Nineteenth-century German philosopher Georg Simmel once noted that “when money stands still, it is no longer money”. From the cowrie shells of the African subcontinent to the electric pulses and plastic cards of the developed world, currency is defined by its ability to flow. It is a defining component of the West’s cultural configuration, and is arguably the most important. In the purest sense, however, money itself has no intrinsic value. The value and use of money is entirely dependent on the society in which it circulates; money either prompts cultural change, or must evolve with it. Since the end of the nineteenth century it has become increasingly apparent that conventional systems of money are poorly suited to meet the needs of the new global economy. The most advantageous market is one operating with a currency free from state control, which may or may not be the only currency in circulation. Such a system goes beyond capitalism by removing money itself--not just the means of production--from centralized control. Whether economists and politicians recognize it or not, the recent rise in peer-to-peer and branded currencies marks the beginning of the end of traditional money. British entrepreneur and business collaboration expert Rachel Botsman testified that “the currency of the new economy is trust”. The changing ways in which people are distributing their trust indicates a lack of faith in traditional money and a growing economy based on bitcoins, Star Points, Amazon coins, and believe it or not, Tide detergent.

As a medium of exchange with no inherent worth, the value of money is based purely on the trust people have in it (or the government that issued it). As of 2013, no country in the world continues to operate with a gold standard. Soft money--whether in the form of paper bills, checks, or electronic credit--is a neutral medium of exchange meant to encourage trade, not hinder it. In order to accept money, a product with no real usefulness, people have to trust that that money will be accepted at a later time in return for desired goods or services. Without representing a physical quantity of gold or silver, this promise of future return (trust) is the only real value money possesses. The money people trust the most is the one issued by the authority (in this case, the government) perceived as being the most powerful and most likely to be respected.

This principle is illustrated by the rampant epidemic of hyperinflation that burned through South America during the 1980s. By mid decade, hyperinflation caused by the rapid printing of paper money by unstable governments meant a single airline ticket or new television set could cost millions of pesos. In the era before electronic money, this amount had to be counted by hand. Even basic necessities like food and clothing cost hundreds of thousands of pesos. Instead of carefully keeping track of hundreds of peso notes, people simply turned to a more stable currency: the U.S. dollar. Since technically only national pesos could be exchanged within the borders of the county, street vendors created a new industry exchanging pesos for dollars before and after transactions were made. Dollars were converted into pesos, items were purchased, and change was converted back into the more reliable form of currency. Physically, there were no fundamental differences between dollar bills and peso notes. People used dollars because they trusted a foreign government more than their own, fulfilling the words of Japanese philosopher Saikaku Ihara: “In faith, there is profit”
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In his recent TED talk, advertising expert Paul Kemp-Robertson explained that at present, the best performing currency in the world is bitcoin. Bitcoins are a new, unique online currency with no physical form whatsoever. They were introduced a little over five years ago by an anonymous programmer (or group of programmers) under the name Satoshi Nakamoto. Unlike any other form of money, bitcoins exist solely as long electronic chains of numbers stored in a public online ledger known as the “blockchain”. In an oversimplified sense, bitcoins function similarly to coins or points earned in video games. Video game coins can be earned and spent on commodities like upgrades and new levels, but they aren’t actual money. The difference is that bitcoin is a universal currency, not limited to a specific environment or type of electronic goods. The bitcoin system was designed for slow expansion; new bitcoins are created when computer programmers, known as “miners”, solve complex mathematical algorithms using powerful computer systems. After solving, the newly minted bitcoins are deposited into the miner’s account. Since bitcoins operate without a central authority and exist exclusively electronically, they’ve been termed the world’s first peer-to-peer cryptocurrency. Unfortunately for bitcoin’s public image, a large portion of its users use them for illegal purchases on black market websites (like the Silk Road site) because transactions are more secure and harder to track than transfers through other electronic servers like Paypal. Luckily for honest users, the same rigid encryption system that makes bitcoin transactions almost impossible to track also makes them hack- and fraud-proof.

By the end of 2012, one bitcoin was worth roughly thirteen dollars. Due to an increase in publicity throughout 2013, the value of one bitcoin has risen to nearly nine hundred dollars. The extreme fluctuations in value have many economists decrying bitcoin as a financial bubble, a scam, and “a temporary gold rush”.

It’s true that cryptocurrency is new. It’s unstable. It’s radical. It’s also a game changer, and it isn’t going anywhere.

