It turns out that cryptocurrency is both more complex and more simple-minded than one would have thought. Or are we missing something profound? Is bitcoin just another speculative asset or will it soon be replacing money as we know it? Steve’s guest Brett Scott dispels the myths about bitcoin and gives us a brief history lesson on the development and uses of fintech (which simply means financial technology), blockchain, and cryptocurrencies, including bitcoin. Some of the misconceptions about bitcoin can be traced to the way it’s explained by the mainstream media. It’s treated as a radical new ‘stateless’ currency. But the bitcoin community itself is also guilty of doublethink and contradictory language. Predictions of bitcoin replacing fiat currency are not grounded in reality. How can it take the place of the US dollar when it is, in fact, priced in US dollars? Scott’s explanations are blessedly clear, coherent, and consistent with MMT. Even listeners unfamiliar with blockchain technology and cryptocurrencies will find this episode illuminating. Brett Scott is a journalist, campaigner and the author of The Heretic’s Guide to Global Finance: Hacking the Future of Money. He is a Senior Fellow at the Finance Innovation Lab in London. Follow him on Twitter @suitpossom

Macro N Cheese – Episode 29
The Emergence of FinTech and the War on Cash with Brett Scott
August 17, 2019

Brett Scott [intro/music] (00:03):

Bitcoin essentially is a network of people who can move tokens between themselves. And that’s pretty much all you can do, right? You can receive tokens and you can move tokens. It’s the equivalent of saying like, let’s imagine that there’s a limited edition concert for Beyonce and the tickets have run out, and in the secondary market, the tickets are spiking and price. And you say US dollars depreciating relative to Beyonce tickets.

Geoff Ginter [intro/music] (00:42):

Now let’s see if we can avoid the apocalypse all together. Here’s another episode of Macro N Cheese with your host, Steve Grumbine.

Steve Grumbine (01:34):

All right, it’s Steve with Real Progressives. I have a great show for y’all. I was able to get Brett Scott to join us from the UK, and we’re going to depart a little bit from the standard stuff that we talk about within the United States – politics and basically the central banking system – and focus largely on FinTech and the various uses of the technology.

You know, we hear an awful lot about the speculators, but now we’re going to hear about some of the future plans for FinTech and what we can expect to see within this industry. So without further ado, let me bring on my guest. This is my friend, Brett Scott. Welcome to the show, sir.

Scott (02:16):

Indeed! How’s it going, Steve?

Grumbine (02:17):

Thank you very much, man, for coming on. Let’s just get right to it then. Bottom line is that obviously, you know, a lot of people are really excited about blockchain’s thumb for the technology and some of the external things that we can do with it. And some are more of the secretive “Hey, I want to be able to have my anonymity and make transactions,” and then others are just speculators, et cetera. Talk to me about what you see as the real value add of these blockchain and FinTech technologies.

Scott (02:47):

Well, bear in mind that originally FinTech was actually a whole separate scene to blockchain, right? Like, it existed prior to blockchain. And the FinTech industry has only recently started to see itself as being aligned with blockchain tech. When Bitcoin first came out, which was the first blockchain technology, there wasn’t very much crossover at all with the straightforward FinTech scene.

Let me just put it in context – financial technology or FinTech is essentially the automation of finance, right? It’s a process where people automate different elements of the financial sector and the basic components that you can automate. You either try to automate the financial professionals – so you try to automate their jobs – or else you automate the process by which we interact with financial institutions, so, creating apps that you can interact with the bank with and so on.

And then blockchain came out and I guess a lot of the, well, the early wave of blockchain was, you know, open systems that actually bypassed banks. So banks didn’t really see it as something that they could use or exploit in any kind of way.

But then the subsequent waves of blockchain technology banks have seen in it the ability to automate the coordination processes between themselves, because you can essentially coopt the technology or use it for within more closed settings. So a lot of what’s called blockchain technology right now in the banking sector is actually a very sort of closed down sort of hybrid version of the technology, which is quite different to Bitcoin.

That’s sort of is my opening remarks right now in the blockchain technology sector, and say the media about it. This distinction isn’t really made between the open systems and the closed systems and all the different versions of these systems.

Grumbine (04:35):

So let’s take this to another level. Obviously, one of the concerns that I have as someone who’s pushing for a renewal of the public purpose and the use of sovereign currency to meet the needs of the citizens of various nations, et cetera, around the world, I look at it and I say, “You know, Bitcoin, these different flavors, you know, are not going to give us a Green New Deal. They’re not going to give us free college for all. They’re not going to give us a host of these things.”

