Crash and Carry on, Canadian Chip Chumps, and the Internet of Sins

Welcome to the CoinDesk Weekly Review 13th April 2014 – a regular look at the hottest, most thought-provoking and most controversial events in the world of digital currency through the eyes of scepticism and wonder.

Your host … John Law.

Breaking China

China stamps hard on bitcoin, and the price crashes: what excellent news for investors.

John Law should explain: he’s not shorting bitcoin, and he does feel the pain of anyone who’s got substantial holdings. But in terms of the long-term prospects of cryptocurrencies – and those who are investing time and money on the expectation that the technology itself will prosper – this is no bad thing.

It is now generally accepted, because both the FT and the Economist say so, that China has been the dominant force in driving bitcoin prices up. More than half the bitcoin action in the world has been sucked into the Middle Kingdom, and not because everyone there wants to buy alpaca socks or skinny lattes.

Instead, the suction has been driven by the osmotic fiscal pressure of having a ferocious economy and a fiat currency badly in need of revaluation.

Bitcoin looked very good as an alternative tradable investment device. Too good, decided the Mandarins, who have allegedly re-established the protective veil around the renminbi by banning bitcoin-to-fiat trading.

If true, this would have two effects: one being a little obvious round about now. If bitcoin is to be an investment vehicle, it’ll have to be one without the Chinese involved. Where will the value end up? Well, using the highly scientific method of looking at the price over the past year, John Law reckons around $180 to $230, which is where it was happily sitting for a while before some massive object started to pull it skywards. Eastwards, if you prefer.

The other is that there will be a huge pool of bitcoin sitting in China that can’t be cashed in. But they will still be moved around – like currency’s supposed to do – and they will retain their nominal value as set by the rest of the world. They’ll still have value, but only if they’re used to buy stuff.

An industrious and hard-working nation like China will make use of that. Alpaca socks and skinny lattes are unlikely to see much of a surge, but you can bet your bottom yuan that deals for goods and services will be struck and bitcoin will circulate. Which means its true value, as a damn fine mechanism for circulating, will be realised – alongside all the ancillary economic activity in support services and products.

Which is good news for those investing in such things. When faced with broken china, get cracking.

MintChip takes a licking

MintChip sounds delicious, like the sort of ice cream John Law remembers – along with sunburn and sand in his socks – from childhood summer holidays. But the ice creams of yesteryear have long since melted and MintChip, a Canadian government initiative in electronic currency announced in 2012, is going the same way.

The Canadian state is trying to wash its hands of the sticky residue, hoping that a private company will take it over, but enthusiasm is as limp as a Magnum left in a glove compartment for five hours on the hottest day of the year. (Don’t ask – thank God it was a rental.)

But why has it failed, you cry. How can a government project, run by a government agency, tied to the existing government currency, based on a physical chip, limited to one country and relying on governmental software, not have generated the excitement of bitcoin?

It’s hard to credit. But check out this Q&A with MintChip project boss Marc Brûlé – who sounds like he’s named after a posh pudding himself – as he went on a 2013 promotional press circus. The idea was cooked up at a retreat of the Royal Canadian Mint executives, where they decided what consumers wanted from electronic currency. They’re a diversified business. They’re good at patents, too.

To be fair, MintChip did get some things right – peer-to-peer transfers, low overhead, usable just as physical currency online and in real life. Real advantages, and key features any electronic currency will need to succeed.

So why has bitcoin been so successful that governments are trying to ban it while government and big business projects sink out of the bottom of the cone like a melted 99? Remember Visa Cash? Mondex?

It’s called letting go. What the Internet knows, and what big pre-Internet concerns do not, is that unless you are a certifiable genius, trying to guess what people want is a really bad way of giving it to them. Hollywood, as William Goldman said, is a place where nobody knows anything. Turns out that that’s true of most things. People are ungrateful sots who persist on deciding for themselves what they like. The best way to make that work for an idea is to put it out there and see what use is made of it – and to make sure that anyone can say “Hm, yes… but what if we try it this way?”.

Before the Internet, the closest most businesses got to that was focus groups and pilot projects – or just spending enough on marketing to persuade people that they did want something they wouldn’t otherwise look twice at. Or going on a retreat with your pals and pretending to be certifiable geniuses. That way, you get cash-onna-dongle.

What bitcoin and chums have that the Royal Canadian Mint does not isn’t some sort of philosophical purity or magic, God-given genius. It has reddit, Github, blogs and open code.

And that can’t be licked.

Architecture and Morality

John Law is easily puzzled, but the equation of bitcoin mining with immorality really has him beat. How can it be moral, the argument goes, to burn all those planet – endangering megawatts in the chase for something so ephemeral and tainted with greed?

As Coindesk’s own Danny Bradbury is so eloquently exploring, if you take that tack you better be prepared to look at the same equations for the rest of the financial system. It’s also worth casting a look at, oh, gold mining, which chomps through so much power that even at the current exalted price for the metal it’s actually becoming uneconomic. And that gouges actual holes in the planet.

But perhaps the critics have a point. After all, every action does have a moral component, and we are comprehensively mucking the environment right up. People don’t want to be evil, but it is impossible to know whether plonking down on the sofa to watch Game of Thrones on a 40” plasma is more culpable in the pleasure-vs-guilt scale of things than driving into town to buy the books. And what if you order them online? More to the point, can bitcoin actually be an unarguable force for moral good?

John Law has a modest proposal. Alongside the Internet of Things, where all our devices talk to each other about what they’re doing, we must create the Internet of Sins, where they talk about us.

Like any useful technology, the IoS takes something that humans need to do but are bad at doing, and offers the services of automation to relieve us of the burden. Think of it like carbon offsetting but with micropayments and – crucially – a central exchange of naughtiness that sets a value on the good-to-evil scale for everything. It will be a bitcoin of cosmic responsibility: the karmacoin.

All our interactions with technology are metered and stored, these days, and just about everything we do is an interaction with technology. Your TV knows what you’re watching and how much power you’re using, while the shop that sells you your TV set knows who made it and how it got there. In turn, the acts of manufacturing and transportation are documented in detail by the computer systems that manage them. The oil that goes into the plastic, the metals that go into the circuitry, the investments in education or armaments that the bank that finances the TV makers has, everything can be factored in.

The architecture of the Internet of Sins is conceptually simple. Each such interaction can be graded on the good-versus-evil scale and the value stored, to be transferred along the chain. You’ll end up with your share in your karma wallet whenever you take an action, all transferred by the same anonymous-yet-unfakeable protocols that power cryptocurrencies. The good-versus-evil index will be created by a global database of acts graded by mass consensus – a computerised version of how we decide our morals anyway. The flame wars in the comments will be epic.

What we do with our accumulation of karmacoins will, in the end, be up to us. But at least we’ll truly know the consequences of our actions.

Bet it won’t just be the Chinese that ban that.

John Law is an 18th Century Scottish entrepreneur, financial engineer and gambler. Having reformed the French economy, invented paper currency, state banks, the Mississippi Bubble and other ideas essential to modern economics, he took 300 years off in a small cottage outside Bude. He has returned to write for CoinDesk on the foibles of digital currency.

Broken china, ice cream and morality images via Shutterstock