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By Duncan Whitmore

The recent resurgence of the dollar price of Bitcoin in tandem with a steady decline in that of gold presents us with an opportune moment to assess the quality of cryptocurrencies (CCs) as a potential monetary medium of the future. The question becomes all the more pressing once we remember that the current order of state induced inflationary finance is likely approaching its end, a prime factor in governments seeking to assert greater degrees of control over their populations.

Although this essay will mainly be sceptical of CCs as a monetary medium, we should remember that the primary concern of libertarians is with unshackling monetary control from the state, and, thus, in promoting the freedom of money. This means that the most suitable monetary medium should emerge from voluntary trading in the marketplace, in much the same way as language emerged as a result of individual people trying to communicate. Precisely which commodity/ies will be selected as a result of this process is of secondary importance. There is, therefore, no need for libertarians qua libertarians to be particularly fixated upon, for instance, either gold or the gold standard, as many are wont to do. While gold would be far superior to state fiat money, it is not without disadvantages for the consumer. In particular, the relatively high value of very small quantities of gold makes it less suitable for day-to-day transactions compared to, say, silver or copper. In fact, this circumstance meant that the shift, during the nineteenth century, to the predominance of gold as the monetary medium at the expense of other metals necessitated a much wider use of money substitutes (e.g. bank notes) and the consolidation of the metal itself in bank vaults, well out of the public’s hands. This paved the way to the complete severance of the substitutes from the gold that backed them, leaving us with the 100%, state controlled paper standard from which we suffer today.1 Circumventing this state control is the priority. If this is achieved by CCs rather than by gold or by any other precious metal then no crypto-sceptic libertarian should cut off his nose to spite his face merely because his personally preferred alternative to state fiat money has failed to gain preference.

We can, moreover, dispense with some arguments against CCs which have circulated amongst the Austro-libertarian community since these innovations first emerged around a decade ago.

The first and most ridiculous assertion is that, being intangible, a CC “cannot have value”. The intangible nature of CCs may have relevance to their suitability as a widely accepted medium of exchange, but it doesn’t prevent them from having value per se. It is true that value must be realised by physical goods but no physical commodity on Earth actually has any direct value. Rather, it is valued for the service that it delivers. An apple, for instance, is valued not for its physical, molecular arrangement but because of the way your brain produces a pleasant taste sensation from contact of the fruit’s flesh with your tongue, in addition to the intangible health and nutritional benefits derived from digestion. Similarly, a ride in a taxi has value yet you never take ownership of the physical infrastructure that produces the journey. Moreover, increased scarcity – induced either naturally or artificially – will serve to raise this value. For instance, it is well known that the restricted number of New York City’s taxi licences raises the price of fares. Similarly, too, therefore, it is quite possible for an intangible CC to have value for the service it delivers, and for the value of that service to be increased by the inbuilt restriction on the number of “crypto-coins” that can be “mined” or otherwise produced.

The leads onto the more sophisticated argument that a medium of exchange cannot have its value created ex nihilo. Let’s say, for instance, I was to start minting my own currency called “Whitcoins” and I took these “Whitcoins” along to the supermarket in order to buy a loaf of bread. How would the checkout supervisor know what a “Whitcoin” was worth in relation to the bread? Would I need to spend just 1 of them? 10? 100? 1,000? And why?2

This question cannot be answered unless the value of the monetary medium is derived from one of two sources. First, this could be the value of a previous monetary medium. This is the case with our paper monies today, all of which derived their values from those of the precious metals which they once represented. Second – the famous “regression theorem” of Ludwig von Mises3 – the value could derive from that of the original, non-monetary uses of the commodity. Gold, for instance, was traded for use in jewellery and decoration long before its use as money, and so this prior value provided it with a springboard from which it could be valued as a medium of exchange.

On the face of it, CCs – like “Whitcoins” – seem to fall into neither of these two categories. As far as we can tell they have always traded independently of existing monetary media yet neither do they seem to have had any prior, non monetary uses which lent them an extant value. Where the value of CCs derives from is, therefore, something of a mystery from an “Austrian” perspective.