But I think people misunderstand the interplay between a sovereign US dollar, a pound, you know, a Euro, Aussie dollar or a yen. And they confuse the two and they have these dooms day tales that they tell about the actual state currency as they prepare for the upcoming takeover by their Bitcoin and so forth. Can you talk a little bit about where that thinking comes from and whether there’s validity to it or not?

Scott (05:39):

All right. It’s a big question. I mean, there’s like, I mean, a lot of the Bitcoin community, as you probably know, are heavily influenced by Austrian economics, which is a particular sort of subsets of conservative economics where they fixate upon the idea money is a commodity or some kind of thing that exists out in the world.

You have to go and find it somewhere before you can engage an exchange, which obviously clashes with the credit theories of money, which say, you know, like you can essentially issue money as an IOU, provided people are prepared to accept that IOU. And of course, credit theory is the money to go beyond MMT.

You know, you have many forms of credit money that you can issue, community credit money, mutual credit systems, all sorts of stuff like that. But certainly in the, a lot of the sort of Bitcoin – general Bitcoin community’s imagination, there’s always been this critique of the idea that money is created “out of nothing;” and “it’s not real” and it’s all kind of stuff, right?

But this is all based on the conceptual foundation that money is quote, unquote, “supposed to be a commodity” and that it “isn’t a commodity;” and “did you guys all realize that money is created out of thin air” and all this kind of stuff – this kind of scare mongering, right? Of course, if you come from a background that recognizes that money essentially is some kind of agreement or some kind of legally backed prices or accounting system, then that’s not really a scare to you so much. Right?

What you think about in that scenario is how do you manage the money? What sort of protections do you put in place, or who gets to issue it on what grounds and something like that. So, anyway, a lot of the Bitcoin community remains very heavily influenced by this idea that the true money is some kind of commodity money and that people will automatically realize this, and when they see Bitcoin, they’ll suddenly recognize that state money is a giant sham and that will all disappear.

And they also grossly underestimate the power of network effects. For example, the fact that in the UK, for example, 80 million people use the British pound and that this isn’t a strong enough foundation for a currency – the idea that it’s locked into a giant network of people. There’s this idea that it will be seen as stronger if it has some kind of intrinsic internal value in itself.

And this is the extreme version of this in the Bitcoin community. There’s this concept of hyper-Bitcoinization that at some point, everybody in the world will realize that Bitcoin is superior and that currency will evaporate and the entire world will be taken over by Bitcoin. But there’s many sort of reality checks being placed on that right now.

And actually I’m giving a talk at Coin Scrum, which is London’s sort of the original Bitcoin meetup in London, the big, and I’m going to be doing it on “Is Bitcoin Actually Money?” Because one of the fascinating things you find in the Bitcoin community right now is kind of like a doublethink. We’ll use some contradictory ways of thinking about . . . so, they’ll use language that implies Bitcoin is money.

So they’ll say stuff like “payments” or they’ll use the term “deflation,” but then they’ll simultaneously use language that suggests that it isn’t money. So they’ll say stuff like “Bitcoin market capitalization” or “Bitcoin is an investment.” I mean, of course, you use money to measure market capitalization of things that aren’t money.

Basically, it’s saying, “If I had to take this thing and sell it on the market, how much money would I get?” So currencies do not have market capitalizations. They are, they are the things that you use to measure market capitalizations. But a lot of people in the Bitcoin community don’t really make this distinction.

They’re sort of saying, “Yeah, yeah, we think about it in terms of US dollars, but it’s a separate currency.” So yeah, there’s lots of this kind of type of thinking going on. And I’m trying to think about how this relates back to your question about state sovereign money though.

Grumbine (09:30):

The idea here is, is that the federal government is going to be spending something, right? And the federal government is going to want control over its own unit of account. And when the government imposes a tax, obviously it forces you to need its currency one way or the other. So the question comes down to is, can these things be used by the government and why would the government choose to use a private or an external commodity, if you will, to pay for its services to provision itself?

When in reality, it’s the owner of its own unit of account and it could easily coopt any kind of technology it wanted to, to enact that unit of account. There’s nothing preventing it from doing that. I’m not sure why it would, or maybe it would. I know that there’s some countries talking about using these various technologies to, in fact, produce transactions.

