The promise of cryptocurrencies is that we can create a widely-acceptable medium of exchange without having to trust anyone. Cryptocurrencies have no central authority, no government agency to vouch for them. We don’t need to trust a government or a bank or a stock exchange. Elites can’t cheapen our currency because no elites are involved. Indeed, no one is involved. The currency is distributed across multiple computers and multiple networks. To manipulate the currency, one would need to control all the computers in the world – a seemingly impossible task.
In the original conception, the value of a cryptocurrency is based on nothing more than supply-and demand. Value is not linked to any physical asset like gold or oil or even paper currencies like dollars. Since there is no asset behind the currency, no one can manipulate the value of the currency by manipulating the underlying asset. Rather than trusting a government or an agency or a bank, we place our trust in an algorithm distributed around the world.
(The distributed nature of cryptocurrencies also makes them quite slow. Speeding up transactions is a major challenge for blockchain researchers. The most promising solution seems to be “sharding” – a technology worth keeping an eye on.)
Traditionally, we’ve trusted governments to create and maintain the value of national currencies. That’s been a pretty good bet in the United States, less so in Venezuela. But, really, do we need a nation to create a widely acceptable currency? Cryptocurrencies suggest that the answer is “no”.
But there’s a not-so-subtle problem with cryptocurrencies. The elephant in the room is that many people (myself included) view cryptocurrencies as a new version of the Wild West – a territory populated by libertarians, wild-eyed visionaries, snake oil salesmen, drug dealers, scam artists, and terrorists. And, by the way, some person created the algorithm and could potentially manipulate it for illicit purposes. Simply put, the current cryptocurrency scene does not inspire trust.
To fill the trust gap, several “trusted” agencies have stepped forward to offer cryptocurrencies based on a trusted brand and/or on physical assets. Case in point: J.P. Morgan Chase’s “JPM Coin”. Announced earlier this year, (click here, here, and here) JPM Coin is backed by a major bank and based on a physical asset: the U.S. dollar. The company touts JPM Coin as a simpler, faster way to make and clear payments.
This past week, of course, another “trusted” organization – Facebook – announced that it will introduce a new digital currency called Libra next year. (Click here and here). Facebook wraps its announcement in humanitarian gauze – it’s simply providing an effective payment service to the world’s unbanked citizens. As Evgeny Morozov points out, however, Facebook is actually doing two things:
Could Facebook’s Libra actually become a global currency at the expense of the dollar, yen, Euro, and renminbi? Facebook currently has 2.38 billion active users. That number makes even China’s population look small. If a significant portion choose the Libra over existing currencies, then the money we know today could become irrelevant. If a nation’s currency is irrelevant, how relevant is the government?
Given all this, here’s a basic question — whom do you trust more: 1) the American government; or 2) Facebook?
(Note that JPM Coin and Libra are not truly cryptocurrencies, at least not in the original sense of the word. A cryptocurrency has three elements: 1) No central authority, agency, governing body or processor. Clearly J.P. Morgan and Facebook are centralized governing bodies. 2) No physical assets backing the currency. JPM Coin, uses the U.S dollar as its backing asset – it’s a digital currency based on a fiat currency. Facebook says that Libra will be based on physical assets, though it hasn’t quite defined them. 3) Permissionless – you don’t have to ask anyone’s permission to use a cryptocurrency. To use JPM Coin, you need to have an account at J.P. Morgan. To use Libra, you’ll need a Facebook account. Given this, it’s probably best to call JPM Coin and Libra “digital currencies” as opposed to “cryptocurrencies”.)
The USA locks up more citizens proportionally than any other country in the world. For every 100,000 people, we have 716 in jail. We’re followed closely by countries like Rwanda (527), Georgia (514), Cuba (510), and Russia (502). Nice company. At the other end of the spectrum we see those pesky Nordic countries again: Denmark (74), Norway (73), Sweden (70), Finland (59), and Iceland (47). (For a list of incarceration rates in 220 countries, click here).
We might think of this as an economic and technical problem. Prisons aren’t very efficient at converting criminals into model citizens. It costs a lot to keep so many people in jail and the recidivism rate is high. This can’t be helping us to balance the budget. So, the question becomes: are there more efficient, less costly ways to keep so many people off the streets?
As Evgeny Morozov points out in a recent article, this is exactly the way the consulting firm, Deloitte, framed the question in its recent report on virtual incarceration. The idea is simple: use technology to increase efficiency. By combining mobile phones with GPS and video cameras, we can lock up low-risk perps in their own homes. It’s less costly and certainly more efficient than current jails. If it can break the role of jails as the higher education centers of crime, it may also be more effective.
But Morozov asks a different question: is that really the problem we want to solve? Wouldn’t it be better to find solutions that would lower the incarceration rate? I’ve written a lot about disruptive innovations (and been the victim of a few), but Morozov writes that, “Smart technologies are not just disruptive; they can also preserve the status quo. Revolutionary in theory, they are often reactionary in practice.” Efficient incarceration is a good example. We’re not changing the fundamentals — we’re just making it easier, cheaper, more efficient to do the same old stuff.
I’ve always been a technical enthusiast. I remember reading Malthus in college. He wrote (in 1798) that, sooner or later, we would run out of resources to support a growing population. Society is improvable only up to a point; it’s certainly not perfectible. I essentially rejected the idea, assuming that technology would always stay a step ahead. If Malthus’ prediction hadn’t come true in 200 years, I thought we could safely ignore it.
Morozov is making a subtler point, however. It’s not just about resources. It’s also about our attitude and our ability to frame questions effectively. As he writes, “That we now have the means to make the most miserable experiences more tolerable should not be an excuse not to reduce the misery of those experiences.”
I think an increasing number of Americans is growing increasingly concerned about the number of people we lock up. We may be building a consensus for change. If we make incarceration less costly and more efficient, we may just undercut that consensus. Is that really what we want?
If Morozov is right, we may have to re-phrase Karl Marx’s classic aphorism. Reigion isn’t the opium of the people. Technology is.
(By the way, Morozov has also written a terrific book, To Save Everything Click Here: The Folly of Technological Solutionism, which I’ll write about soon).