A full resolution of this problem is a task for economic historians. I mention it only because it would be a mistake to conclude from the conundrum that we can just “wish” the value of CCs away as being incompatible with theory. CCs clearly do have value, and so, without reason to doubt the theory, the sensible conclusion is that CCs at some point satisfied the theory, not that CCs in some way attained an “impossible” value. My own supposition is that when the first bitcoin was exchanged either for dollars or for goods and services, owing to the fact that the monetary medium is inherently entangled with (and inseparable from) the underlying technology providing storage, transactions and ledgering, what the purchaser valued was the service provided by this unique bundle of technology as a whole.4 Subsequently, the inbuilt scarcity represented by the upper limit on the number of bitcoins that can exist then served to enhance the value of those services over time. But whatever the answer, we have to deal with CCs as they are, not as we think they should be.

It is also possible – in principle – for anything, tangible or intangible, to serve as money. There will, of course, be reasons why certain commodities become more popular as media of exchange ahead of others over time, and we can usually specify what these are likely to be. But there is nothing to stop people from actually accepting a seemingly “unsuitable” medium if they wanted to – or, at least, we can say that a change in the precise circumstances may mean that a previously less suitable medium suddenly becomes more appropriate. Throughout history, all sorts of commodities have been used as money at one point or another – rice, salt, peppercorns, stones, shells, alcohol, cigarettes, even cattle. Indeed, people could, conceivably, trade rights to rides in a taxi. Any speculation on the actual commodity which will result as the monetary medium is therefore a judgment dependent upon the particular context, not a rule or law that can be wholly derived a priori.5

Related to this is that we will make only a limited judgment as to how CCs may fare not in the free market but in the market hampered by the state. In the same way that the artificial and controlled environment of the prison has led to cigarettes becoming the most suitable monetary commodity within the confines of the prison walls, so too could the state’s future interference into the wider economy distort the incentives towards particular monetary media. For instance, the state could outlaw Bitcoin tomorrow, or it could outlaw gold; it could outlaw both; it could try and put punitive taxes or regulations on one or the other; or it could leave either relatively free. These endeavours may be relatively successful, or they may fail. If a particular monetary medium ends up “flourishing” ahead of another in an environment in which the state has (either intentionally or inadvertently) tilted the playing field in its favour, such a “victory” would be wholly confined to the particular circumstances. This does not mean that we will ignore the question of whether CC, in comparison to an alternative such as gold, is likely to offer better protection of one’s wealth from state control in general. It simply means that any judgment in this regard may be circumscribed by the particular types of interference that the state chooses to adopt.

We should also seek to dismiss any complaints made about the cost of operating the CC infrastructure, whether this is made in terms of the physical infrastructure used and/or the quantities of energy consumed. Neither the existence nor height of a cost alone is sufficient to criticise an action; rather, what matters is whether the utility produced as result is sufficiently high to compensate the actor for the cost. If users and operators of CC are willing to bear these costs then so be it. In fact, we should remember that the same arguments concerning costs were made against the gold standard: just why should we go to all the trouble and expense of digging up shiny rocks from the ground before re-burying them in steel vaults where their only purpose is to sit and be guarded for twenty four hours a day? After nearly fifty years of pure, paper money we can see why such costs are, indeed, worth it.

With these preliminary remarks out of the way, there are several reasons for being sceptical of the chances of CCs fulfilling a role as a suitable monetary medium when compared to available alternatives. To pre-empt some possible counterarguments, it should be remembered that our concern here is with the chances of CC becoming money. In order to do this CC must become not just a medium of exchange that is accepted by a limited circle of people. Rather, it has to become the generally accepted medium of exchange – the most marketable commodity in the entire economy. If, therefore, CC is to be considered as money, the hurdle it has to jump is that it must equal or exceed the marketability of alternative media. Should it fail, we can fully accept that CC may continue to have a role that falls short of money, delivering utility to the relatively smaller group of people who choose to use it. Thus, whether CC can or does sustain itself in some limited form is not relevant.

Intangibility and Property Rights

While the intangible nature of CCs does not, as we mentioned, prevent them from being used as a medium of exchange, it does raise questions as to whether people will view the security of their monetary holdings in CC as being competitive with that of alternative, physical media.

Any ends which an individual wishes to accomplish in this world must be done so with physical goods. If I want to satiate my hunger then I have to take, say, physical bread, physical ham and physical tomatoes before making them into a physical sandwich which I then move, physically, into my mouth. Even things which we define as being intangible – ideas, stories, concepts etc. – must be dealt with via the movement of physical matter. If I want to enjoy a story, I either have to read it from a physical book or a physical screen, or someone must tell it to me with his physical mouth. Even our intangible thoughts require the sustained existence and health of our physical brains.

