Yet central banks are adopting and adapting blockchain tech themselves. One reason libertarians are attracted to Bitcoin is its “blockchain” technology, which makes it a decentralised network, sustained by users’ computing power rather than controlled by governments or central banks. Yet the same was true of tulips when a mania for them gripped 17th-century Holland-until suddenly it wasn’t. Granted, it’s been a wonderful store of value if you bought some two years ago, thanks to explosive price gains. Bitcoin doesn’t perform the first two functions. The classic economic definition of money is three-fold: it’s a “unit of account” in which to quote everyday prices, a “medium of exchange” that everyone accepts for payment, and a “store of value” you can preserve your wealth in. Yet the truth is that Bitcoin is not very useful as money.
#Moneyworks gold 7 code
So where does Bitcoin fit in? Some see it as a “digital gold” thanks to its fixed supply: the underlying code dictates that only 21m tokens will ever be produced. Yet it’s also often been underpinned by faith in the enduring, intrinsic value of gold. Modern state money is undoubtedly a political institution. The metallists and the chartalists are both half right. And another school of thought-chartalism-draws on this history to argue that money is essentially a creature of power, not the market: governments force us to pay our taxes in a certain currency and that’s what creates demand and underpins its value. Its earliest forms seem to have been products of ritual rather than necessity. Anthropologists have determined that money didn’t, in fact, arise as a handy replacement for bartering. There’s a problem with metallism, though. Money has been anchored in little beyond the promises of those who issue it ever since-and some metallists maintain the Nixonian break with gold is exactly the moment where things started to go wrong for the world economy, unleashing the furies of inflation and financial instability. The last official gold standard expired 50 years ago this summer, when President Nixon stopped allowing the conversion of dollars into the metal. Money is essentially precious metal, the “metallist” says, which explains why we have exchanged gold and silver coins as payment for millennia and, in recent centuries, why we’ve often underpinned our paper money systems with gold standards. So they decided to use shiny and relatively rare objects to facilitate transactions. The traditional story told by economists is that money emerged because people bartered (I’ve got wheat and you’ve got fish, let’s swap) but found the process inefficient: you might not have what I want, at least not before my stuff becomes inedible. Nevertheless, he gave an answer that has a very long lineage-and which some regard as still essentially true. It turns out that he was thinking of pound coins, which look slightly golden even if there’s no precious metal in them. In grappling with these queries, I decided to ask my six-year-old son what he thought money was.
What even is money? Where does its value come from? In the face of all this, you don’t need a philosophical bent to start asking deep questions. Central banks around the world are also exploring setting up new digital tenders, even as they’ve been creating conventional money at record rates during the pandemic. Facebook plans to launch a digital currency for its near-three billion users. We’re besieged by headlines about Bitcoin. Something funny-or at least unusual-seems to be going on in the world of money.
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