The Crypto Rush

This isn’t the first time the world has sneered at Californian gold.

When I was twelve a ferrety boy named Nigel from a neighboring farm told me he had found Italian marble near a dead goose in the ruins of an old manor (I grew up in rural England where there are things like old manors, dead geese and Nigels). He boasted that he had taken some and it was “probably worth trillions.”

“Absolute bollocks Nigel” I said, “there’s no marble, you’re nuts, and you’re probably going to jail.”

The truth was, I was seething with jealousy. Why hadn’t I been invited on this exciting adventure? Why hadn’t I stumbled upon this treasure? Why wasn’t I a trillionaire?

Nigel was definitely lying, but it all seemed too intriguing. That night I crept across the fields toward the ruins with a flashlight. There, next to the late goose, I found it…a shimmering slab of cracked marble. Turns out Nigel wasn’t talking bollocks. I took a chunk home and my mum made me take it back and grounded me for a week.

In 1849, when news of the discovery of gold in the American River made it back East, newspaper editorials from New York to London were nearly as dismissive of the stories of newfound wealth in California as I was to Nigel’s claim.

The Times of London proclaimed, “…the gold fields have been denounced as a delusion.”

While many entrepreneurs from across America were industriously finding ways to start businesses off the the back of the influx of money — manufacturing tools, chartering steamboats, and drawing up grand railroad plans — the newspaper editors were busy being doubtful, even scornful. There was some real FoMO setting in…

The Times described the scene in San Francisco as 4,000 gold hunters wildly scraping the sand…with gloating ecstasy.”

One East Coast paper even compared those getting rich out West to opium fiends, “…the frequent discovery of new deposits of this precious metal led to the apprehension it would become a ‘drug’”

Sam Brannan, who famously ran through the streets of San Francisco shouting “Gold! Gold! There’s gold in the American River!” was California’s first millionaire, but was widely characterized as a dishonest scoundrel.

Gold extracted from the Northern Californian hills in 1849 has been valued at 50 billion dollars in today’s money. Following the rush, the influx of immigration and gold into the money supply reinvigorated the American economy. San Francisco grew from a small settlement of a couple hundred residents in 1847 to a boomtown of around 40,000 in just three years. Railroads were built from California to the Atlantic. Major technological advances had never been so frequent. Without the gold rush, and “delusional and gloating” early prospectors, entrepreneurs and industrialists America would be a very different country today.

Since “Satoshi Nakamoto’s” 2009 white paper, “Bitcoin: A Peer-to-Peer Electronic Cash System,” cryptocurrency has gained a value of $600 billion. Many predict the total market capitalization could reach $1 trillion in 2018.

Last year $5.6 billion in cryptocurrency was raised from 435 successful initial coin offerings, eclipsing venture capital as a means of funding startups. These include companies working on autonomous cars, real estate transactions, medical record keeping and transparent charitable giving. An explosion of technological innovation is coming out of blockchain tech: cross-border payments, shipping logistics, peer-to-peer energy trading and carbon emission control to name but a few. The effect of these innovations reach far beyond the Bay Area.

In January this year the New York Times, reflecting on this historical moment, described the “Bitcoin Bubble” as being “Driven by greed” and ran an article announcing that the bubble had indeed already burst. Just as the newspapers of 1849 wrote of the madness and murder in the hills of California, and just as I had told Nigel he was talking bollocks and heading to jail, the reaction to what is going on in Silicon Valley has been largely negative and even sensationally dramatic...

“The falling prices have been serious enough to prompt online posts with suicide hotlines for virtual currency investors in despair,” the NYT recently reported.

There has also been a lot of excited babbling about bubbles. Unfortunately no-one seems to know exactly what kind of bubble we’re dealing with here. Cryptocurrency was recently described as “the mother of all bubbles” in Forbes but merely “a relatively small bubble” in The Atlantic. Depending on what you read, the bubble is currently either about to burst, burst, bursting, deflating, about to deflate or inflating (but not good inflating, bad inflating.) Phew.

In 1849, words like “frenzy”, “delusion” and “hype” were being used to describe those in San Francisco gripped by the new money. Similar language is being used to describe Silicon Valley founders of blockchain technology in editorials today.

Beyond the danger of bubbles popping (can bubbles actually deflate?), there have also been some scary reports of cryptocurrency leading to actual physical violence. A New York Times headline in February warned… Bitcoin Thieves Threaten Real Violence for Virtual Currencies. The opening line ominously declared… “The currency they were after was virtual, but the guns they carried were anything but. Which sounds a lot like a tagline to a Liam Neeson movie.

Bloomberg recently described the scene in Silicon Valley…“Everyone’s so excited and having such a good time, the sort of time you have right before they invade Paris. Oof.

That’s not to say that these fears are totally unfounded, or that what is happening in the world of cryptocurrency right now is not littered with real problems and worries. Scam ICOs have become a stain on the community. People who put in more than they could afford to lose, and sold at the wrong time, have lost big.

However, if it does turn out that we are in the advent of the biggest single monetary advancement since printed money, the media coverage is not exactly celebrating the milestone, and the cynical fear-mongering has strange echoes of the last time gold was mined in California.

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