The Economy Is Full of Crypto (And Collective Delusion)

Finance has become untethered from productive work.
This post originally appeared in Money Stuff.
We have talked a few times around here about a socialist republic that has been hit hard by sanctions imposed by the U.S. government and that, in response, is planning to issue its own cryptocurrency to raise money. I mean Venezuela. Venezuela's government is the one that is planning to issue a cryptocurrency to replace money that it has lost due to the policies of the U.S. federal government. In other news:
"The City of Berkeley, one of the epicenters of liberal California, is considering a turn to cryptocurrency to reduce its reliance on federal funding in the Trump administration.
Berkeley would become the first city in the US to hold an initial coin offering (ICO) — a type of crowdfunding campaign that's become popular in the past year. The city would raise funds by selling digital assets called "tokens" that are backed by municipal bonds, a type of security issued by the local government."
"Berkeley is the center of the resistance, and for the resistance to work, it must have a coin," says a city council member, in a sentence that makes as little sense as every other sentence in this story. You can just sell the municipal bonds. Why sell "tokens" that are backed by municipal bonds? Fine, fine, you want to issue the bonds "on the blockchain"? I will allow it, you gotta keep track of the bonds somehow, that is some harmless buzzwordery. But throwing in the buzzword "token" is, I think, a bridge too far.
Elsewhere here is John Quiggin arguing that "the Bitcoin bubble should finally destroy our faith in the efficiency of markets." In particular, he notes that Bitcoin is a terrible currency, and then dismisses the alternative argument that Bitcoin's value comes from its usefulness as a store of value:
"Consider: If Bitcoin is a “store of value,” then asset prices are entirely arbitrary. As the proliferation of cryptocurrencies has shown, nothing is easier than creating a scarce asset. The same argument would apply to any existing financial assets. Any stock in the S & P 500 could be priced not in terms of future earnings prospects but on the basis that people choose to value it highly."
It's true! There is something sort of charming and hopeful about it though. In the old economy, to build something valuable, you had to build something valuable. In the new economy, you can just launch an intrinsically worthless token and go around to people and say "what if this was valuable?" And if you can convince them of your vision -- your vision of it being valuable -- then it will be valuable. It's finance untethered from productive work. It's so ... postmodern. In 100 years, when the robots do all the making of things, how will humans create value if not through collective delusion?
And here is a press release for a token generation event run by a food and beverage company in Southeast Asia, which I point out to you only because the token is called "Bitecoin." Good work! Please don't email me to explain that there are already nine other tokens called Bitecoin. If only there were some sort of ... decentralized immutable registry ... to track who owns the rights to various cryptocurrency names. Here I wrote you a white paper:
"Problem: Everyone wants to use the same names -- BitcoinExcelCoinWu-Tang Coin, PonziCoin -- for their ICOs.
Solution: The decentralized CoinNameCoin blockchain will keep a secure public record of who owns the rights to each coin name. Coin promoters can buy and sell coin names using CoinNameCoins, right on the blockchain, ensuring that coin names will go to their most economically valuable use."
I guess if this already exists you should email me about it. Otherwise please just send me $100 million, thanks.

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