Now, I don’t know whether it would be replacing their currency. You know, I think Venezuela is one that’s talking about doing this. I know Russia has talked a little bit about doing this. I know there’s some African nations that have talked about doing this. I’m assuming it’s not the same thing, obviously, as, you know, “Hey, I’m going to buy Bitcoin and suddenly it’s going to be our national currency.”

Scott (10:44):

No, no, this is paramount. If you ever hear stuff about central bank, digital currencies or whatever, they call them, it’s up in terms where it’s state digital currency. This is a fundamentally separate system to Bitcoin. You could, if you were the designer of a state digital currency, or maybe you want to call it digital M zero or digital cash, or those different sort of terms people are trying to use for it. You could decide to use a cryptosystem. You would build a cryptosystem that you control.

You wouldn’t be using Bitcoin. Just to know, maybe take a step back with Bitcoin in case people don’t really know much about it. I mean, the basic way to think about Bitcoin or blockchain technology more generally is it’s a means for a network of strangers to keep track of each other or coordinate action between themselves without the need for a central party: I mean, a particular . . . the ability to keep track of token balances between each other, without need for a central party.

And then the original incarnation of this was the Bitcoin network. And you can kind of visually imagine this as using a kind of like network diagram. You could imagine all these little nodes everywhere, all these people and who all kind of connected together; and each node represents a person with a computer who is interacting with all the other nodes, right?

And then the system is designed with a protocol that kind of reconciles all their actions, or forms consensus between all their actions, such that they can keep track of who has what, without having to defer to a third party to keep track of that. Now, bear in mind, you can take that exact same concept of a network or these nodes and apply it in a closed setting.

So what they call private blockchain system where they say, “Okay, rather than letting anybody join the network, we will selectively allow people to join them.” So for example, when commercial banks are talking about blockchain, they’re saying, “We’re not going to let anybody join our blockchain network. We’ll only let our 40 other commercial bank buddies join it, right?

And then we’ll collectively run some system between us using the same underlying protocols and processes – but in this closed setting.” When a central bank or state says, “We’re going to implement a cryptocurrency,” what they’ll be saying is something like “We will control all the issuance of the tokens on this network, but you guys can join and you can move the tokens between each other, but you will not get to have any say over the issuance of them in the control of them.”

So it’ll still get essentially a state controlled system. And that’s a design choice if you were trying to build, build a state digital currency, but you wouldn’t have to use blockchain to do that. You could use other systems to issue a state digital currency system.

Grumbine (13:37):

One of the things you tweeted this out this right here is something I think is very important statement you made, you said passive accounting equals recording something that exists; active accounting equals recording something into existence. Money is an example of the latter.

This right here is, in my opinion, a very, very key statement that you made, because this is, in essence, telling the folks that are doing blockchain, they’re doing regular money creation of the Fed, or however we operate this, each of our internal national systems, et cetera, that ultimately work creating something from nothing. This is literally we’re bringing it into existence somehow or another. Can you elaborate on that as far as it pertains to both crypto and state currencies?

Scott (14:27):

Yeah. I mean, I occasionally do collaborations or work with the Chartered Accountants Institute in the UK, and yeah, this is the accounting industry. And of course accountants, the way they think about what they’re doing is something exists out in the world, all right? And our job is to faithfully represent that, normally using numbers and monetary proxies, but this supposedly is some flow occurs in the world, and then, after the fact, recorded.

So that was the thing I was saying about passive accounting, which is like creating a representation of something that exists in the world. Whereas, this concept of what is called active accounting is when you are creating something through the act of recording it, and this doesn’t only apply to money, this applies to diverse things.

Like, I mean, you can even say contracts are kind of an example of this, this will create . . . the act of recording this contract will lead to a reality occurring in the world, some kind of thing occurring in the world. And, but yes, money itself is definitely, to me, I’d say it’s, it’s an example of an act of accounting – the act of recording it is what creates it.

If there’s the money you would say, what’s your recording into existence is an IOU, all right, or some kind of promise to do something; and then once you record it, it creates an object that you can then try to move around. And you can either attempt to represent that in a physical form, such as a bank note, something like that, but you can also represent it in a digital form.

You can create it in the digital object. The simple way to grasp this kind of stuff is like to use vouchers: a voucher system, let’s say a Walmart voucher. Walmart says, “We’re going to issue this voucher and it’ll enable you to get something in Walmart,” and you might have a physical version of it, but Walmart could also simultaneously issue that voucher in a digital form and have that as a kind of digital object that you can move around.

