On money and plagiarism
plagiarism: The practice of taking someone else's work or ideas and passing them off as one's own.
Cryptocurrency, fiat, and gold
If you've been involved with cryptocurrency for more than about 30 seconds, then you've heard the dig. Cryptocurrency is eventually going to be worth zero, because it has no intrinsic value. It's just a matter of time. In short, bitcoin is dead.
The conversation inevitably goes something like this:
Them: Cryptocurrency is a scam because it has no intrinsic value. You're going to lose your shirt.
You: Yes, but fiat money also has no intrinsic value. It's just worthless paper, or an entry in a bank's computer somewhere. It gets its value because people say it has value.
Them: Yes, but it's backed by the US government, which gives it value.
Gold Standard Bearer: (overhears the conversation) Neither one has any intrinsic value. That's why money backed by gold is the only money that will last.
You: Yes, but even the Roman empire collapsed. And just like cryptocurrency, gold only gets its value because people say it has value. Cryptocurrency is a superior technology. Among other things, it digitizes trust, and removes middlemen, so people are likely to prefer it.
And so it goes. Eventually, after a few more rounds of this, everyone walks away believing what they believed before the conversation started. I addressed this disagreement in Responding to RealClear Markets: With the Con That's Bitcoin, There's No There There, but I thought I'd look at it a different way tonight.
Units of exchange as certificates of performance
Normally, if you read about money, you will learn something like this
The six characteristics of money are durability, portability, acceptability, limited supply, divisibility and uniformity. Money acts as a unit of account, a medium of exchange and a store of value.
But those characteristics don't really tell you what money is. They tell you how it is used.
Perhaps the reason that people don't agree about the intrinsic value of cryptocurrency (or even fiat money) is because we don't all agree on what money really is. If we understand money as a technology where each unit of money represents a certificate of performance, as described in this video by the economist Walter Williams, then cryptocurrency might start to make sense to people.
Ultimately, it doesn't matter what form the certificate takes. It is backed by the vast multitude of different services that one person can perform for another, and by its ability to resist plagiarism - i.e. one person taking credit for services that were actually performed by another (or not performed at all!)
This perspective explains why the blockchain is a much better mechanism for the implementation of money than any of the previous technologies. If we understand money as a certificate of performance, then it doesn't matter if it's redeemable in gold or sea shells or useful for paying taxes to the US government. What matters is that people agree that the certificate is indisputable proof that one person has provided some useful service for another.
Whether it's stored in dollars or pounds or bitcoins, the complete aggregation of all of those different certificates of performance is nothing more or less than a distributed ledger. It is a distributed record of the net amounts of service debited and credited against each person.
Before blockchain, the distributed ledger had no history
Without plagiarism, the only way to get credit for something is by doing it.
Before the blockchain, you could go to a person and ask them how much money they had, and they could tell you. Then you knew the balance of service that the person had claimed to perform and receive over the course of their lifetime. What you couldn't do is verify if they had actually done the service they were taking credit for, or if they were plagiarizing someone else's work by using stolen funds or writing unfunded checks. As a result, you often needed to have a trusted 3rd party to vouch for that person's claim, and people have found innumerable ways to game this system.
With the blockchain, we don't have just the current state of consensus. We also have a record of all the transactions that led up to the current state. This design means that a complete history of services debited and credited is available for all participants. Thus, it is far more resistant to plagiarism than any of the earlier technologies.
Conclusion
So, when people ask where bitcoin and other cryptocurrencies get their value, perhaps the correct answer is that they get their value in the same place as any of the legacy technologies: human labor, human creativity, mechanical & electronic productivity tools, and useful personal service by one person for another.
Thank you for your time and attention.
As a general rule, I up-vote comments that demonstrate "proof of reading".
Steve Palmer is an IT professional with three decades of professional experience in data communications and information systems. He holds a bachelor's degree in mathematics, a master's degree in computer science, and a master's degree in information systems and technology management. He has been awarded 3 US patents.
Steve is a co-founder of the Steemit's Best Classical Music Facebook page, and the @classical-music steemit curation account.
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