Bitcoin

Like All Currency, Bitcoin Is A Collective Dream, And We All Just Shuddered In Our Sleep

bitcoin cryptoFor hundreds of years, cowrie shells were used as currency in Asia, Africa, Europe, and Oceania. These sea snail shells were pretty. They were used in jewelry and sewn onto clothing. Some cultures perceived them to have magical protective properties. But cowrie shells didn’t really have any tangible, practical use.

Although cowrie shells didn’t have any utility in the way that flint and steel would have been considered to have utility during much of the time period when each were in use, cowrie shells do have a few interesting attributes. They are durable. They are small and portable. Even today, it would be difficult to construct a passable fake cowrie shell. Plenty of people throughout history have passed one metal off as another — not a huge concern when trading in easily identifiable shells. A 19th century king of Dahomey said that he preferred payment in cowrie shells to payment in gold.

Today, you can buy cowrie shells in bulk for less than ten cents apiece.

What happened? Cowrie shells only had value as long as enough people believed they had value. Too many people stopped believing.

Pretty much all currency works this way. There is nothing that makes an artfully printed slip of green paper or a string of numbers on the screen of your phone inherently worth more than a cowrie shell. Yet, because we all believe in the value of U.S. dollars, they function pretty well as a medium of exchange.

Cryptocurrency, its name notwithstanding, has never really functioned well as a medium of exchange. Even though cryptocurrency is portable and doesn’t wear out over time, its wild value fluctuations have never made it of much use to buy things with. Few merchants accept crypto.

Plus, cryptocurrency seems pretty easy to steal. Just a few days ago, the FBI seized $3.36 billion in Bitcoin that had been stolen from the Silk Road marketplace a decade ago. In a separate incident, $3.6 billion in stolen cryptocurrency was linked to the 2016 hack of Bitfinex. At least to steal cowrie shells the thief would have to be in the same geographic location as the victim.

Despite the disadvantages that have plagued cryptocurrency since its inception, many of the well-heeled have poured money into it. As of this writing, a single Bitcoin is worth just shy of $17,000 — still obviously quite a lot of value. Yet, Bitcoin was worth almost three times as much at the beginning of this year.

The latest blow to the legitimacy of Bitcoin and other cryptocurrencies is the collapse of cryptocurrency exchange FTX. On November 11, the company announced that it had filed for Chapter 11 bankruptcy. The 30-year-old founder and CEO of FTX, Sam Bankman-Fried, started the week with a $16 billion fortune, and ended the week with nothing.

Investigations are currently underway concerning as much as $473 million in crypto assets which may have been stolen from FTX. With investors already jittery in the wake of falling cryptocurrency prices, FTX’s customers started to flee at the first whiff of potentially compromised accounts. It was the cryptocurrency equivalent of a bank run. A plan materialized for FTX to bail itself out by selling to the rival cryptocurrency exchange Binance. The lawyers couldn’t get the paperwork finished fast enough before the deal fell through.

Not surprisingly, the price of Bitcoin and other types of digital assets fell on news of the FTX implosion. The fallout seems likely to amount to more than a temporary price drop, however.

While cryptocurrency thefts are nothing new, the FTX collapse is unique. FTX was a pretty big deal. Until last week, FTX had naming rights to the Miami Heat’s arena. Faith is what gives cryptocurrency its value, and a lot more people are going to be losing their religion after such a rapid, high-profile implosion.

Cowrie shells lasted for centuries as a currency. I’m not sure that in modernity we have the ability to sustain belief quite so long though.


Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

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