What Crypto-Enthusiasts Get Wrong About Money

Fix it again, techies

Sam Bankman-Fried, founder and former CEO of FTX

Crypto prophets misunderstand what money can mean to people. They overlook its social dimensions, which means they miss much of its power. Money is more than a mere store of value. It’s a social and political tool, wielded in a variety of nuanced ways by nation-states and their central banks, as well as by children squirreling away allowances in the backs of sock drawers or mason jars on bedside tables. A few examples will draw out the richness of money as a social artifact.

In 2014, the people of Scotland went to the polls to determine whether to break their 300+-year-old union with England. One critical part of this debate involved the currency that an independent Scotland would use. The Bank of England and sitting Conservative-led government had said that the British pound was off limits, so what was to be done? The situation was more complicated than many outside observers might have noticed: When the United Kingdom took steps to centralize its monetary system, the legislation only gave the Bank of England monopoly on issuing currency in England and Wales. To this day, three Scottish banks continue to issue their own Pound Sterling notes: Bank of Scotland, Clydesdale Bank, and the Royal Bank of Scotland. These notes often feature specifically Scottish imagery, including notable landmarks and famous Scots. Not only that, but Scots frequently complain of their notes being rejected south of the border in England. As The Herald Scotland notes, this isn’t unique to Scottish banknotes—for example, stores around the world choose not to accept high-denomination bills.

So, when Alex Salmond insisted that Scotland would continue using the pound after achieving independence because “we don’t need permission to use our own currency,” he wasn’t just trying to make the case that an independent Scotland would be financially stable. He was expressing something deeper about the connection between the pound and the Scottish people and about the pound as an extension of Scottish sovereignty.

Elsewhere in Europe, Orbán’s Hungary continues to lag in its adoption of the Euro, despite having joined the EU in 2004. This is not simply about debates over monetary policy. Like all of his policy moves, it’s part of Orban’s broader project of Magyarist revival. The Hungarian notes are classic examples of the largely pre-Trianon mythmaking of the Orbán government. Stephen I’s Holy Crown is liberally splashed across forints, as are other nation-building figures like Mathias Corvinus and Francis II Rákóczi. The Orbán government’s obsession with medieval and revolutionary periods of Hungarian history, both of which speak to the prime minister’s revisionist Magyarism of a greater Hungary, has been well documented at this point. And Stephen I is even more relevant as a symbol of Hungary’s Christian, Catholic identity, set historically against invading Ottoman armies and contemporarily against various migrant hordes.

Also within Hungary, we can observe the fascinating phenomenon of local alternative currencies, such as the soproni kékfrank and the bocskai korona. The “currencies” operate essentially as vouchers, and they are supported by the Hungarian government.

I bring them up to show how multifaceted money can be but also to reemphasize the importance of states in legitimizing currency. They also operate as an even more territorialized currency than national money, as their circulation is limited to the towns/regions for which they are issued.

In the midst of the American Civil War, the U.S. Treasury explicitly acknowledged that money was much more than a tool for circulating value. It could act as a carrier for the national character. Political economist and historian Eric Helleiner cites an 1863 letter from the chief clerk of U.S. Bureau of Engraving and Printing to Treasury Secretary Chase arguing that the images on the notes might spur everyday individuals to learn more about their country’s heritage.

In a time many would be taught leading incidents in our country’s history, so that they would soon be familiar to those who would never read them in books, teaching them history and imbuing them with a National feeling.

Money’s ability to act as a carrier for these deep political meanings is partly rooted in its fungibility. Viviana Zelizer’s The Social Meaning of Money is a remarkable analysis of how Americans from the late 19th through the early 20th centuries separated out and categorized money for different purposes marked with decidedly different meanings and values. This includes “invented monies” like vouchers and coupons, different from but not unlike the aforementioned Hungarian local alternative currencies. Zelizer writes, “Money multiplies. Despite the commonsense idea that ‘a dollar is a dollar,’ everywhere we look people are constantly creating different kinds of money.”

Trust is at the heart of all these processes. The homogenizing of money markets pursued by European states in the 18th and 19th centuries was in part about creating a sense of reliability in commercial activity. One could trust the value of a coin or note. Fiat money is infused with the trust that it is backed by the state. Even the rejection of notes, such as a store’s refusal to take a 100 note, is partly about trust. Any exchange of currency is a social phenomenon layered with complex ideas and meanings. And it's also because money is infused with trust, backed first by bullion and then later by the state, that it can also act as a carrier of communication.

The digitization of our economies has clearly changed the way many of us interact with money, and the impacts of increasingly cashless environments come with their own challenges. But cryptocurrencies go beyond this, attempting to break out of the pre-established systems altogether. For many, cryptocurrency is precisely about abandoning traditional institutions, from banks to the state. Note the derision with which many crypto enthusiasts have reacted to central banks wading into digital currencies, though it’s true that these are really just digital versions of state-backed currencies and not rooted in the decentralized principle that drives Bitcoin and the like. I have always found this attitude a cause for concern and skepticism.

When I was a grad student in the early 2010s, working on the relationship between nationalism and national money, a faculty member asked for my thoughts on crypto. I actually didn’t have many at the time. But what I said seemed true to me then and still does now in the wake of the FTX collapse: these people fundamentally misunderstand trust as a social thing. They don’t really seem to have a clear idea of how these decentralized systems ought to operate out in the real world beyond an obsession with the ingenuity of blockchain technology. But money is much more than a financial tool.

Speculation is not what money is built on, though it’s certainly got a role to play in capitalist economies. And that is where cryptocurrency truly resides. It’s a speculative endeavor, often with quite volatile assets. I say this part without judgment. Risk is something investors have to grapple with. But, as many have said in the wake of the FTX debacle, it is time to regulate cryptocurrencies. Regulation isn’t just an instrument for economic intervention; it’s part of how we build trust into an economy. Notably, shortly before FTX’s problems came to light, it was reprimanded by the FDIC for claiming that its funds were insured by the agency. The FDIC doesn’t insure cryptocurrency, or stocks for that matter.

Moreover, the crypto world seems inflected with a kind of anti-social disposition that strikes me as essentially at odds with the whole project of currency production and use. There is paranoia, dishonesty, recklessness, and grift at nearly every turn.

I will leave it to economists and business experts to sort the financial details of our latest bout of crypto fallout. But I will reiterate my belief that those wading into the waters of cryptocurrency should treat it like a speculative asset and not like something that will soon or ever replace national money.