“When Bitcoin Grows Up”

“The ten pound note is worth what it claims it is because the state, in the form of the Bank of England, says so, and we choose to believe it. This is what students of currency call ‘fiat’ money, money whose value has been willed into being by the state. The value of fiat money is an act of faith. There are quirks to this. In the case of the pound coin, if we ask how much it’s worth, the answer is obvious: a pound is worth a pound. It shouldn’t be, though. According to the Royal Mint, which actually makes the stuff, 3 per cent of all pound coins in circulation are fake. Allowing for that, we should discount the price of our pound coin, and mathematically assign it a value of 97p…
money as it has evolved has a crucial relationship with technology. There are a number of technologies that are inexorably interwoven with the working of money. The first of them, probably the most important piece of technology in human history, is writing. This begins in ancient Sumer, about three thousand BC, with records of trade and inventory gradually evolving into other kinds of recorded script…
In time, even the US joined the system of state-backed money dispensed through a central bank. This is the system we still have everywhere in the developed world today. The reason a lot of people are excited about bitcoin and its associated technologies is that for the first time there is a genuine possibility of real change in this area. Money has evolved in jumps, from the invention of writing to the invention of the balance sheet and the bank to the creation of the central bank, with all of these changes being variations on the theme of money as a register of credits and debits. And we’re now at a point when another jump is possible…
There are many ways in which the impact could happen. For instance, a huge part of the money system is about intermediaries. It goes back to the Medici, to that central register where the debits and credits are all gathered together in one place. The bank is the intermediary between creditors and debtors. Obvious question: do we still need that intermediary? I have money I’m not using, you need more credit than you have, to buy a house or start a business or buy a car or whatever. I lend you the money, and you pay me back…
What’s making this possible is cryptography. Cryptography is also central to one of the most interesting developments in the world of money, and that is bitcoin. I’m not sure whether bitcoin is likely to be the most consequential of all these developments: peer-to-peer lending, and non-bank payment systems of the M-Pesa type, seem to me at least as likely to change lives, especially the lives of the poor. But there’s no denying that bitcoin is the best story.”

(I quibble with the line “best story”; it’s the most tech-y story with the most opportunity to say things that make you feel smarter than other people. It’s a very relevant story for our times, for exploring new class divisions and global economies and the options opened up by the internet.)

Anyway, this provides a great history of bitcoin and an explanation of how the currency works and its pros and cons, all illustrated with stuff that’s happening in the world. It’s definitely worth reading through, it’s oddly comforting. It’s comprehensive and humanizing.

It also has an unnecessarily cynical sidenote on Tor (imho).

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