Securing your ability to meet your ends is, therefore, dependent upon being able to fulfil two requirements. First, you must be able to identify the physical matter that will fulfil the end in question; second, you have to be able to explain how you can exert control over this physical matter to the exclusion of others who may wish to use it for alternative ends. In short, what is the object that will do what you want, and how do you get it to do what you want? For instance, if I am hungry I can point to a physical sandwich in my fridge that will fulfil the end of satiating my hunger. I can then explain how my control over this sandwich is assured not only by the fact that it is in my direct possession but also that any attempt to steal it is – in addition to whatever methods of private defence I have adopted – punishable by the legal system. The same is true also of a unit of physical cash or of physical gold.

With CCs, these questions are much more difficult to answer. What we would normally consider to be the physical matter – the monetary medium, the “wallet”, and so on – are all intangible. The actual physical infrastructure consists instead of a decentralised network of computer servers, wires, electricity generators, etc. which keeps the CC system operable. What rights and what control do you have over any of this infrastructure in order to ensure that it will continue to serve your needs?

A typical debate concerning this question could go something like this:

The crypto-advocate may respond by pointing out that the CC system provides inbuilt incentives to the so-called “miners” in order to keep it operating. Further, the decentralised nature of the system makes it difficult to interfere with the operation of any one party involved, whether this comes from voluntary retirement, government confiscation or accident of nature. Thus, the continued operation of CC by at least somebody is reasonably well assured.

However, a crypto-sceptic could then reply that this argument appears to be circular: the incentives to keep operating the infrastructure rely largely upon CCs having value, which, in turn, is dependent upon a wide number of people accepting them as media of exchange. But people will only use them as media of exchange if they feel that their ability to use it is secure, which is largely dependent upon the sustained operation of the infrastructure.

Not to be outdone, the crypto-advocate would be perfectly correct in saying that this circularity does not necessarily mean that sustained CC operation is impossible. In fact, we find this kind of circularity all the time. Do people, for instance, choose to live where there are schools and shops, or do schools and shops set up near where people live? Similarly, does holding gold provide security because people accept it in exchange, or do people accept it in exchange because it provides security? Neither factor necessarily causes the other but they eventually enter a mutually sustaining relationship. Indeed, every economic decision made in the exchange economy is predicated upon the belief that other people will behave in a certain way, a belief that no one can guarantee will be fulfilled. This fact applies, for instance, to gold, to steel, to iron, to cars, to furniture and to food as much as it does to CC.

As interesting as it may be, this kind of debate is actually missing the point for our purposes here. We are not denying that gold or any other physical commodity is subject to similar kinds of market uncertainty that would be faced by CC. Rather, the difference with CC compared to a physical commodity is that CC is likely to possess a greater degree of uncertainty as a result of the inherent disconnection of the individual user, both physically and legally, from the goods that operate the CC. In short, I do not need another person or their property to sustain the existence of a gold coin in my hand, but I do need other people and their property to sustain just the mere existence of a CC. Thus, this factor may well be a stumbling block towards CC becoming more marketable (and, thus, more generally accepted) than physically identifiable and possess-able units of a physical monetary commodity. Indeed, it takes some ingenuity to understand how the existence of the most marketable of all goods is to be utterly reliant upon necessarily less marketable goods that are under the control and legal ownership of other people.

Counterparty Risk

This leads onto the second issue which is usually promoted as one of CC’s main advantages – the reduction of counterparty risk in making electronic transactions.

With conventional electronic payments you are obviously not sending physical banknotes (or physical ounces of gold) down the wires. Rather, the physical money is entrusted to your bank which acts as a custodian. Your bank has a legal liability to return the physical money to you on demand (or upon whatever terms agreed). Thus, if Peter wants to pay Paul £10 electronically he is not actually making a payment of money as such at all; instead, he is sending an instruction to his bank to transfer its liability to pay £10 to him (Peter) over to Paul, so that the bank now owes Paul £10 and not Peter. This is recorded as a debit of £10 to Peter’s account with the bank, and as a corresponding credit of £10 to Paul’s account with the bank.6 Thus, what is really being traded between Peter and Paul is not money as such but “IOUs” from the bank. The same is true with debit cards, credit cards and with older, non-electronic forms of payment such as cheques.

