During the reign of King Louis XIV a young girl, Gabrielle Moler, put her head into a roaring hearth fire and held it there without any apparent injury. Eyewitnesses report that afterward her clothing was so hot it could barely be touched, yet her hair, eyelashes, and eyebrows were never so much as singed.
In 2008 Satoshi Nakamoto put the finishing touches to his white paper “Bitcoin: A Peer-to-Peer Electronic Cash System.” A few months later Bitcoin was born.
What do these two events have in common?
Impregnability to fire is not uncommon. Literally hundreds of credible accounts exist. The kahunas of Hawaii can stroll across hot lava without being harmed. What is interesting is that many of the accounts are associated with emotionally charged beliefs. Gabrielle Moler was a member of the Jansenist sect whose persecution led to the most extensive display of extraordinary human feats ever witnessed by literally thousands of people over several years. Another devout believer, St. Francis of Paula, at his canonization hearings in 1519 had eight eye witnesses testify that they had seen him walk unharmed through a roaring furnace to repair one of the furnace’s broken walls. What was running through Satoshi’s mind as he wrote his paper?
On 15th September 2008 merchant bank Lehman Brothers collapsed precipitating a full blown international banking crisis: “Excessive risk-taking by banks such as Lehman Brothers helped to magnify the financial impact globally. Massive bail-outs of financial institutions and other palliative monetary and fiscal policies were employed to prevent a possible collapse of the world financial system. “
The point is that Gabrielle, Satoshi and St Francis were each able to change ordinary “consensus reality” through their belief in what was possible. In Gabrielle and Satashi’s case that belief was likely to have been charged by events surrounding them. Lyall Watson, author of Supernature comments: “I have no doubt that reality is in a large part a construct of the imagination…I think we have the capacity to change the world around us in quite fundamental ways.”
Today many believe Satoshi’s white paper is changing the world around us in “quite fundamental ways.” The blockchain is considered a new piece of infrastructure that will transform society as the Internet did twenty years ago. Yet is this the only way Satoshi’s vision is changing the world?
Consider for a moment Bitcoin itself.
Without the mandate of government or any underlying asset such as gold Bitcoin is now trading above $6,000. Each dollar of that value has been created solely from the belief people have in the coin.
Is this not an extraordinary event?
Before Bitcoin it was generally assumed that the Yen or Dollar or Euro had value because of the decree of government. Bitcoin has demonstrated that price is something humans create. This is true of any market – price is the product of the collective belief of buyers and sellers at any given time. The enduring value of Bitcoin may be to have demonstrated this relationship between price and belief in the clearest possible way.
If awareness that belief-creates-value is one of the benefits of Bitcoin the question remains: why now? Why is it important for people to wake-up to the realisation that they, not some external authority are the creators of financial value? The answer may lie in the current state of the fiat financial system. Forty two years ago economist Friedrich Hayek wrote:
“With the exception only of the 200-year period of the gold standard, practically all governments of history have used their exclusive power to issue money in order to defraud and plunder the people.”
Hayek proposed a “currency marketplace” where people can freely choose between competing means of payment. This, he claimed, would restrain government’s desire to devalue the legal tender by printing more. Does his proposal seem strangely prophetic of the Bitcoin phenomenon?
Governments continue to expand the fiat money supply at unprecedented rates. By October 2014 the US Federal Reserve had accumulated $4.5 trillion from its Quantitative Easing purchases. As of October 2016 the Bank of England had purchased GBP 435 billion through its Quantitative Easing program. Each purchase flooded new money into the system.
Now people are remarkably resilient and will put up with a great deal. However when a currency starts to hyper-inflate this generally marks the beginning of the end of what they are willing to tolerate. In post-revolutionary France not prison, nor guillotines nor 20 years imprisonment in chains could induce people to continue to trade the paper money at its nominal value. People had had enough. On 1st August 1795 one gold luis of 25 francs was worth in paper 920 francs; on 1 September, 1,200 francs; on 1 November, 2,600 francs; on 1st December, 3,050 francs. In February 1796 it was worth 7,200 francs.
Post WW1 Germany had similar hyper-inflation and the legal tender mark was rejected by Germans. There followed a period of various “emergency monies.” These too were open to abuse but were preferred over the mark because they did not inflate as fast. By autumn of 1923 there were two thousand of these emergency currencies in circulation.
How did it end? Finally relief came in the creation of Gold Loan Bonds. Like the mark these bonds were not backed by any assets. They were accepted because of the word “wertheständig” (stable-value) printed on the new money.
What gave the Gold Loan Bonds value? One word was enough to generate the BELIEF required to create a stable currency.
Today we may not be so naïve to put our faith in a single word on a bank note. But if there is a way to implement Hayek’s proposal of a currency marketplace, it is likely to mean we recognise belief creates value and are willing to exercise this extraordinary human facility to create the money we want. Is this why Bitcoin and why now?
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