You want to be famous, well-known or widely known for something good; or if not for something that's especially good, at least for something you want to be known for (unless its something bad). You really don't want to be infamous, well-known or widely known for something bad, as infamy will haunt you no matter where you go from there. Also, being infamous puts you at risk of getting stricken from the history books for being so, which defeats the whole purpose you had in doing something bad in the first place, namely, being well-known now or widely remembered later.
In the middle of these two, there is the status, one which does not have its own name, of being well or widely known for something you really do not want to be known for, but yet where you are willing to put up with such a state anyway because of special circumstances. And the reason to have this willingness is that it may turn out that by being in this state, it could happen over time that you will be known for something you want to be known for, and so are willing now to put up with some unappealing images until you get there later. In other words, it may be a good idea to tolerate this state as it may make you famous some day, just as you want.
This may remind you of the story of Michael Milken, who was a top expert in the business of high-yield corporate bonds. These are generally fine and good things in themselves, and it is an entirely legitimate business to be dealing with them. But a problem that Milken ran into with them was that one day, in doing his business, someone complained about having to deal in these bonds and said something to effect that they were hard to sell because they looked just like junk. And so it came to pass that the class of high-yield corporate bonds were called by the name "junk bonds" even though most of them were nothing like any sort of junk. Generally, you don't really want to be known as the dealer of any sort of junk unless you revel in the scrap metal business, but that is not something that most Wall Street-types want to incline to. Nonetheless, it turned out that the junk bond market became a hot place to be for some time, and this was partly because of the popular and widely known associations with that name, and so people in the business of junk bonds were willing to put with the name and any negative associations that came with it at the same time.
Something similar to this unappealing name association can be found in the business of cryptocurrencies. For something to be called by the name of "crypto" does not automatically evoke great excitement, and may even generate immediate suspicion or aversion. Some people will associate this name with crypts, as in a place where there are dead people, which isn't very appealing, as it is not a place where they want to be. Some people may associate this name with cryptography and cryptanalysis, which are, respectively, the making of and breaking of secret codes, and of course will think that, being wrapped up in secrecy, it necessarily involves some kind of nefarious behavior at least somewhere along the line.
However the cryptocurrency name is sourced, whether there was any intention to foist on the business of them some strange or negative connotation, it also turns out that the name will be a case of a non-ideal image that is unique and distinctive enough that it is probably worth keeping. At the very least, this is a name that makes it sound interesting and novel.
A cryptocurrency is just an alternative currency, alternative to standard national currencies, specifically designed for use in digital spaces, applications, and contexts. To help in clarifying this concept, there are two things to note: First, it is best to lump all usual and standard currencies into the category of national currencies, even though some like the Euro are not (instead being international), and this is to mean a currency issued by, recognized by, and used by some national government. Governments use their national currency to pay for what they buy and they expect you to pay them in it for what they want from you (like taxes). Second, a currency of whatever kind is just no more than a particular unitary expression of money. In other words, there is money out there in the world, and there are many currencies floating around that embody it, and they do so in defined amounts or units.
There are a number of different general types of cryptocurrencies, and these types are very different from each other, so much so that they are almost incommensurable. The fact that there are very different types confuses the whole situation immensely, so there will have to be a breakdown of the different types for analysis. But all cryptocurrencies regardless of type have some characteristics in common, which include:
(a) They are entirely digital rather than physical.
For something to be digital is no big deal anymore; the whole entirety of the content of the internet is digital. For some money to be digital is no big deal either; a high percentage of the US dollar supply is not physical at all, not being in the form of printed bills or metal coins as they circulate around. But the deal with cryptocurrencies is that they have no physical expression at all, and this lack of physical expression is supposed to give them unique and useful characteristics.
(b) They have an inherent recording system for ownership records.
