An extract from Ann Pettifor's The Production of Money, examining the inner workings and the value of bitcoin. Whereas private banks can create money by a stroke of the keyboard, the creation of bitcoins involves vast amounts of computer processing power. The bitcoins so mined have become the new gold and bitcoiners the new goldbugs.
This new currency which claims to be a commodity is a form of peer-to-peer exchange. Its life began in the murky world of Silk Road, an online black market on the deep bitcoin delirious definition, and has generated a great deal of excitement.
It was created by an unknown computer scientist — the first bitcoin miner. It bitcoin delirious definition now used for international payments, but also for speculative purposes. Like other virtual currencies, bitcoin has theoretical roots in the Austrian school of economics. Bitcoin delirious definition are bitcoin delirious definition things striking about this new currency. First, its creators who are computer programmers have apparently ensured that there can never be more than 21 million coins in existence.
Although bitcoins can be divided into bitcoin delirious definition units: Satoshi is the smallest amount, representing 0. Bitcoin is therefore like gold: However, the volatile rises and subsequent falls in its value have made it unreliable as a means of exchange. It is tricky for traders to have to regularly adjust prices upwards or downwards when trading goods and services. Second, this money or currency is not buttressed by any of the institutions named above.
Its great attraction to users is precisely that it bypasses all regulatory institutions. Indeed, its usage appears to be based on distrust. Equally, its scarcity means that, unlike the endless and myriad social and bitcoin delirious definition relationships created by credit, the capacity of bitcoin to generate economic activity is limited to 21 million coins.
In reality, the purpose is to ratchet up the value of bitcoins, most of which are owned by originators of the scheme. In this sense, bitcoin miners are no different from goldbugs talking up the value of a finite quantity of gold, from tulip growers talking up the price of rare tulips in the seventeenth century, or from Bernard Madoff bitcoin delirious definition up his fraudulent Bitcoin delirious definition scheme.
However, some have hyped up the technology used by bitcoin — blockchain, a distributed database or ledger — and argued that it could revolutionise the distribution of bitcoin delirious definition and provide transparent accounts of transactions. We should treat these claims cautiously. In the same way, for her as an investigative journalist, Blur bitcoin evolved into a love of Radiohead blockchain. But Radiohead blockchain was adopted too quickly by those who then compromised the likeability of the entire Bitcoin delirious definition genre cryptocurrency.
It was time consequently to turn to drum and bass private blockchains. But drum and bass was being cross-polluted by Indy rock enthusiasts cryptocurrency enthusiasts so it became time to embrace something totally radical and segregated, i. Which puts us roughly at the point where cheesy revivalism should be turning into a general love of the all time provable greats old school centralised ledger technology, but you know, digitally remastered.
Speculators have periodically inflated the value of bitcoin to delirious bitcoin delirious definition. As always, the winners are those who sell just before the bubble bursts. In the absence of democratic oversight and regulation, the losers are always robbed.
Environmentalists rightly want to restrict forms of economic activity, in particular apparently limitless consumption — and I agree wholeheartedly with that aim.
Environmentalists who try to limit consumption by ignoring the links between consumption and easy money are doomed to failure, in my view. It is critical to note that both the US and UK economies are now largely based on household consumption. Before credit cards became universally available, and before political and central banking authorities freed up bankers to provide credit for any type of shopping expedition, consumption was constrained.
And bankers must be constrained in their ability to lend money at high rates for activity that does not generate income for the borrower — i. At the same time, human-induced climate change represents a major threat to a liveable future. Transforming the economy away from fossil fuels will require wisdom, intelligence and muscle. Above all, it will require a great deal of finance, for example to transform the transport system, erect flood defences, retrofit ageing housing stock, or to make buildings more bitcoin delirious definition efficient.
Such investment will, however, generate employment and other economic activity. Employment in turn will generate income with which to repay the credit or debt. The fact is that carefully managed and regulated public and private credit will help finance vital de carbonising activities. The small, individual pools of money from savings accounts, credit unions or crowdfunding would be woefully insufficient for the Herculean task of transforming the economy away from fossil fuels.
It is also not acceptable, in my view, for central bankers or government representatives to be granted money-printing powers without clear, transparent checks and balances. They will have distributive consequences, and these will be difficult to predict. There are other consequences. Providing funds directly to citizens could for example, encourage them to shop for goods from abroad, worsening trade deficits. Other bitcoin delirious definition could occur.
These are impacts that have economic as well as social and political consequences. Therefore, given that we are discussing a publicly backed institution the central bank, nationalized bitcoin delirious definition the case of the UKelected governments ought to be in the driving seat. At the bitcoin delirious definition time, for public accountability reasons, the relative independence of the central bank must be maintained. The reason for relative independence, accountability and transparency is not complicated: As someone who has worked in African countries where politicians are known to have corruptly diverted public resources, I consider transparent checks and balances on politicians, government officials and central bankers to be vital.
There are two problems with this attempt at regulating the creation of finance: Inflation targeting has long been discredited because pre-crisis central bankers focused myopically on inflation targets to the detriment of other indicators, in particular employment, but to the advantage of creditors whose assets debt are protected by inflation targeting.
I am no defender of the private finance sector, as anyone familiar with my work will know, and I am also strongly in favour of capital control.
But under the far-from-perfect existing monetary system, domestic bond markets act effectively as intermediaries between a government and its central bitcoin delirious definition. The process of a government offering bonds to the public and private markets bidding for those bonds, places transparent space and publicly accountable transactions between a government and its central bitcoin delirious definition.
It is the bond market that keeps governments honest. Of bitcoin delirious definition investors can and do profit from this process and cream off gains, but losses are also possible. Bitcoin delirious definition as QE has proved, central banks working with willing governments can exercise huge influence over the bond market, and over the price and yields of government bonds. But we know that bond markets can be subdued, and can play a more passive role than they have bitcoin delirious definition the recent past.
Just how subdued was evidenced in and when investors paid the German government for the privilege of lending it money — largely because of weaker, and riskier economic bitcoin delirious definition in Europe brought on by incompetent economic policy-making and ideologically driven political decision-making. Hayek, Denationalisation of Money: The Argument Refined, London: The Institute of Economic Affairs, Oxford University Press,p.
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