Over the past two years or so, many of my friends have asked me, “What is a cryptocurrency?” followed by, “Hey, why don’t you write a piece on this?” I obliged this request last year and despite this, the requests have shifted to this: why has blockchain technology has become so popular? I have to wonder if cryptocurrency is just part of a complex saga such as Garcia-Marquez’ One Hundred Years of Solitude, but without the family tree at the front of the book for clarifications or if the issue is more about cultural interpretations of what cryptocurrency means for certain people.
Some have written tutorials on this subject as well as Blockchain for Dummies all of which seem to have a positive slant on Bitcoin and “how it can work for you.” But does cryptocurrency really work for anyone? I mean isn’t buying cryptocurrency like buying stocks. According to John Hwang, former Senior Options Trader at Morgan Stanley, they are anything but, as he notes that cryptocurrency is prone to “pump and dump schemes” which favors insiders, lacks a deposit or any form of security insurance, is not backed by any assets or revenue, and lacks price consistency across exchanges that the SEC guarantees stocks. All this, plus the fact that banks in many countries like Switzerland and the United Kingdom have been rejecting companies that handle cryptocurrencies for fear of fraud and money laundering even if this posture has vastly shifted in recent months. Yet nothing is really explaining the popularity of these currencies culturally.
For instance, many African nations like Kenya, Nigeria, Uganda and South Africa have embraced the blockchain experiment with exchanges being set up offering opportunities to the unbanked offering an opportunity, as some see it, to “democratize the economy.” Others view this sort of currency as a means of offering a third option to the current economic model, shifting from the public/private dichotomy. In fact, some view the financial collapse of 2007 purely the result of “public strategic assets run by private concessionaires” and the recent tragedy of Genoa’s collapsed Morandi bridge caused by Atlantia SpA, the private company holding the contract to the Italian highways, the result of lack of oversight when private companies take over public assets and safety. In short, one solution to the mishandling of public funds in the hands of the private or public sectors has been to hand this task over to the blockchain system which can manage strategic public assets.
Perhaps the largest drive towards cryptocurrencies is the fact that there is no central authority on this product and it is based on maths instead of gold which is viewed, by many, as a democratizing force of economic power. No more is there the small entrepreneur against the larger corporations or the trust-fund babies who starts off with an advantage due to birthright. Cryptocurrency is viewed by many as a form of “employee equity” and as a “hedge against the future” of an already precarious job market. And we are seeing how popular this product is amongst the most experimental areas like London where a third of investors there back digital currencies as well as among millennials for whom financial stability is just a word as they grew up during the global financial meltdown. As Teddy Wayne writes for the Independent, he notes the younger generation as operating in a completely new way as opposed to savings, mutual funds and pensions: “As traditional paths to upper-middle-class stability are being blocked by debt, exorbitant housing costs and a shaky job market, these investors view cryptocurrency not only as a hedge against another stock market crash, but also as the most rational, and even utopian, means of investing their money.”
Sure, crypto is hyper-volatile, but there is something about cryptocurrency which is appealing to many today just as day-trading appealed to many in the 1990s, then believed to be a get-rich-quick scheme (and it was for some) even if a majority of people lost money. The difference today is that for many in the developing world and millennials who see their futures as pre-determined by debt and the uncertainty of the precarious economic systems in place, cryptocurrency is their “glass half full” towards the future. Even now many are using digital currency as their retirement fund as the degree of “risk-taking” is pretty much the same on either side of the equation. And why not reach for the new model which, at the very least, might offer a much needed change to the current system?
With popular culture references to cryptocurrency making this venture seem more simplistic than it really is, this hasn’t stopped digital currency’s appeal to many because of its cultural currency. In “The Bitcoin Entanglement” episode on The Big Bang Theory, Sheldon attempts to teach the group a lesson about Bitcoin saying, “It’s a new online currency that’s been created. It’s just like actual money, except you can’t see it, hold it, or spend it on anything.” And the episode is a series of flashback to seven years earlier when Leonard and Howard write a program to mine Bitcoin with Sheldon being pessimistic about the whole affair. At the end of the episode, it is discovered that the Bitcoin that However and Leonard mined years earlier ended up on a Batman USB flash drive in the hands of Stuart who planned to erase the drive and sell it.
While today we might wonder if Bitcoin is any more valuable in hapless Stuart’s hands than it is in real life, only those throwing caution to the wind in their current investments will be able to comment on their decision to take a risk. Personally, I hope the underdog wins—that African and Asian startups will prosper and that the millennials the world over who have been cut out of a post-neoliberal job market and economic security will be the future purveyors of a new system that reinvents the old. At the very least, these folks will be a wealth of knowledge on this subject for years to come.