As I write this, the value of Bitcoin has risen to over $2,500, and the value of Ethereum has come up to nearly $200. There are also the other various cryptocurrencies that have experienced dramatic rises in the past couple of weeks. It’s a sort of cryptomania right now. There seems to be many unprecedented things going on here, and like the all new paradigms these alt currencies are creating, these valuations seem to be breaking all kinds of rules and traditional trading rationale. The valuations don’t seem to be following the sorts of trends and measures that usually offer indicators on securities or commodities. Neither do they seem to follow traditional indicators on currencies. So, this isn’t an article about the potential direction of these valuations. These mechanisms of how these currencies are valued seem to elude me. Rather, this is an article about the likelihood of common usage of cryptocurrencies.
Like the majority of libertarians, I watch these cryptocurrencies with interest and cheer on climbing valuations in hopes that it might mean broad acceptance of these currencies, at some point, as a replacement to traditional currencies. I see the benefits of a decentralized currency – far outside the control of any one person or group of people. These are currencies for which no government can rest control away from the people. And, while the notion of the usage of such currencies is enticing, it isn’t very practical in terms of wide usage at this time. Using cryptocurrencies is clunky, at best.
To use one of these cryptocurrencies, I have to open a wallet out of thin air, then I have do something that feels like sending off my money to a distressed prince in desperate, but profitable circumstances in my email inbox. I have to send my money off into a dark cyber world that is unfamiliar and contains operations with which I have no experience whatsoever, and I am not sure whether it will exist only in my mind or I will someday be able to retrieve it. While logically, I assume that there will be no problems, it is hard to trust such an unfamiliar process. There are also limited options for the use of the cryptocurrencies, primarily limited to private transactions with other people I might have a hard time finding or with a handful of online marketplaces with a very limited stock of merchandise.
While it is certain that options for using cryptocurrencies will increase over time, I believe it is going to take more time than most crypto-optimists realize. I believe that cryptocurrencies overtaking the currencies we all now know is inevitable at some point, but it is going to be quite some time before it happens. I don’t like being such a pessimist, but there are enormous hurdles to these things, the chief of which is the governments and the central banking systems that have cornered the market on currencies. They aren’t just going to throw all that power away because we’ve decided we like decentralized authority better. Neither are people ready to accept an entirely new way of thinking about their money that changes the very foundations of their understandings of how they live from day to day.
As a practical example, Oklahoma passed a law making gold legal tender three years ago, meaning that people can use gold to buy and sell things without any trouble from government. However, having operated a business in all that time in Oklahoma, I have never had anyone offer up gold to buy anything. I would love it if they would, but there’s just never been any talk of it. I have a little bit of gold myself, but I still don’t view it as money. To me, it’s still a way to guard against inflation and poses an alternative investment. People really just don’t feel pressed to use gold as currency, even though it has become legal here.
As another practical example, I once began offering to sell my goods for Bitcoin, trying to do something different and offer a service competitors weren’t offering. About a year and a half later, there had been only one customer that even so much as mentioned it, and said he was shopping at my store solely because I offered to transact in Bitcoin, but he paid with old fashioned American dollars. My credit and debit card processor suddenly halted all activity on my merchant account while holding several days worth of transactions, because they had discovered my acceptance of Bitcoin. They were refusing to pay the deposits I had due until I removed any sign of accepting Bitcoin and sign a statement stating such refusal. I had no choice but to do so, or face losing an enormous amount of money that I could not afford to lose. When I inquired as to why and what business it was of theirs what currencies I accept, they replied that they did not want to be anywhere near businesses transacting in cryptocurrencies out of fear of being accused by the government of money laundering. There was no way I could afford to stand on principles and lose such a large quantity of money, so I caved to their demands.
Government agencies around the world use the banking systems to keep tabs on people and to follow cash to spot criminal activity and to make sure nobody is hiding income from taxation. If you take money out of that system, especially in any noticeable way, these government agencies become highly suspicious and assume you must be a criminal yourself. There are very negative consequences, up to as negative as the seizing of property and potential prison time. With hammering threats like this, nobody wants to risk legitimate transactions being taken for criminal ones.
Full acceptance of cryptocurrencies also means the end of banks as we know them. There is no need for a bank, in the current way they exist, to store your cryptocurrencies. This means undoing a means of transacting business and borrowing money that has become so entrenched into society for hundreds of years that it has become a symbol of what creates a civil society in the minds of the vast majority of people. The banking system has been at the very center of every major improvement in society for the past few hundred years. Want to see true civil unrest and panic? Just put “closed for business” signs on your local banks and see how quickly people freak out at the thought of losing access to capital, even if their money could be obtained through different means.
It took hard currency millennia to develop into the way we know and use it, and the banking system took several centuries to become entrenched into the fabric of society. All of that doesn’t change in the blink of an eye. While I will continue to cheer on the rise in crypto valuations, I am not going to assume that these cryptocurrencies will be in full use any time soon. I love the idea of them. I want their full usage, but I am enough of a realist not to “bank on it.”