As I recall, my grandfather was a prolific collector of stamps for most of his life. I vividly remember him showing off his neatly organized books full of stamps with impressive valuations for a young kid with little money.
The valuations shot up when those stamps were not new but were old and had been used to send a letter stamped by a post office somewhere in the world. Many collectors would send each other stamped letters to inflate their stamps’ value artificially, even using old but unused stamps.
Like the blue book for cars, a reference book was used to approximate the stamp’s value, new or used, to exchange other stamps or establish a cash purchase price. And every year, a new book would show the most recent valuations.
Bitcoin works on the same basis as stamp collecting, just a tad faster with the help of the immediacy of the internet, as a worldwide purchasing and distribution mechanism. Bitcoin is a cryptocurrency, not an economic system, in which the buy-in of its valuation -without intrinsic value- drives up the price.
How is that different from regular currencies?
In a regular currency, money is exchanged in return for products or services rendered. The price of the product or service could be too high, just right, or too low, but that price merely establishes trust in the perceived usefulness of the product or service. Hence, in a regular currency, money aims to convey trust (with plenty of deficiencies in its current state), where trust is unevenly distributed under the perceived difference in value offered.
Contrast that with bitcoin, where the mere frequency of exchange of “postage stamp valuations” jacks up the price and turns the trust in value indiscriminate. And when trust is indiscriminate, we are fooling ourselves. Indeed, cryptocurrencies like Bitcoin make the world flat again, opposite the discriminate plurality required for humanity to best adapt to nature’s entropy.
You may not care about my rationale or the future of humanity. Like postage stamp collectors made money regurgitating valuations amongst themselves, bitcoin collectors will too. After all, there is a vast market to sell make-believe to society’s growing herds of greater-fools eager to, in any way possible, buy back the freedoms we have taken away from them since birth.
But using human intelligence to fool ourselves is not in the long-term interest of the human species. Cryptocurrencies are evolutionary worthless and, worse, a net negative in expanding human ingenuity to fight the curve-balls of entropy nature throws our way. In all fairness, not unlike regular money detached from evolutionary merit. Both will make the most intelligent animal on the planet become the shortest ever lived. You can pick your poison.
Tesla’s move to purchase $1.5 billion in Bitcoin yesterday, no doubt induced by Elon Musk, proves a genius in one area may not be a genius in another. We must establish a human theory in which the tricks we use to fool ourselves are systematically eradicated before nature’s first-principles do.