Bitcoin – A Clear and Present Danger*

At this time of year, the monotheistic religions celebrate the process through which God created order out of chaos, culminating in the creation of man.  Since then, the first man and his progeny have been busily engaged in reversing the process and creating chaos out of order.

As part of this phenomenon, the Chinese in the Middle Ages invented gunpowder and paper money.  Ever since that time, increasingly powerful explosives have been used to create military chaos, and paper money has been gleefully exploited by governments to create economic chaos.

Non-state actors have become increasingly powerful through the effective implementation of modern technologies, not just of armed conflict but of communications and its illegitimate twin brothers, misinformation and disinformation.

The Westphalian international system, dominant since the mid-17th century, is in the process of replacement by a chaotic mixture of states, non-states, failed states, and international organizations, all interacting with each other diplomatically, politically, ideologically, economically, and militarily.

Into this toxic brew a new element has recently been injected, fittingly by a shadowy figure whose identity is unknown, unlikely as that may seem.  Governments minted coins and then issued printed paper they pretended was a more convenient alternative.  The Roman/Byzantine solidus, was the rock-solid international currency for more than 700 years.  There has been no paper currency which has held its value vis-à-vis goods for more than a few years at best.  And now, as paper replaced precious metal, a virtual currency is replacing paper.

Focus for a moment on the meaning of the word “virtual”.  The dictionaries will tell you that it means that something that is “virtual” is not, in fact, real.  Let that sink in for a moment.  Real paper replaced real metal — that is, a representation of a fact replaced actual facts.  Now a non-fact is in line to replace the representation of facts.  Nuriel Roubini of NYU recently called crypto-currencies “the mother of all scams.”

It is much easier to engage in the financing of criminal and terrorist activities through the use of paper money than if the perpetrators had to use metal coinage.  It is, however, infinitely easier to engage in such activities when not even paper — in fact, nothing material —  is accepted as money.  Regulation and control are rendered practically impossible, nor can virtual currencies be prohibited as long as people wish to use them, because the users are interacting directly with each other and not through the intermediation of a state.

And now the next stage of this phenomenon is approaching — thirteen states of the United States, beginning unsurprisingly with California, are considering the issuance of crypto-currencies, through the medium of which payments to and from the state government can be made.  If this is successfully implemented the individual states will be able to free themselves from the restraints of the national currency as issued and regulated by the Federal Reserve System.

The federal government is sure to challenge any such attempt to create state currencies in the Supreme Court, which in disputes between the federal government and the states has original jurisdiction.  The constitution prohibits the states from issuing coins and bills of exchange – that is, metallic or paper money.  It says nothing, of course, about a medium of exchange that is neither metallic nor paper; that is, in fact, not a “thing” at all.

And if the court does not strike down such a measure, what is to prevent sub-state entities, such as counties and/or municipalities from doing the same thing with reference to payments to and from them?  After all, until now only private entities have been the issuers of virtual currencies, the value of which versus official currencies has fluctuated violently.  A medium of exchange? Sure.  A store of value?  No – but then neither is paper money. Just compare the purchasing power of a dollar today with that of a dollar 100 years ago (or don’t – it’s too depressing).

Chaos out of order indeed, and yet another and highly significant element to add to all the others in the ongoing process written about by Oswald Spengler almost 100 years ago:  The Decline of the West.  (And all the rest.)