The risk to these methods of payment is that the bank could default and the actual money will be lost. More comprehensively, any funds that are kept within the cartelised, fractional reserve banking system are at the mercy of the state, with suspension of withdrawal, negative interest rates or the conversion of account balances in order to “bail-in” failing institutions all a possibility. So too could gold be confiscated from bank vaults. With CC this is not necessarily the case because the actual string of electronically produced data that executes the transaction is itself the monetary medium. Indeed, it’s possible to “store” CCs on specific items of hardware, the digital equivalent of a leather wallet containing banknotes. Monetary units can be transferred directly down the wires to another CC user without the needs of an intermediary.7

While this may reduce or eliminate the risk of custodians, it does not – as should be clear from what we said earlier – eliminate the risk of other counterparties in the process. In order to manage your crypto-assets you are reliant upon a smartphone or computer manufacturer to sell you a device at a price you are willing to pay; you need energy producers to provide electricity to power the device; you need internet service providers to furnish you with an internet connection; and these suppliers are, in turn, reliant upon all of their suppliers continuing to provide a service to them. Any or all of these could fail to fulfil their obligations to you or, at least in principle, refuse to contract with you to provide you with the required service. True enough, these risks exist for mainstream forms of electronic payment also. But for small, face-to-face transactions that are currently made with physical cash, CC would actually introduce a greater degree of counterparty risk.

A possible response to this – similar to that made to the previous issue of intangibility – is that it is highly unlikely that absolutely every available provider of these services would refuse to offer you supply and/or would fail to fulfil their obligations.8 In fact, when we put it like this, we can see that counterparty risk is actually an inherent feature of the market economy. In transactions where the two halves of the exchange are not contemporaneous, there is always the risk that the other party will fail to fulfil his part of the bargain after you have fulfilled yours. Yes, the legal system should act to protect your rights, but recovery may be unavailable if the debtor is insolvent, has absconded, or if enforcement is simply too costly. More generally, each and every one of us is utterly reliant upon other people to produce and sell to us 99% of everything that we need to live our lives – our food, our clothing, our electricity, our cars, our entertainment and so on – and, in principle, any number of them could suddenly refuse to offer you a service. The reason they do not, of course, is that the incalculable benefits of the division of labour and the market economy are mutually desired, and there is a greater incentive for everyone to continue to participate than it is for them to retire and live as hermits.

The problem with this response, however, is that it proves too much. If bearing this risk is tolerable for all of these other services in the economy – internet, electricity, etc. – then why is it not satisfactory for custodians? If we needn’t worry too much about these other counterparties failing to fulfil their obligations to us then why do we worry about those who care for our money?

In fact, the role of custodian itself is an attempt to reduce counterparty risk. Recall, for instance, our example earlier when Peter electronically transferred to Paul a £10 IOU from the bank. Why could Peter not simply write Paul his own IOU and hand that IOU over to Paul, so that Paul now held an IOU from Peter rather than an IOU from the bank? Why, moreover, can Paul not walk into a shop and trade his IOU from Peter for real goods and services, whereas he can do so with IOUs from the bank (credit and debit cards, cheques etc.)? The reason is that obligations owed to you by banks are considered to be more trustworthy than obligations owed to you by private parties and individuals. Some of this trust, of course, is bolstered by government guarantees or deposit insurance schemes. In a free market, such a guarantee would come – in addition to the bank’s established reputation – from the maintenance of full (rather than fractional) reserves, the security of the vaulting facilities, independent audits, escrow services, private insurance for loss or theft of the monetary media under care, etc.

Moreover, it is not as if people are unable to resort to existing mechanisms with which to reduce counterparty risk. First of these is diversification. Even if CC does become a dominant monetary medium, it is not very likely that everyone will keep all of their wealth in one form with one custodian in one jurisdiction, particularly if they have a lot to lose. Rather they are likely to own a mixture of liquid CC, gold and precious metals, shares, bonds, and property/real estate under the care of various custodians in a variety of jurisdictions. Second, assets in the care of a custodian could be insured. And third, the risk of default is itself priced on the market. This is most obvious with interest rates charged on loans. Borrowers with higher creditworthiness (i.e. with a lower risk of default) will pay less in interest to borrow the same amount than a borrower who is more likely to default. The differential serves as compensation to the lender for bearing the increased risk that the loan will have to be written off. With goods and services, it is more likely that people will trust a large, established company such as Amazon to deliver goods that they have paid for. In contrast, customers may be unwilling to trust a start-up competitor to deliver the same good unless the start-up is prepared to offer a discounted price that would compensate the purchaser for the perceived increase in the risk of default. In fact, the risk of default is something that you must consider with every single purchase – including those made upfront if you factor in the possibility that a good may later prove to be faulty or defective – when judging whether the price of the good or service is justified.

