hence a bill to close the Fed https://www.lee.senate.gov/2024/6/breaking-the-bank-sen-lee-introduces-bill-to-abolish-the-federal-reserve.
As Troy said in 2022’January 6 or Putin’s war in Ukraine have taught us anything, it’s that even bad ideas likely to end in disaster still have their appeal, and much harm can be wrought in their pursuit. The reactionary quest to restore “hard money” is just as attractive today as it was in 1933, and we should expect that those committed to the cause will try everything in their power—including microtargeted ads, disinformation, insurrection, launching futile wars, capture of the opposition, and purchasing entire social networks262 —to achieve their goal. The time has come to affirm our commitment to democracy over fascism and make serious, informed decisions about the future of money—in the full light of democratic oversight—before any more decisions are made for us through government capture, covert action, or violence.’
Coincidentally, I noticed Musk (a recent important Crypto convert) yesterday starting his econ tutoring on X
‘@elonmusk
The rise in prices (inflation) is caused by government overspending, which increases the amount of money faster than the increase in goods & services output.
That is the vast majority of the problem.
Inflation was particularly bad during the Covid years, as there was massive government spending, despite productivity plunging, as people were forced to stay home.
This is further exacerbated by excess regulation, which prevents the market from solving an unmet need (eg housing in high-demand areas).
Occasionally, there is monopolistic behavior by companies, but this is relatively rare and usually only possible if those companies have gained control of their industry regulator. Again, a government, not private sector, problem.’
Possibly coincidence, don’t want to seem conspiratorial. But don’t think he buys the Joy of Tax!
Your final point about the relationship crypto has to America is interesting. Recently Molly White has been highlighting just how much money cryptocurrency investors have given to political action groups. And some of these donations have been huge, and potentially illegal: https://www.citationneeded.news/coinbase-campaign-finance-violation/
And these donations are going to politicians who want to lessen scrutiny of cryptocurrency.
The entire cryptocurrency space stinks of people who don’t want to follow the rules. People should stay away from it, and it is shocking that governments around the world have allowed companies to trade and deal with what is obviously a scam for as long as they have. It is a technology hyped by grifters that suckers vulnerable people. And just like “the metaverse”, just like many applications of “AI”, there’s not really any innovative technology or even any profitable end goals behind it.
“If you take away the power of the state to create money, and therefore you deny it the right to tax, […] if you take that power away from the state, then does the state continue to function?”
“Saint Peter, don’t you call me, ’cause I can’t go:
I owe my soul to the company store.”
Here, Hayek, is “The Road to Serfdom”.
An important point about the blockchain algorithm is that it represents a(n encrypted) ledger so the computational and energy requirements will increase as new transactions are added over time.
There is also a maximum number of “coins” that can be issued under any given algorithm, for Bitcoin specifically that figure is 21 million:
https://www.kraken.com/learn/how-many-bitcoin-are-there-bitcoin-supply-explained
In respect of the “currency” definition, Richard is not alone in his observations:
https://www.bbc.co.uk/news/business-26478059
https://www.reuters.com/article/us-crypto-currencies-idUSKBN20Q0LK/
https://www.bloomberg.com/view/articles/2017-11-07/are-cryptocurrencies-an-asset-class-yes-and-no
Thanks
It is true about the energy consumption. But this should seen in context of wider energy profligecy – taking your car 2 mins down the road to get a pint of milk is hugely energy intensive but generally we all ignore that.
All the dark data in data centers is hugely energy intensive but again we igonore that.
In the context of energy waste its another wasteful aspect of neoliberal economies alongside other energy waste.
What are you seeking to suggest? That we ignore it? Why?
I am sympathetic to the view Alex Gladstein proposes which is Crypto has a role to play in Global South economies to escape the ravages of the IMF and World bank. Being dependent on western currencies these improvished economies are held to ranson by the western financial system. (Hopefully the BRICS will offer an alternative to the dollar reserve currency in time and crypto may not be necessary).
In the meantime imperfect as it is, it is in its infancy, and offers a glimmer of hope as a potential alternative trading mechanism which could circumvent western economic bullying.
Oh come on…
The problem in the global south is a lack of tax revenues.
You think exacerbating that problem helps?.
Woah there Sanjay!
I’m sure we all appreciate your championing of the unfairness heaped upon the global south and for good reason.
But geopolitical problems should not be solved too hastily.
I’d keep away from Bitcoin etc., if I were you and concentrate on reform and try kicking the Neo-libs out of southern hemisphere governments.
Neo-liberalism Sanjay always begins at home. My honest opinion is that the global south would be swapping a crap system for an even worse and highly private one with even less recourse.
And as for Mr Warren’s observation about world daftness – what was it Zappa said about stupidity?
