Fiatsplaining Bitcoin

People who summarily dismissed Bitcoin for the last eight years are suddenly super worried about weak transaction volumes. You see, no one is spending their bitcoin!

Bitcoin is in a weird position where the dollar-denominated price just keeps going…up. And because the price keeps going up, HODLers are reluctant to spend. And if no one is spending bitcoin, how can it become a currency?

This is problematic. Nobel Prize-winning blogger Paul Krugman explains why:

What we want from a monetary system isn’t to make people holding money rich; we want it to facilitate transactions and make the economy as a whole rich. And that’s not at all what is happening in Bitcoin.

Paul Krugman wants everyone to spend their money, because consumption creates wealth.

Seems reasonable, but here’s a contrarian take from Greek philosopher Dio Chrysostom:

Because of stupidity and self-indulgence, a certain people take that which they prize most highly, silver, and of their own volition send it over a long road and across a vast expanse of sea…

He’s talking about the Roman citizens, and their desire for cheap crap from China. It was the first century AD, and Rome was sending all its silver down the Silk Road in exchange for fancy clothes and rare spices. These indulgences, Dio felt, represented a huge moral failing.

Under ordinary circumstances, weaker states send silver to stronger states in the form of tribute. Paying tribute is a form of submission, it’s what happens after conquerors have vanquished your army. There was absolutely no reason for the Romans to voluntarily send silver to an inferior state, aside from sheer stupidity.

Over the centuries, the Roman Empire faced constant coin shortages as precious metals flowed east. The emperors took to repeatedly debasing the coinage until the finances of the empire collapsed.

Today we export massive amounts of money to China in exchange for consumer goods, but it’s no longer considered reckless to do so. In fact, central bankers encourage such behavior. That’s because we’re not sending China anything of value, like gold or silver. We’re sending them our own worthless dollars, ha ha!

Foreign countries use US dollars to buy up Treasury bonds, and as the bonds depreciate due to inflation, the US government effectively imposes seigniorage. Thus we exact tribute on our overseas bondhonders, without even resorting to the threat of violence.

Don’t try this at home.

When Paul Krugman says that transactions make the economy rich, he means that consumer spending makes the US government rich. The more we consume, the more debt we can sell to our trade partners, the more tribute tax we extract. There’s no limit to household consumption – if we run out of money, lenders are happy to step in. Whereas borrowers used to compete for loans on the basis of good credit, now the lenders market every opportunity to load up on subprime debt. Take out a mortgage to own the American Dream! Invest in your future with a six-figure student loan! Buy a car with 0 down! How bout financing some designer pants?

Krugman refers to Bitcoin as “golden cyberfetters” because HODLers are locked into a virtuous cycle of saving and frugality (he calls it money-hoarding). Bitcoin, for all its features, has one fatal flaw: We can’t spend our way to imperial prosperity.

Digital Pets That Don’t Die

In case you were wondering what tech billionaires are up to these days, here’s a hint:

That’s right, they’re breeding digital cats on the blockchain! CryptoKitties are here, and they’re priming Ethereum enthusiasts for an assured future as cat ladies. After just five days, CryptoKitties is the most popular application on Ethereum, accounting for over 15% of all transactions on the network. What better use case for an unstoppable world computer?

Remember when digital kitties didn’t need to live on a blockchain? Back in the 90s we had Catz, and they roamed the background of a user’s desktop. Catz featured a primitive AI where the animals developed personalities depending on user interactions. If the cat was neglected or abused, it would run away. And yes, users could breed, adopt, and sell their Catz.

Catz for Windows 3.1

The Catz craze lasted maybe six months. Much like real-world pets, desktop animals get tiresome after the novelty wears off. The parent company followed up with digital Dogz, Hamsterz, Horsez, Pigz, Bunnyz, and Guppiez, but nothing really stuck; users invariably got bored and left their Petz to starve or run away.

Virtual goldfish not boring enough for you? Here are some digital Bunnyz!

To improve user retainment, the Petz brand came out with a new product: Babyz. It was the same basic game engine wrapped in the skin of a Cabbage Patch Kid. While Catz was mainly used as a desktop distraction, Babyz was designed for long-term emotional bonds. Users could talk to their digital baby through a microphone, and eventually the baby would learn to speak back.

Babyz couldn’t breed like the other animals, but they also couldn’t die. While most people have no qualms deleting a tired pet, the situation is different with a digital baby, especially one that has learned to talk. Compassionate users set up virtual orphanages where people could put their unwanted offspring up for adoption. Thousands of Babyz languished in online homeless shelters until the game was discontinued in 2000, at which point the children were digitally euthanized.

Send Baby to the digital Baby Farm.

CryptoKitties boasts that their cats can’t be destroyed, but the whole point of a digital creature is that it can be destroyed. Dogz and Catz run away, and digital Guppiez go belly-up — These are features, not flaws. They remind us that commitment is futile and that life is just a long process of being abandoned by everyone we ever cared about until we die alone. The advantage of a virtual pet is that we can delete the evidence and move on.

Just like its predecessors, CryptoKitties were made to be abandoned. This time it happens on the blockchain, where CryptoKitty remains are replicated across thousands of computers all around the world, persistently occupying real estate long after we’ve given up on them. This is probably what it’s like to have kids.