When it comes to money, legal tender laws and other restrictions have all but abolished price differentials between methods of payment, although it is sometimes still seen with extra charges for card processing, and we all know that payments in cash – in spite of government efforts to restrict them – can be rewarded with a discount if the vendor has a preference for financial privacy. However, back in the days when money consisted of specie, it was not unusual for bank notes and other money substitutes (i.e. IOUs to specie warehoused in specific bank vaults) to trade at a discount depending upon the perceived health of the issuing institution – sometimes dramatically so if the latter didn’t know when to turn off the printing press. The paper Continental Dollar, for instance, was first issued in 1775 to finance the American Revolutionary War with the intention that it would be redeemable in specie at par. However, amongst other problems over the following years, excessive issuance eroded trust in the Continentals, leading to their rapid depreciation to just 1% of the value of a specie dollar by 1780. In other words, 100 or more Continental dollars was needed to purchase what could be bought with just 1 specie dollar – hence the phrase “not worth a Continental”.

Such potential variations in purchasing power may well return in a free market for money, providing discipline for custodians to align themselves with the standard of counterparty risk that the market is willing to bear. If a custodian’s IOUs cannot maintain purchasing power parity with those of competitors then this means that depositors are de facto being robbed of the full value of their deposits. Try to imagine, for instance, that Barclays – for whatever reason – started to lose its reputation as a secure and trustworthy custodian, i.e. the risk of Barclays failing to return your physical money was perceived to be higher than with, say, HSBC. To compensate merchants for the increased risk, customers using Barclays debit cards – i.e. IOUs from Barclays – might have to pay £105 for a good whereas those using HSBC might have to pay only £100 for the same good. If this was the case then Barclays will start to haemorrhage customers to other institutions who can offer a more secure service until Barclays can restore public trust in its own ability.

Counterparty risk with custodians may prove to be a more pressing problem if they become subject to government pressure. Particularly within a single jurisdiction, this is a risk that may not be mitigated simply by switching providers. Here, CCs may prove to be at an advantage, especially as governments have a track record of confiscating gold. However, states are able to exert an extensive degree of control over internet access and electricity supply, with much of this infrastructure under their direct ownership and control, while a whole lot more (operating systems, app stores, web hosting) can be controlled indirectly through tech giants. We shouldn’t dismiss the possibility that the state will want to use this control to circumscribe the use of CCs, a factor which may serve to mitigate the resilience of the latter against state interference. In fact, it’s difficult to rule out the possibility that states may go to extraordinary lengths to suppress CC such as heavily restricting internet access and electricity supply. Anyone who believes that the government will never attempt the absurd has been paying little attention for the past twelve months.

However, regardless of whatever the state does, the general risk of power failure rendering all electronic goods inoperable (and cutting off access to the internet) is a serious drawback for CC. Here, no one would be able to pay with or receive CCs at a time when you mostly likely need to buy basic goods and services, possibly – in a worst case scenario – as a matter of survival. A medium of exchange is more likely to become generally accepted if it protects against more uncertainties than an alternative, and so a physical medium that would be undisturbed by loss of electrical power is likely to be superior. Indeed, one of the likely requirements of money is that it must remain accessible through every reasonably envisaged scenario. Of course, people could keep a stash of gold or other precious metals solely for use in emergencies. But if they have to do that why wouldn’t they just use it for everything?

If CC successfully removes custodians from the electronic payment process we are not, to be clear, suggesting that this is a pointless innovation. In fact, I am quite prepared to say that it is an astonishing innovation. The question is whether it is likely to be competitive. If the extent of counterparty risk as a problem has been exaggerated, and the solution offered by CCs furnishes only a modest benefit compared to alternatives (particularly once you factor in the additional uncertainties that CC operation introduces), then the chances of CC becoming a generally accepted medium of exchange will be diminished.