With national currencies, you or someone else has to prove that what is yours is actually yours. You either have to have it in hand or you have to have someone else, like a bank, attest that its in your name. But imagine a situation where this was different: Suppose that every time someone paid you one dollar, your name was automatically written on that dollar, showing that it is yours, and putting you into a position where you did not have to do anything to prove that it was yours, since it already says it. And when you paid that dollar to another, their name was then written after yours, and so on, in a recorded chain of ownership. This is how cryptocurrencies are set up to work, with inherent recording replacing the need for any third-party between the two parties doing some transaction. (Now one wrinkle to this whole method is that what is being written on the cryptocurrency is not a name but a location that owns it, so it is actually not a person who owns them but a location, which is a system that can have some difficult implications; but never mind that for now.)
Now consider major types of cryptocurrencies, and how they are supposed to work and be useful.
(A) Alternative general purpose exchange currencies
Review how we use the standard national currencies that are out there. Except when bartering, we exchange our goods, services, and labor to others in return for currency, which we understand to be for general exchange use. This means that this currency is the sort of thing that is accepted within our society as something that is used to buy things, and a wide variety of such things, from others. Overall that means that we exchange our goods, services, and labor for other goods, services, and labor through an intermediary stage of money expressed in a currency. Note that the difference between this system and bartering is simply that the latter does not have this intermediary money stage, though all other features of exchange still hold.
A cryptocurrency that is an alternative general purpose exchange currency is designed to do all that a national currency does and it functions in the same way. Its just that, in addition to the standard hallmarks noted above, it is something whose origin and range are different from any national currency. Such an alternative currency is designed to be non-national rather than national, which is to say that it is not issued by or controlled by any government. And it is possible to go a bit farther than that and say that it is not just non-national but extra-national, and this in the sense that the society that accepts and uses it is a vaguely defined population that spreads across national boundaries.
Now of course there is an obvious question to ask about this type of cryptocurrency, and that is the question as to why anyone would want to have and use such a thing. One obvious motivating idea derives from the very nature of cryptocurrency itself, being entirely digital and self-recording. The use of a currency with these characteristics has the potential to make a wide variety of transactions faster, easier, and cheaper, and make some transactions possible that were not before. It doesn't necessarily do this in every possible case, but certainly can in some circumstances. As a parallel case in point, the basic idea behind this type of cryptocurrency is an extension of the idea of the Euro: This was introduced as a multi-national currency to make continent-wide transactions easier and smoother.
Another motivating idea behind this type of cryptocurrency is that it makes it possible to have and use a currency that is not controlled by any particular national government. On a superficial level that includes the idea that no government is telling people how to use it or where to use it, or applying other such constraints like that. On a more detailed level, that is also supposed to mean that the money supply expressed in that currency is not controlled by any government, money supply being the total amount of it in circulation.
This concern about government controlling money supply is motivated at the very least by negative historical events. The fundamental problem with national currencies is not exactly that their money supply is controlled by national governments. The real problem with them is that their money supply can be controlled by governments arbitrarily. In other words, money supply should be determined by economic factors, but many times governments override those factors and just ramp up the presses just to have more on hand, which introduces more into the economy without any economic basis for that. And this is a feature of national currencies that has caused many and serious problems through economic history.
To flip to the other side of the coin so to speak, there are a number of objections against the whole idea of this type of cryptocurrency.
(1) First of all consider a superficial objection that actually turns out not to be a problem at all: A fundamental problem with any alternative general purpose cryptocurrency is that, from its very nature of not being a national currency, recognized by some national government, it does not have any inherent or intrinsic value. National currencies are supposed to have some underlying value, and so are always going to be the right things to use in exchange; any alternative that is not like this will always be empty of value.
Now the obvious thing to say in response to this objection is very simple: No national currency of any kind any where is backed by any commodity, or defined as being some amount of any commodity, or representative of any physical thing. This of course means that no national currency has any inherent value, value in and of itself. So it cannot be an objection to an alternative currency that it has no inherent value, since none at all do. We can actually go further than this by pointing out that no national government guarantees the value of its currency over time, against other currencies or against itself, so lack of a guarantee of value cannot be an objection either. As a matter of fact, it is actually the policy of many national governments to actively and perpetually undermine the value of its own currency. This happens when governments have inflation targets that they aim at to average out every year or build into their policies. Having an inflation target means that you are trying to decrease the value of your currency, as inflation just is a decrease in such value of a currency with respect to itself.
