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I woke up in the morning contemplating how the world had just suddenly changed over night, or at least the human perception of the world. My thoughts then jumped to a time I have only read about, when a similar event happened in the realm of science. The story goes that around the turn of the twentieth century, scientists believed that mankind had figured everything out that there was to know about how the workings of the physical world except what was considered to be a minor detail. Existing theory could not account for why the observed spectrum of black body radiation, diverged at higher frequencies from what was predicted.
Plank solved the mystery by making a different assumption about the nature of the frequency of black body radiation. Others were assuming that radiation was continuous but Plank assumed that atoms could only vibrate at certain frequencies that were whole number multiples of a base frequency, which he called h. I have read that Plank was only trying to solve a mathematical problem and was not really thinking about the physical world implications of the his mathematical discovery. The conceit of mankind was undermined as a whole new world of scientific discovery, called the quantum domain opened up and what mankind didn’t know was revealed to be greater than what mankind hitherto presumed to know.
This moment in time is similar in its impact on knowledge to the current universal transformation of a world order that we thought we knew, and never imagined could change so radically, over night by something invisible to the human eye.
The organizing value of the current global world order is money. The dollar is the most accepted currency of exchange in the world. That is based on the strength of the US economy. Every economy in the world is taking a hit right now for the same reason.
The foundations of the monetary system of the United States was radically changed in the 1970’s, when President Nixon took the dollar off the gold standard but in day to day life we barely noticed it, by which I mean that that the dollar was not suddenly refused as payment when we went to the store to buy groceries. The currency remained the dollar. Its legitimacy was not questioned but it has increasingly lost its spending power since the 1970’s. Inflation is accepted as a byproduct of the macro-management of the economy.
Macro-management of the economy is accepted as a public good capable of managing, if not preventing recessions and depressions. The downside of macromanagement is that it is centralized government that handpicks winners and losers. When the central bank invents money out of thin air and distributes it to banks and industry to bail out the macroeconomy, the spending power of the dollar takes a big hit. There is gathering social questioning about why the macroeconomy is treated differently than everyone else, the more so as wealth inequality has been increasing.
As more and more people understand that money doesn’t grow on trees, it is manufactured out of thin air, people say, “Why isn’t it being manufactured for us?” Enter UBI, a universal income entitlement, replacing the old world concept of earning a living. In the new world order of last month, there was a growing belief that not only would human jobs be replaced with robots but that no one would have to earn a living as money from nothing can be distributed to all by central management.
However this month no one knows what the world order is. Central Banks are printing money in proportions never seen before. Will it work? Wait and see.
Before the overnight transformations brought about by coronavirus, the United States was moving toward a groundless economy. The macroeconomy was decreasing investments in the production of real things including reduction in research and increasing its investments in financial assets, money making money only. Meanwhile China was building its economy on making real things and China has been increasing investments in research.
The collective and individualized light bulb about the nature of what we call money lit up in 2008 with what is commonly referred to as a government bank bailout, which is how it is understood by the least sophisticated observer.
The government intervention involved complex managerial decisions but for the purposes of this story I am interested in mass perceptions and cultural attitudes. To most the bailout is perceived as an elite bailout of banks and large corporations. To the elite, the lack of comprehension of what occurred justified their own elite status over the rest of humanity, which in turn justified why they should have so much more of the wealth than everybody else.
When President Nixon took the USA off the gold standard, it took a while for the average person to perceive that money was being created out of nothing but authority granted by the federal government to the federal reserve. When the government steps in with a massive bailout, as happened in 2008, it draws attention to that fact.
Enter Satoshi Nakamoto, not a real person, but a pseudo name for the person or group who developed bitcoin. The fact that the creator of bitcoin is mysterious raises the currency to mythological proportions as if the unknownness of the creator in and of itself conveys value upon bitcoin.
While central banks are centralizing currency granted value by the authority of a central government, bitcoin is a decentralized currency maintained by group verified and co-ordinated ledgers.
I do not claim to be an authority on bitcoin and speak only as one who has been unprofessionally following its development by reading articles written by others who have a greater understanding than myself. I am interested in implementing bitcoin as a way of purchasing on my business website, but just as I was about to act, I started reading about many other cryptocurrencies that have emerged since bitcoin. For my simple purpose bitcoin is probably fine but I want to have a greater understanding. Other cryptocurrencies involve things called smart contracts.
Cryptocurrency is a rapidly evolving concept, now interacting with a radically changing world. Its value is explained as a work function because new tokens are created when someone discovers the algorithm for sealing a block, which is a limited ledger of transactions verified by group ledgers in which each individual ledger must be consistent with every other ledger in the group.
Once could say that because the creation of the token is based on work done to securely seal transactions that the creation of cryptocurrency is based on something as opposed to nothing. However it is not the same kind of something as was understood as a finished product in the old world order in which I was born.
In that order wealth was created when something was produced but in order to produce something expenses were incurred. If one merely incurred expenses in the process of intending to produce something and then did not carry through and actually produce that thing, then wealth was not created. The thing that is produced in bitcoin is a monetary currency. This currency can hypothetically be used to purchase the resources needed to produce the thing which was bought and sold in the old order to produce wealth. The wealth was not created until the end product to which expenditures are applied was sold for a profit. If the token is the end product that creates wealth, then what is the difference between an end product and currency?
One need only consider that currency can buy the tests, masks, dilators, research facilities and scientists, and vaccines needed to defeat the current pandemic. The function of currency is not interchangeable with the functions of those things. In that sense the bitcoin which is created is a financial asset and not a real thing. It is an asset that can buy the real thing but not the thing in itself. It is potential power and the authority to obtain the desired thing, with the limitation that cryptocurrency is not accepted in exchange for everything and anything.
At this particular moment those things that can curb or destroy the life of the virus are in high demand globally and nationally. The currency which can obtain those things is that most desirable currency to hold. The holder of those things that can affect the coronavirus decides what currency can be accepted in exchange for those things.
Making that decision has political and ideological ramifications. Fiat money, created by a designated authority saying it exists, is valued based on the authority of the creator of the currency. Bitcoin is validated by decentralized authorities using ledgers made into blocks and blockchains, locked and sealed by algorithms (see The Number Zero and Bitcoin by Robert Breedlove).
The choice being made in our times is between centralized and decentralized authority. Money is like a river flowing through the farmlands. Whoever or whatever controls the river. controls what can live and what will die.
The makers of real things commonly needed by the whole world are decisive at a pivotal moment for the value of currencies.
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