Technological Evolution and Market Risk

One of the factors that helps a medium of exchange towards becoming generally accepted as money is how well it can be insulated from the kinds of uncertainty that are experienced in the wider market. For instance, it is more likely that one of your favourite high street shops will be put out of business by, say, Amazon, than it is for the pound to be unseated as money by some rival. We can expect that this year’s latest smartphone will be exceeded, technologically, by next years, rendering the former less desirable; but in thousands of years of using precious metals no one has yet stumbled across the philosopher’s stone and learnt the ability to turn base metals into gold, driving it to worthlessness (and if they had we could expect that this ability would apply to other goods as well, largely solving the problem of scarcity and thus rendering money without much purpose).

This does not mean to say that a specific monetary commodity is entirely protected from competition, as we can see from that fact that numerous commodities have served the function at different times; silver and gold in particular have often vied with each other in this regard. Moreover, technological innovation may one day enable us to access the many of millions of tons of precious metal that exist as tiny quantities in sea water, thus reducing the value of existing holdings. The point is that a commodity which is subject to a much narrower range of reasonably expected competitive pressures than other market phenomena is likely to be the most attractive as a monetary medium. Indeed, this relatively degree of stability is essential for fulfilling many of money’s critical functions: as a “store” of value, as a unit of account, and, indeed, as a hedge against those wider uncertainties of the marketplace.

The technological aspects of CC are enough to raise doubt as to whether this applies, convincingly, to CC. One immediate problem that springs to mind is that, while any one CC may place an upper limit on the number of currency units that can be created, there is no conceivable limit to CC as a whole, nor to the services which they provide. Indeed, as at the time of writing, there are some 1,800 CCs in existence. Which of these is going to flourish and which of them will founder? True enough, of course, my introduction of a crypto “Whitcoin” would be just as unlikely to demolish Bitcoin as an online startup is to bring down Amazon. But all big market behemoths eventually end up getting overthrown by rivals that began life as tiny acorns amongst giant oaks. This seems to be especially true in the field of computing and digital technology, which is already littered with the epitaphs of companies which, a generation ago, were considered as pioneers and market leaders.

Again, to be clear, there may well be compelling reasons why certain CCs are unlikely to be unseated by rivals or made obsolete by future technology. But the relevant question here is: are people likely to view a particular CC as being more future-proofed than gold or other physical monetary media? If not, then it is unlikely that such a CC will be generally accepted as money ahead of such alternatives.

There is also the possibility that governments may one day find a technological method of disrupting or otherwise usurping CC operations. We know already that central banks are proposing to issue their own form of digital currencies, with some of these projects now coming to fruition. In fact, it wouldn’t be at all surprising if states view ‘libertarian’ operators and users of private CC as somewhat useful idiots, developing and acclimatising themselves to a new technology which will make it easier for the state to nudge in with its own version. At the very least, the fact that states have a long history of hoarding precious metals (and going to great lengths to suppress their dollar prices) while remaining comparatively sanguine about CC should at least raise an eyebrow.

On a more general note in this regard, one senses a casual assumption amongst CC supporters that the future will be characterised by the digitisation of increasing aspects of everyday life. But is this necessarily the case? True enough, the past two decades or so have shown an incredible pace in the development of more and better technology, but this alone is no reason to conclude that it is set to continue. As many a market crash has demonstrated, a trend sometimes looks most unstoppable right at the point when it is actually blowing off the last ounce of steam.9 Up until now, the siren song of convenience has resulted in relatively passive acceptance of more technological innovation, but the issues of privacy, security, and social atomisation have been steadily catching up with us. As these questions become louder there may well come a point at which people simply say “enough!”, either slowing the pace of progress and/or returning to “older” or more “manual” ways of doing things. Indeed, in spite of the availability of cheaper and easier digital alternatives, media such as printed books and vinyl records are either failing to fade or growing in popularity, with young people – those whom we would most expect to lead us into a future addicted to touch screens and ear pods – often leading this charge. Could this desire to reconnect with tangible possessions lead to a renaissance of enthusiasm for handling Gold Sovereigns and Krugerrands?

This question comes into sharper focus when we consider that governments are seeking to ramp up the use of digital technology as tools of surveillance and control. Once unthinkable measures such as vaccine passports – the segue into digital ID cards and social credit systems – have become a reality in a little under a year. Should this coming technocracy accelerate too quickly and too obviously – a likelihood given that the faltering COVID narrative provides only a short window of opportunity for it to lay its groundwork – it would not be surprising if public distrust of technology and a preference for more “offline” ways of living were to blossom as a reaction. Thus, instead of a technocratic dystopia, today’s young and middle aged may well find that their near future will be characterised by relative technological austerity.