But this means that at bottom anyone who really champions this objection centered around inherent value takes a far wider and stronger stance than what they realize. Their whole attitude is actually an objection to the use of any currency at all. In other words, any person who is insistent on this objection about inherent value is really saying that there should be no currency use of any kind but that everything should be done by barter. They are saying either that or, as an option to a barter-only policy, something even more expansive: That there should be a return to the use of commodity-backed currencies, ones that are defined as being some amount of some commodity, where this total commodity amount is being held and maintained by government. And furthermore, maybe that until such a thing is done, we may use the vaporous currencies that we have but not trust them at all, knowing that they have no value. Oddly, if we actually take this approach, that means that there actually is no difference between any national currency and any cryptocurrency; which of course has the result of collapsing the whole objection.
What this objection centered on inherent value shows us is that we should have the following attitude about the issue of value: The value of any currency whatever, no matter what it is, does not come from any inherent value at all, but from its exchange value. Just because something does not have inherent value does not mean that it has no exchange value. This is obviously true even with national currencies; their value comes only from people's willingness to exchange with them. Any value issues with any currency will then revolve specifically around their exchange value.
Now notice that there two specific issues that drive exchange value.
(i) Exchange value is at bottom a psychological matter that is built purely around confidence, confidence in a system of production, supply and demand, and other general economic factors.
This may remind you of a story you have probably heard: Someone back in the Old American South days had some Confederate States of America dollars in their hands and was wondering aloud to a storekeeper about whether they were worth anything. The storekeeper responds by laying out one of those dollars on a pan of cornbread and traces out and cuts out along the borders of the bill and hands over the cut-out piece of cornbread. Now this story is usually meant to be a joke on that currency holder, meaning to say that it has no value and all you get for it is a slice of cornbread, which is not supposed to be anything real. But oddly, the story actually means exactly the opposite. The CSA dollar actually does have exchange value, and this value is expressed in the value of the volume of cornbread, and anything else for that matter that is equally valued to it. The storekeeper in the story is willing to make the exchange of the good for the currency, and this is so only for a specific reason, that being that he has confidence that the CSA dollar can then be turned around for something else somewhere else, and that this something else has a value at least equal to the rectangle of cornbread. Where there is no such confidence, there would be no exchange, even for some small cornbread. Its only this confidence that makes the handover of the good happen at all.
(ii) Exchange value is about societal willingness, and not individual willingness.
There will always be individuals willing to engage in exchanges involving almost anything, but so long as this happens in uncommon cases, these people will always be known as just collectors. In the example story just above, it is possible that the storekeeper was accepting the CSA dollar out of merely collector interests; but he can't be that way with everyone, since he has to pay for the cornmeal being used somehow or other, so sooner or later true exchange value will have to come into play. Of course it is true that many collectors are motivated by the possibility of future profit somewhere down the line, but that will come from other collectors and not from any general population. Exchange value only comes from a broad and general market, driven by societal behavior, because it has to be the case that people can exchange in many places, for many things, and when desired or needed, and this is only possible through behavior in a wide society. In other words, you can't rely on individual collectors, as such people are few and far between: When you need to get gas for your car when out of town, you can't wander around looking for these people to get it; and chances are you won't have just exactly what they want right there with you.
The above two issues bring out important principles about exchange value. Now there is a reason for chasing these principles down. What they show is that when it comes to exchange value, there is no actually difference between national currencies and cryptocurrencies; the latter are just as "exchange relevant" as the former. And this is so because there actually is confidence in the holders of cryptocurrencies just as much as in the holders of national currencies. Or at the very least there can be such confidence: The fact that a currency is digital and extra-national does not make it so that people cannot have confidence in them, which is actually confidence in the behavior of others. And furthermore, this confidence is widely spread over a society, even though that society may spread across national borders. To say that such confidence is misplaced or misplaced in some of its cases is entirely reasonable, but it is not a decisive objection to cryptocurrency, because it is just as reasonable to say the same about many national currencies, if not all.
For the next stage, we will review some objections to this cryptocurrency type that actually have some significant weight to them.
published 3/15/23
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