But again, this show us – the hard lesson – is that in the lack of something else, our worst choices come into being.
This is why we need a Labour Party to be a real Labour Party, not LINO.
Why we need the IMF to be the real IMF and fulfill its original remit along with the World Bank (and that was not to help the U.S. achieve dollar domination as part of its trade as warfare culture).
Richard – I hope your ear gets better.
The doctor has been seen ability the ear this morning: you don’t want to know about it!
As for the IMF and WB, after decades of opposing all they did in the Washington Consensus there are few better champions for redistribution via tax now. Their position is not uniform, but the ‘they’re universally bad’ mantra is naive these days. The evidence I see is that they can play useful roles now, not least on inequality.
You are seeking to replace “western economic bullying”, with an unknown, impenetrable, undiscoverable open season, free-for-all for every crook in the world to exploit the chance never to be found out, on a global scale; with a freedom they have never even dreamed of before.
That’ll work.
The infrastructure that allows cryptocurrencies to be traded is a key weakness in their ecology.
The lack/weakness of formal regulation invites fraudsters who will roll up the shutters and disappear with everyone’s money at the drop of a hat.
Thiel etc have to break out their crypto into the real world to do anything with it. At that point it can be stolen and they have zero recourse if it is.
Also the Hobbesian world they desire is unlikely to be ruled by Crypto Bros. The man with the biggest stick will rule.
Is the whole world now plain daft?
There is a reasonable argument to be made that it is
Your question suggests that it didn’t used to be!
Richard, you questioned what is MLM. This is Multi-level Marketing and many would see it as a form of pyramid selling. It is easy to imagine that it could work well with digital currencies as the risk profile is similar.
https://www.investopedia.com/terms/m/multi-level-marketing.asp
Thanks
This is not the place to argue the point.
But an MLM programme is only a pyramid scheme if the owners design it to be so.
As I said above, the temptation of exponential growth leads to misuse by scheme creators.
A few thoughts provoked by your video and the comments above:
Cryptocurrencies and the blockchain technology are not the same thing, although the former does use the latter. Blockchain is just an encrypted distributed ledger/database. I can’t see its advantages over other forms of secure databases. Crypto is an attempt to own the money supply.
As for tokenisation, that’s just putting the records of who owns what in a blockchain rather than a standard SQL database. Not really a problem, just a waste of effort. We already use databases with digital identifiers/tokens for lots of records eg bank accounts, visas, etc.
And finally I think Weber’s definition of the state, as the entity having a monopoly of violence over a defined geographic area, is more fundamental than currency issuing powers. It’s that monopoly that enables the state to define currency issue, rather than the other way around.
I have no problem with databases, so long as they work
Blockchain is designed to prevent traceability. In other words, it is designed not to work for the purpose of tracing transactions. That is why the far-right like it
[…] Whatever else is claimed about it, crypto is not a currency Funding the Future […]
Coming late to this, I’d observe that it is indeed possible to buy things with cryptocurrency and to impose tax liabilities that can only be settled using cryptocurrency.
As an example of the former, I understand that it is possible to purchase with cryptocurrency, on the “dark web”, lists of phone numbers, email addresses, credit card numbers, etc, collectively amounting to identities, which can then be used in various scams.
As for taxes, we’ve all heard stories about hackers taking control of computer systems, encrypting all their data and offering to release that control in return for payment in some cryptocurrency.
None of this activity is in any sense legitimate, but to deny that it occurs and thus demonstrates that cryptocurrencies are indeed a form of currency is equivalent to the claim that only legal, government-endorsed currencies are currencies.
None of this proves they are currencies because I very strongly suspect the transactions are denominated in dollars and translated into crypto. Crypto is a disguised transmission system. That does not make it a currency.
I’m sorry Richard but with this post you are showing your age. Bitcoin was created as a reaction to the bank baulputs of 2008. It is decentralised, censor resistant unlike government money of which
you are a fan.
Crypto is in its infancy and is a developing technology. Crypto offers alternatives to centralised ledgers which are used in the legacy banking system which are private and not transparent.
Decentralised permission less blockchains use complicated cryptography and mathematics such as zero knowledge proofs which offer secure private ways to store data and prove, for example, example your age and identity without actually showing your ID documents. Cryptos offer much faster ways to transfer value than the legacy banking system which is expensive and slow. I could go on. Stop being so closed minded.
Closed minded to a system that creates no value, delivers a service no one on earth needs, destroys the planet whilst doing so and is beloved of the far right tech billionaires who want to destroy the state and its capacity to tax?
I am not showing my age, unless by offering my wisdom
But you have definitely outed yourself. Few far-right trolls take more than 5 posts to do so. You fitted the norm.