At the very least, champions of freedom have a duty to assess how much of the fight for liberty can be won by embracing technology on the one hand, and how much can be won by decoupling from and rejecting it on the other. We cannot just blindly assume that the former is the most effective and/or inevitable.


Most of the doubts as to the chances of CC becoming a monetary medium that have been raised in this essay are united by a common theme that is actually relatively simple to understand.

It is obvious that an economy with no money, relying solely on barter, can sustain only a very narrow division of labour within small communities, possibly between just a handful of intimately acquainted families. Thus, not only will limited economic progress be achievable, but such an economy is likely to rely heavily on consistency and repetition in order to operate at all. Money is needed in order to expand the possibilities of innovation, specialisation and trade, and to extend the division of labour ultimately across the entire world. Money, therefore, has to pre-exist a complex economy, or – to put it another way – a complex economy has to presuppose the existence of money. This was possible with gold and other precious metals. While the current extent of economic prosperity has enhanced our abilities in terms of extraction and refinement of these metals, they were available in some form from the very beginning. Indeed, when we recall our earlier list of commodities that have served as money – rice, salt, peppercorns, stones, shells, alcohol, cigarettes, cattle – what we notice about most of them is that they are basic goods.

CCs, however, can be introduced only once a highly extensive division of labour and an advanced degree of economic progress have been accomplished. In other words, CCs as money are reliant upon the very thing that money is supposed to enable. Consequently, CCs are more susceptible to disturbances in either the extent or form of the division of labour and economic progress than precious metals are. It is this factor which results in their use being fraught with a greater degree of uncertainty, and is likely to weigh in as a considerable disadvantage – more so once when we remember that we are now living in an era when states have accumulated power and ideological drives that are more likely to destroy our current level of prosperity than to advance it.

However, to end on an optimistic note, we should be thankful that many of those putting their faith in CCs as the future of money do so because of their eagerness to wrest the control of money from the hands of the state. As we noted recently, the freedom of money has been one of the most neglected of all freedoms, yet its erosion has been critical in the enablement of state power and control. If the mere existence of CCs causes people to turn their attention to the question of money and to the pondering of alternatives to our existing monetary order, that alone would count as their great achievement.

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1Jörg Guido Hülsmann, The Ethics of Money Production, Ludwig von Mises Institute (2008), 213.

2I am, of course, ignoring the value of whichever material the “Whitcoin” would be minted from or printed on.

3Ludwig von Mises, The Theory of Money and Credit, Ludwig von Mises Institute (2009), 109-111. Cf. Idem, Human Action: A Treatise on Economics, The Scholars’ Edition, Ludwig von Mises Institute (1998), 405-7.

4Jeffrey Tucker holds this view also.

5This seems to be Mises’ view also:

The gold standard is certainly not a perfect or ideal standard. There is no such thing as perfection in human things. But nobody is in a position to tell us how something more satisfactory could be put in place of the gold standard.


It may happen one day that technology will discover a method of enlarging the supply of gold at such a low cost that gold will become useless for the monetary service. Then people will have to replace the gold standard by another standard. It is futile to bother today about the way in which this problem will be solved. We do not know anything about the conditions under which the decision will have to be made.

See Human Action, 470, 473.

6If Peter and Paul bank at different institutions then the banks will handle the transfer of liabilities between themselves via a clearing system.

7This is not to imply that all methods of dealing with CC avoid the use of third parties. CC exchanges, for example, can hold CC on the behalf of clients, and have fallen victim to a number of hacks and losses.

8Indeed, I’ve made this kind of argument myself when challenging the alleged necessity of “free movement” provisos – so called “rights” designed to overcome the possibility that, in a libertarian legal order, every single landowner could, in principle, refuse to offer you passage over their land and, thus, effectively imprison you on your own little plot. It has to be remembered that rights are only necessary when people demand the security that is afforded by a formal title. If people believe that sufficient security is provided by the general marketplace then rights are superfluous.

9In fact, it is telling that the recent surges in the price of Bitcoin were induced largely by the endorsement of tech magnate Elon Musk, conveniently enough after his firm Tesla invested $1.5bn in the CC. How much are these surges – many of which will, of course, be driven by speculators – hanging on the words of Musk’s tweets rather than upon wider, popular demand?

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