Move fast and break things” was the famous motto of Mark Zuckerberg, Facebook’s founder. Among those broken things have been norms of trustworthiness essential to democracy. An activity as dependent on trust as democratic politics is money and finance. This is why developments here cannot be left to the greed and fanaticism we see in the world of cryptocurrencies. Careful assessment needs to be made of this world and its relationship to the broader one of digital money. Change is indeed on the way. But it cannot be left to happen.
The cryptocurrency movement would reject that, because its roots lie in anarchistic libertarianism, as Nouriel Roubini of New York University argues. This ideology also beats in the hearts of many Silicon Valley entrepreneurs. They are not altogether wrong: the state can be a dangerous monster. But it is also essential: it is humanity’s ultimate insurance mechanism. The world of anarchy is one of competing bandits. It is far better to have just one, as the late Mancur Olson argued in Power and Prosperity. Moreover, he added, liberal democracy helps tame that bandit. States exist to provide essential public goods. Money is a public good par excellence. That is why dispensing with the role of governments in money is a fantasy. The history of the so-called cryptocurrencies demonstrates this.
Money is a store of value, a unit of account and a medium of exchange. To be a really good currency, it needs to be durable, portable, divisible, uniform, limited in supply and acceptable. How do cryptocurrencies measure up against these requirements? They are clearly neither a store of value nor a good unit of account, as their vast swings in price show. They are not a good medium of exchange, because law-abiding people and businesses do not want to own assets that are, by virtue of their anonymity, ideal for criminals, terrorists and money launderers. While an individual cryptocurrency can be limited in supply, the aggregate supply is infinite; according to the International Monetary Fund: “As of April 2018, there were more than 1,500 cryptocurrencies.” There could just as easily be 1.5m.