A Tale of Two Currencies:
Comparing Bitcoin and the Hudson Valley Current.
By David McCarthy
Current is very much in order. Bitcoin has been getting a lot of press of late, much of it bad. This reflects poorly on a worldwide movement toward complimentary currency projects, which are by and large local, low key, and ethically sound.
Just as Bitcoin is getting a lot of
press, the Hudson Valley Current is well in to a successful beta launch, with
over fifty members and growing quickly. Full disclosure here: I am one of the
founders of the Hudson Valley Current, and I sit on the board of the
not-for-profit organization which operates the Current. Though I will say that
I believe the Current to be a superior model in all its major characteristics,
my main purpose here is not to denigrate Bitcoin, but to use the comparison to
help you, dear reader, understand more about the nature of emerging monetary systems
at this point in history.
All currencies have what is called a
“basis of issue.” In the case of a coin issued by a monarch, the basis is
simply the authority of the monarch, plus whatever commodity value might be in
the coin itself (usually gold or silver). Modern paper and digital currencies
are typically issued by national governments, and the authority and legal
system of that country provides the context for the issuance of the currency,
which usually arises from a mixture of public and private debt. (90% of U.S.
Dollars are issued by the private banking industry.) Complimentary currencies,
on the other hand, are not issued by any kind of governmental agency. They come
either from civil society or the private sector. Even among currencies issued by
civil society, there are differences. Berkshares, for example, are issued
simply in exchange for U.S. Dollars. The Hudson Valley Current is issued when a
participating member delivers goods or services to another member. The value of
that good or service provides the tangible basis for a digital credit, awarded
to the person who provided the good or service. In a very real sense, it is
based on credit, not debt, because a positive balance in Currents means you
have delivered something of value. It’s not just a promise. At the same time,
the system as a whole is really about the flow of credits and debits in the
exchange economy. It is not about having Currents, but using them.
So what about Bitcoin? Although
bitcoins are not issued by any government agency, it is a bit murky whether it
could be said to be a civil society or for-profit endeavor. Technically it is
called a peer-to-peer process. Bitcoins are issued by a cryptographic computer
program created around 2009 by a person said to be Satoshi Nakamoto (which
could be a pseudonym). No one admits to knowing him or where he is.
Computer users with specialized
expertise and equipment “mine” bitcoins by solving massively complex
mathematical problems. When they get one, they then have some sort of a digital
entity which has its own security features. You own it, so it’s valuable. An
FAQ on a Bitcoin website answers the question, “What gives a bitcoin its
value?” with one word: “mathematics.” To my mind, this is not a valid basis of
issue, except in the pure psychological sense that, well, whatever two people
agree has value, has value. But simply asserting that, say, a snowball, can be
traded for goods and services does not a basis of issue make. (I have quite a
supply of the raw material for snowballs these days in my yard, so I suppose I
could be very rich if I could make that little idea work. Just don’t tell me my
snowballs are worthless. I might have a meltdown.)
The other problem with Bitcoin is
that the supply of coins is strictly limited by the computer algorithm to 21
million units. This introduction of artificial scarcity is a glaring structural
defect of Bitcoin. The inevitable outcome of this feature is that bitcoins have
become an object of speculation and hoarding. Their value in relation to other
currencies fluctuates, and they are now used less as a currency than for
speculation. Many governments, including China, Russia, and the European Union
to put various restrictions, bans, or warnings on Bitcoin. In the eyes of many
regulators, Bitcoin is not a currency but rather a security (i.e., part of a
broad category of financial instruments that includes stocks and bonds).
Now, I am pleased to live in a
country that doesn’t just put the hammer down on experiments like Bitcoin, even
if they are on the edge in various ways. At the same time, we do need to be
aware of the ethical dimension of a complimentary currency. Bitcoin users have
definitely danced with the dark side. It has been a haven for stuff like money
laundering and other kinds of illegal transactions. In fairness, these
activities do not seem to be integral to the technology of Bitcoin. For
example, bitcoin transactions are not entirely anonymous, as might be assumed.
But I think it is fair to take a look at what sort of culture has sprung up in
practice around Bitcoin.
As I see it, the main shortcoming of
Bitcoin is the objectification of the monetary unit. It is regressive in the
sense that a bitcoin is seen as a “thing” to be hoarded in and of itself. In
that sense, it could be called a “crypto-commodity,” something that is intended
to be like a precious metal. In that sense, though technically a brilliant
system, it is a step backward in monetary practice, rather than forward. The
Current, by contrast, is purely focused on facilitating actual economic
transactions. It works by weaving a trusting, known, fabric of local trading
relationships. Money is seen as a flow, not an object.
I hope this column is not regarded
as a purely partisan critique. I am still studying Bitcoin—and it has many emerging
imitators that may have different models. As the complimentary currency
movement grows, leaders of local and regional currencies are starting to
investigate possible links between their systems, and issues such as
convertibility, security, and regulation will increasingly come into play. As
the social technology of money evolves, we can and should learn from all the
systems out there on the world stage.
neweconomics@countrywisdomnews.com
www.hudsonvalleycurrent.org
Posted by Chris Hewitt
on 1:03 PM.
Filed under
Feature,
New Economics
.
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