What is money? That is a question now asked more and more as new money comes to town, starting with bitcoin and now more so with ethereum, which is tokenizing and turning into money all sorts of things, including stocks, houses, art, whisky, and much of all else that has value.
These new innovations are challenging the conventional thinking we have taken for granted, like fish never question water. Because no one asked, in modern times, what is money until 50 years ago.
In its simplest form, money is a tomato, or an apple, or the piece of bread, or your productive time, or as Hayek called it, money is the valuer of all things.
The chief enemy of money is counterfeiting, or as we now call it money printing and commercial bank loans.
You can not create a tomato out of nothing, but legal or illegal counterfeiting of money does in effect do just that.
Because if we simplify it, the printing of one dollar that does not replace another dollar is in effect the creation of a tomato, or productive time, or bread, out of nothing.
As no tomato can come out of nothing because it needs quite a lot of effort, time, and space, to produce, the effect of counterfeiting is to rob you out of a tomato which you now can not buy for the same amount of dollars because the number of dollars has grown, while the number of tomatoes has remained the same.
That’s called inflation, because your money is inflated away. Which is where the term bubble comes from as the more money is inflated the more asset prices, like stocks, rise like a bubble and then of course crash.
Conceptually, this process is not honest because the farmer is robbed out of his limited number of tomatoes. He sold 100 of them last year for say $100, now that dollar is worth $98.
Next year it goes down by 2% again in a compound manner to the extent a house was worth around $20,000 in the 90s, now it is worth $200,000 or more.
Who was first to get this $180,000, this fake tomato which nonetheless they can eat as much as a real one? Certainly not the farmer, although eventually it “trickles down.” But the ones that initially get it are bankers.
They produce money everytime they make a loan, with the stroke of the bankers’ pen, the Bank of England said. That money is then destroyed when that loan is repaid, but counterfeiting remains in the form of interest.
Bankers don’t give out a loan for free. Sometimes they charge as much as 20% yearly on top. That 20%, is in effect, new money. But that new money was not created from wealth, or productivity increases, or anything “real.”
It was simply “willed” into existence, no different than taking a home printer and printing out $10,000 in dollar bills that look identical to actual dollars.
That’s theft and for you as an individual to do it is illegal, punishable with prison. Because your productive work in your 9-5 job, meant to be valued at say $2,000, is now replicated by out of nothing “fake” money which just create this $2,000 without any of that work, time, or effort.
The business of faking value can of course be very lucrative, and since bankers have no real constrains in just how much they fake, they always overextend themselves.
At some point, they overextend so much no one can pay back their loans, thus they crash. At which point, they threaten nations with complete collapse unless trillions are handed out to them.
Usually, since bankers are filthy rich due to this con and thus control much of the media, mostly indirectly, so allowing them to distract attention to the poor or immigrants or whatever scapegoat, business often goes ahead as usual after some laws are proposed which will have no real effect.
But the advancements of technology makes this time different. We are now able to create a valuer of all things that is impossible to fake.
The above might need qualification regarding genuine disputes as things like ethereum and bitcoin are upgradable. Therefore if there was a good reason, 51% could agree to “fake” or to issue more bitcoins, but everyone would have to actively consent as anyone (or the 49%) can just go ahead with their own easily interchangeable money.
Minus such exceptional and referendum like events, one can simply not get a printer and create fake bitcoin. A bank can not simply loan out of nothing crypto. Because crypto isn’t abstract like paper. Crypto is very, very real.
More real than gold, which can be faked, and certainly more real than the dollar or the pound which can easily be faked both legally and illegally.
The argument therefore that “historically, currencies require either that it’s based in something real, like gold, or it’s based in power, the power of the state,” sounds shallow for anyone who has some technical understanding because it is difficult to see how something like one eth is not real.
If one eth is not real, then produce something like it. One easily can with the dollar or the pound, at least to a sufficient extent to fool most, but with eth it’s impossible. You can’t be fooled.
Moreover, the above quote comes from an article providing some history of private banking IOUs and how that necessitated a national banking system. But we would argue that same private banking IOUs system is very much in place because each bank still decides how much fake money to print.
It is true they have now become so interconnected there is really no longer a bank and no longer any competition between them, but we take most offense with the suggestion that fiat is backed by the government.
That’s because it confuses government with the people. With the tomato producer, with the 9-5 worker, with the pensioners who have saved all their life. They are the ones who bailed out the banks not some abstract thing called the government. They are the ones who pay for inflation.
It is of course true money is backed by the people, if we take the people to mean the tomatoes, the bread, the natural resources, the productive time and so on. It is true because that is what money is, an abstraction of the tomato into a number of 1 or 2.
Now if we can just fake these tomatoes by printing as many 1s or 2s like the Venezuelan government, we have no money, just as Venezuela does not currently. Nor do we have such money when they are constantly faked but not quite at a level of collapse save for once every decade or so.
That is not money, that is not abstraction, that is robbery. That is continuing a feudal serfdom where bank CEOs pay themselves $35 million a year even after making losses of $3 billion.
They can, so of course why would they not. Even angels would do so in a similar setting. Just as angels who are not bank CEOs would want good money that is not stealthily stolen from them in a way they can do nothing about it.
That does not mean things like eth or bitcoin are in all ways perfect or that whatever parameters they have chosen (eth is still undecided on it as far as we are aware while btc has a 21 million limit) are “correct.”
But it does mean they address the chief problem of money by making it unforgeable, just as you can’t just forge a tomato or your productive time. Thus so making money a real representation.
Which brings us to stocks. We are sure very few of you have seen an actual stock certificate. A real stock is nothing else than that certificate, but sending all those papers around and sending them to one another in the volume of billions is very much practically impossible.
Which means stocks are usually only a number in some centralized database. A number one can easily fake, either directly or through other mechanisms such as naked shorting.
Ethereum, specifically, allows for tokenized stocks, which turns a stock into effectively something identical to one eth, thus making it impossible to fake.
That tokenized stock is far more real than any number on the screen, because numbers on the screen can be faked, either due to hacking, due to mischievousness, or through fake representation, but tokens can not be faked any more than you can fake a house.
So making the piece of code that attributes ownership in a decentralized and distributed way far more real than alternatives because that piece of code is verifiable by all, unchangeable save for by full consent, and because it truly abstractly reflects the underlying thing, be it a tomato, your productive time, a stock, a house, or whatever else.