Adrian Chen, the freelance journalist whose article broke the Silk Road story that sent the price of bitcoin skyrocketing, argued in a New York Times article that “Bitcoin is too dependent on speculative mania to be of much use as a practical currency”. This assertion raises the question of what defines a “practical currency”. In spite of their fluctuating value, the numbers suggest that more and more people are starting to trust bitcoins. Chen admits that “Chinese investors are flocking”. Internet sites like Reddit and Wordpress accept bitcoins in an effort to increase online sales. Many peer-to-peer sites including Craigslist and Etsy feature vendors who also accept bitcoins as payment. Across Asia, small businesses and restaurants are doing likewise. Cyprus, a nation whose citizens have good reason to lack faith in their own national currency, is currently home to the world’s first bitcoin ATM. The idea behind bitcoins was to create a currency whose value couldn’t be watered down by some central authority, like the Federal Reserve, a concept that is becoming increasingly appealing to those who’ve become disillusioned by constant patterns of recession and recovery. So clearly, bitcoin is circulating. It can be used to buy food, clothing, and even house cleaning services. While it may not be prudent to immediately convert a life’s worth of savings into bitcoins, they can hardly be described as an impractical currency.

As the use of bitcoins increases, so do government attempts to control it. The government of China recently released an ambiguous statement warning citizens to use bitcoins at their own risk. According to the Washington Post, the U.S. senate is in the process of holding hearings to discuss the possible regulations of bitcoins. Governments are sweating, and with good reason. Unfortunately for the Federal Reserve, peer-to-peer currencies extend far beyond bitcoins. Another, similar alternate currency is on the rise. Known as “branded currency”, this type of money is built exclusively on the premise of loyalty. Examples include Starbucks Star points, airline miles, and the newly released Amazon Plus coins. In underdeveloped nations of Central America, bottles of Tide detergent are commonly used by cocaine bosses because they hold their value better than any form of national currency. While it’s impossible to exchange twelve Star Points for any amount of dollars, twelve Star Points can be exchanged for a Starbucks coffee. In this manner, brands are effectively issuing their own currencies redeemable only within their own micro-economies. While the limitations of branded currency for a company like Starbuck is obvious, Kemp-Robertson agrees that large companies like Amazon will soon be competing with the Federal Reserve for how consumers define what they’re spending.

In the context of peer-to-peer and branded currencies, quoting an advertising expert like Kemp-Robertson on the future of money suddenly makes a lot more sense. Reputations sell products, he claims, and reputations are built on trust, consistency, and transparency. A Gallup poll reported that trust in banks (i.e those connected to the Federal Reserve) is at an all-time low of about 21%. The reason institutions like bitcoins and branded currencies are bad news for governments is it makes it virtually impossible for them to make money from those types transactions. Respected anthropologist Jack Weatherford lends validity to this statement with his claim that alternative currencies, while seemingly better for the consumer, are dangerous to the government because they prevent them from taking a “hidden tax”. According to Weatherford, politicians benefit in the short-run by releasing more money and devaluing national currency. They have “more money to spend on their favorite projects”, while consumers must come up with more money to deal with the price of inflation. By buying and selling with a currency separate from any central institution eager to take a portion of its value, the purity of a currency is retained and all participants benefit.

Money is a uniquely human construct; as such, it can and must be changed to suit the human environment in which it functions (Lietaur). Historically, governments controlled currency and its flow. The tide, however, is changing direction. In the words of Jonathan Swift, “money is the lifeblood of the nation”. Unable to fully control commerce, governments will have to adapt in response to the evolution of money. Peer-to-peer and branded currencies are part of an inevitable process of globalization. Cryptocurrencies make international and domestic transactions more efficient than was possible with earlier technologies. While bitcoins themselves may not succeed in the long run (their abundance is capped at 21 million) other similar currencies will be developed to take their place. Unhindered by federal restrictions, a new generation of entrepreneurs is developing with no loyalty to any particular country or national economy. Commerce is becoming freer and more extensive, bringing diverse sectors of the world economy together in ways that older institutions, like cash and credit cards, never successfully accomplished. Free from restraint, money will play a far more important role in social life than ever before, becoming the only objective standard against which all value and worth will be measured.




Bibliography

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Hern, Alex. "Is Bitcoin about to change the world?" The Guardian. Guardian News and Media, 25 Nov. 2013. Web. 3 Dec. 2013.
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