And, but one of the intriguing things about blockchain tech is the big thing that you’re often issuing using blockchain technology is tokens of various sorts, right – what a technology will buy, what you can move tokens between people. One of the weaknesses in much of the current blockchain technology is often very poorly defined as to what the tokens actually mean, or like, what they entitle you to.

Whereas, you could argue for it, say from MMT terms, that’s, you know, the tokens issued by states have some kind of explicit redeemability. You can use them for something in particular. Whereas, when you look at like Bitcoin, the original tokens that were issued into existence and recorded into existence, we’re a little bit like the digital equivalent of issuing a blank piece of paper. It’s just kind of like, sort of blank entities that you can move around. I’m not sure if I’m answering your question entirely here, but, uh …

Grumbine (17:17):

You’re doing fine, actually. The bottom line is that when you look at the people in general that we deal with, in your level where you’re talking to these folks, you’re dealing typically with people that are probably more used to dealing at an academic level or a more technical level.

A lot of the people that we’re dealing with, voters in particular, people that will be activists, mobilized to actually make things happen are not thinking about it from the level at which I’m getting from you today, which is exactly why we have you on here.

We get a lot of feels-based things. We got a lot of mythology. We get a lot of hopes and dreams based in this technology. In fact, we’ve lost a lot of good friends and we’re trying to explain to them the limits of what this private solution can do and its current state, versus what a state currency can do.

And so, 9 times out of 10, people have been watching some 3:00 AM blogosphere kind of video that tells them, “The end of the world is coming! Buy blockchain, buy Bitcoin, buy Lightpoint, buy Ripple, buy whatever”. And they’re out there ready to hock their home. They’re out there ready to trade their car in for a nugget of blockchain, you know, of some flavor.

And so what we’re trying to do is right-size expectations so that they understand not only the technology backing it and the uses of it, we’re not against it. The object here is to put it in its right context and you’re doing a phenomenal job of that.

And really, we want to make sure that as activists go forward, that they know that, Hey, you know, if I want to invest in something, if I want to use these things and if I know I’m looking down the road and I’m seeing these various industries cropping up using blockchain technology, they’re using various forms of digital technology that are enabling this FinTech world;

and the shift from the automation that we know today that is mostly man-imation, if you will, to this real, truly getting rid of that and truly automating the financial sector, we just want to really make sure that they have a firm grasp of what is within the realm of possibility versus what’s rattling around in their head because Alex Jones, or some other guy that makes money off of their fear, tells them at 3 AM . . .That’s you’re really, in essence, helping us through that process because it’s coherent, et cetera. That’s really what we’re going for.

Scott (19:45):

No, look, I mean, I don’t want to like diss anybody who wants to speculate in cryptocurrency. I mean, you can do it if you want, right? But it’s not a solution to the world’s problems. I mean, sure people make money gambling on many things. You can make money gambling on boxing matches and sure, it might narrowly empower you or help you if you happen to get lucky with that.

But it shouldn’t be pitched as something that will broadly help people in that sense. I mean, it might be worth sort of just sketching out the basic trajectory that’s happened in blockchain technology so you can sort of like make sense of media reports you hear about it.

Grumbine (20:22):

Now you’re on to something! That’s exactly – If you can take us down that that would be wonderful.

Scott (20:27):

Yeah. Some of the original version of blockchain, the original pivot was introduced to people buy a Bitcoin and blockchain technology refers to the underlying technology that enables Bitcoin to work. So Bitcoin is seen as the first incarnation of blockchain technology. And just to reiterate, the basic point is the technology is a way to enable a network of strangers, people don’t know each other, don’t necessarily trust each other; they don’t certainly distrust each other, but they don’t know each other.

So they don’t really know . . . they don’t ever need any basis upon which to extend some trust to somebody. Right? So imagine some faceless person you’ve never met on the other side of the world that you connected to by an internet connection, you don’t have a much close personal connection to them. You don’t really know anything about them.

So, in this type of scenario, you find it hard to interact with those people unless you have some kind of process to ensure the trust between yourself. And so Bitcoin originally was this way to do that without relying upon these third parties, these big institutions, media. And as mentioned, Bitcoin essentially is a new network of people who can move tokens between themselves.

And that’s pretty much all you can do, right? You can receive tokens and you can move tokens. And I mean, we could describe this sort of working of Bitcoin, if you really wanted to, but maybe you can leave that for another question. But the second wave of it was what they call the altcoins, which is people saying, okay, well we could implement our own versions of this.

