A Tale of Two Currencies:
Comparing Bitcoin and the Hudson Valley Current.
Because of their profound differences, a comparison between Bitcoin and our local Hudson Valley
Current is very much in order. Bitcoin has been getting a lot of press of late, much of it bad. This reflects poorly on a worldwide movement toward complimentary currency projects, which are by and large local, low key, and ethically sound.
Just as Bitcoin is getting a lot of press, the Hudson Valley Current is well in to a successful beta launch, with over fifty members and growing quickly. Full disclosure here: I am one of the founders of the Hudson Valley Current, and I sit on the board of the not-for-profit organization which operates the Current. Though I will say that I believe the Current to be a superior model in all its major characteristics, my main purpose here is not to denigrate Bitcoin, but to use the comparison to help you, dear reader, understand more about the nature of emerging monetary systems at this point in history.
All currencies have what is called a “basis of issue.” In the case of a coin issued by a monarch, the basis is simply the authority of the monarch, plus whatever commodity value might be in the coin itself (usually gold or silver). Modern paper and digital currencies are typically issued by national governments, and the authority and legal system of that country provides the context for the issuance of the currency, which usually arises from a mixture of public and private debt. (90% of U.S. Dollars are issued by the private banking industry.) Complimentary currencies, on the other hand, are not issued by any kind of governmental agency. They come either from civil society or the private sector. Even among currencies issued by civil society, there are differences. Berkshares, for example, are issued simply in exchange for U.S. Dollars. The Hudson Valley Current is issued when a participating member delivers goods or services to another member. The value of that good or service provides the tangible basis for a digital credit, awarded to the person who provided the good or service. In a very real sense, it is based on credit, not debt, because a positive balance in Currents means you have delivered something of value. It’s not just a promise. At the same time, the system as a whole is really about the flow of credits and debits in the exchange economy. It is not about having Currents, but using them.
So what about Bitcoin? Although bitcoins are not issued by any government agency, it is a bit murky whether it could be said to be a civil society or for-profit endeavor. Technically it is called a peer-to-peer process. Bitcoins are issued by a cryptographic computer program created around 2009 by a person said to be Satoshi Nakamoto (which could be a pseudonym). No one admits to knowing him or where he is.
Computer users with specialized expertise and equipment “mine” bitcoins by solving massively complex mathematical problems. When they get one, they then have some sort of a digital entity which has its own security features. You own it, so it’s valuable. An FAQ on a Bitcoin website answers the question, “What gives a bitcoin its value?” with one word: “mathematics.” To my mind, this is not a valid basis of issue, except in the pure psychological sense that, well, whatever two people agree has value, has value. But simply asserting that, say, a snowball, can be traded for goods and services does not a basis of issue make. (I have quite a supply of the raw material for snowballs these days in my yard, so I suppose I could be very rich if I could make that little idea work. Just don’t tell me my snowballs are worthless. I might have a meltdown.)
The other problem with Bitcoin is that the supply of coins is strictly limited by the computer algorithm to 21 million units. This introduction of artificial scarcity is a glaring structural defect of Bitcoin. The inevitable outcome of this feature is that bitcoins have become an object of speculation and hoarding. Their value in relation to other currencies fluctuates, and they are now used less as a currency than for speculation. Many governments, including China, Russia, and the European Union to put various restrictions, bans, or warnings on Bitcoin. In the eyes of many regulators, Bitcoin is not a currency but rather a security (i.e., part of a broad category of financial instruments that includes stocks and bonds).
Now, I am pleased to live in a country that doesn’t just put the hammer down on experiments like Bitcoin, even if they are on the edge in various ways. At the same time, we do need to be aware of the ethical dimension of a complimentary currency. Bitcoin users have definitely danced with the dark side. It has been a haven for stuff like money laundering and other kinds of illegal transactions. In fairness, these activities do not seem to be integral to the technology of Bitcoin. For example, bitcoin transactions are not entirely anonymous, as might be assumed. But I think it is fair to take a look at what sort of culture has sprung up in practice around Bitcoin.
As I see it, the main shortcoming of Bitcoin is the objectification of the monetary unit. It is regressive in the sense that a bitcoin is seen as a “thing” to be hoarded in and of itself. In that sense, it could be called a “crypto-commodity,” something that is intended to be like a precious metal. In that sense, though technically a brilliant system, it is a step backward in monetary practice, rather than forward. The Current, by contrast, is purely focused on facilitating actual economic transactions. It works by weaving a trusting, known, fabric of local trading relationships. Money is seen as a flow, not an object.
I hope this column is not regarded as a purely partisan critique. I am still studying Bitcoin—and it has many emerging imitators that may have different models. As the complimentary currency movement grows, leaders of local and regional currencies are starting to investigate possible links between their systems, and issues such as convertibility, security, and regulation will increasingly come into play. As the social technology of money evolves, we can and should learn from all the systems out there on the world stage.