Take the same underlying code Bitcoin is based on and make, you know, dogecoin or lightcoin or like any other coin, right, with slightly tweaked parameters, which, but it’s essentially the same systems with different names and slightly different characteristics. This is the sort of first wave of all these altcoins. So if you, you should go check out dogecoin.

If you have any of this, it’s like a dog-based coin, which was a kind of joke that was quite fun. So that was kind of the second wave. Then the sort of third thing that people clocked onto was, Hey, wait a moment. This is a technology that enables a network of strangers to interact or to sort of keep track of stuff between themselves and maybe the tokens in the network and we can move between each other can come to represent something else.

Maybe there can be representations of things in the world, or some kind of . . . maybe that can be shared. Maybe they don’t have to be monetary units. I mean, they can be any kind of like objects that you can represent digitally and you can move it around, right?

So this is where they start to call it blockchain 2.0, which is the idea: hey, maybe we can issue, you know, we can raise equity or you’re using your systems and the big sort of player that’s emerged with this was Etherium. If you want to understand Etherium . . . I mean, these are the systems can be quite complex to describe in a short amount of time;

but the basic difference with Etherium is that they allowed a new type of player to enter the network, essentially are robot nodes, these kind of like automated agents. They’re confusingly referred to as smart contracts, but they would say, “Hey Ken, rather than all the sort of people in the network just being humans, you could add these sort of like automated entities that would have to behave in certain ways of interacting with them.”

Now that the best real world example of this kind of thing is a vending machine. If you go up to a vending machine somewhere, say in a shopping mall, the vending machine is actually owned by somebody, some kind of seller; but it’s acting as an agent on behalf of the seller, right? And if you put a coin in, you can get a Coca-Cola out, you know, and the machine says, “If you give me this money, I will do this automatically.”

And I have no choice, but to do it. This is essentially the concept of the smart contract. It’s like an entity that you can place on the network that will be forced to do something if you interact with it. And that’s what Etherium is essentially starting to create. And you know, so for example, one of the things that Etherium is currently being used for is to issue shares.

So that’s what they call the ICOs or initial coin offerings. But basically what you do is you set up one of these vending machines as it were on the network. And you say, “If you give this particular node on the network money, it will automatically grant you share tokens or some kind of token that represents you’ve done that.”

I guess you can start to raise money like this. And so . . . people will send money to this one address on the network and they will all be issued with tokens that say that they’ve done that and have some kind of say now. And then the final wave that’s occurred, if you find it willing to send us out, the full picture is the corporate blockchain, where they’ve taken that same technology and they said, “We’re going to use it in closed settings where we’ll only allow certain people to use the network.

So we will have 40 banks get together and form a blockchain between them. And we can have smart contracts and stuff, but it’ll be very closed. It will be very select people who can use it.” That’s the kind of the trajectory. And then when you’re assessing these claims about blockchain, you gotta be thinking about what type of blockchain they’re talking about and whether that’s a useful thing to have whatever particular scenarios thinking about.

Intermission (25:38):

You are listening to Macro N Cheese, a podcast brought to you by Real Progressives, a nonprofit organization dedicated to teaching the masses about MMT or Modern Monetary Theory. Please help our efforts and become a monthly donor at PayPal or Patreon, like and follow our pages on Facebook and YouTube, and follow us on Periscope, Twitter, and Instagram.

Grumbine (26:32):

When we talk about the anarcho-capitalists, the nihilists, some of these folks that are more Austrian in nature, a lot of times they’re out there actively striving to bring down the central banks, and they think this is their way to literally bring down the central banking system and so forth. And what you’re describing is a whole hodgepodge of varying networks, that some of them do this, some of them are closed, some of them are open, some of them are distributed, et cetera.

How in the world would any of this be able to rival a central bank’s? I mean, is it purely based on who accepts the currency? As long as the government agencies are able to tax in their currency, I think that it kind of becomes a moot point because you can literally lose your freedom if you don’t pay your taxes. How does this technology enable them to, or does it, or is this just more myth-telling? Does this actually in any way, shape or form render central banks impotent?

Scott (27:37):

Not really. No. I mean, as I sort of mentioned a bit earlier, I mean, Bitcoin is the digital equivalent of a blank piece of paper, right? Like the token literally has no characteristics to it. It’s just like, here’s a digital object and you can move it. And then . . .well, originally in the early days of Bitcoin, people like, okay, “So, but what is it?

Like, okay, cool. I can move these units to you, but like, what are the units?” And it took a long time for it to kind of build into some kind of, sort of speculative system where they had currency value and the early days of Bitcoin they didn’t have. And to this day, it’s a whole bunch of cryptocurrencies that have no fiat currency value.

And this is one of the key weaknesses that Bitcoin’s always had is that there’s nothing that underpins it. There’s no circular flow. So when you’re talking about, say the state and then taxation, you’ve created a circuit, right? You’re issuing, which is simultaneously creating demand by having some kind of requirement to have it back.

Now, bear in mind, you can create those circuits without a state. You can create various circuit systems, but you have to have thought out the issuance and the redemption process and the transfer process between these. And most crypto systems haven’t really done that, which is why they can fluctuate wildly in value. It’s that they’re not really anchored into any actual, real promise for anything. So you can kind of like, there’s no real way to tell what it should be worth, anchored in the real economy.

Grumbine (29:04):

You bring up a great point because you know, one of the other things that this type of person tends to bring up is the value of the dollar. How has the value of the dollar, whatever. And then they, they watch the stock market or the Bitcoin market bouncing all over the place. You know, the exchange is going all over the place and they’re like, “Wow, this is showing me value here.” But then you see the next day, it dives completely.

The US dollar’s relatively stable, up and down a little bit, the overnight window and all the other good stuff that they do to maintain a stable purchasing power, to drive for full employment and price stability. There is no mechanism there for Bitcoin to do such a thing whatsoever. None of these things they’re there. They don’t have anything to really anchor them at all. And that would go back to your circuit that would drive the currency, et cetera.

Scott (29:56):

Yeah.

Grumbine (29:57):

You talk to these folks probably a heck of a lot more than I do. What do you think is the underlying belief that makes them take that? Is it just the commodity based thinking? I mean, you’re taking something that has no intrinsic value whatsoever, and you’re saying because I’ve made you mine it and because it’s only going to have this many of them it’s scarce.

So therefore it will have value. I mean, is that the essence behind it? Or I still have no idea how they can determine value there, but yet they call the paper fiat currency worthless. It doesn’t make sense.

Scott (30:29):

Yeah. I mean, there’s lots of varying and contradictory stories that are told in the Bitcoin community, and it’s not a homogeneous community either. So I mean, there’s different views, but I don’t know if I can fully do justice to all of the different accounts. As mentioned in the early days of Bitcoin, there really wasn’t a sense that it “had value,” which people often basically say they use that term value to mean fiat currency price, essentially.

So there’s often a confusion between value and price; but when Bitcoin kind of got taken up based on like, people, that’s the various economists who were involved in the scene, and started to say, “Oh, well, the value of it is based on the utility of being able to move tokens around.” So, I’ll try to describe it. It’s a little bit like an argument saying the value of the cargoes on a train are derived from the railway network or something.

I bet it’s not the best analogy, but they were saying the fact that you can move the tokens around is what makes them valuable. So they were saying that the payments infrastructure is why the tokens were valuable. And that was always like a weirdly circular argument that they’re trying to put out. I didn’t really fully describe the argument.

That was one of the original stories. And then there’s a kind of like a quasi-labor type of value, which has to do with the mining process, which essentially requires which we haven’t really discussed that; but it’s part of how the structure of the network works, is you have to exert energy into the production of Bitcoin. And they said, “Well, if you’re exerting energy into this, it must be valuable.”

It’s not going to say, I mean like you wouldn’t be exerting energy if it wasn’t valuable and there’s this strange circular elements to this, right? Yeah, we could go down that route versus just applications for Bitcoin value. But to go up to this point of, let’s say like national currencies, I mean, once you’ve established the basis or the kind of the underpinning of a currency, for example, through creating that initial core circuit, which is in the case of like MMT thinking would be like the taxation circuit, right?

Once you’ve created that those IOUs that are issued out can develop their own sort of logic and that get passed between people that can be usable for all sorts of stuff, right? And that economic network becomes dependent upon using them, right? Their lives get built around those money tokens, right?.

And once an economic network becomes dependent upon a token, becomes such a stable in a way, right, like it’s like locked into the net. So if I was to rock up in New York City and I was going to a pizza place and the guy says pizza is like $10. And I say, no, no, no, it’s only $1. He’s going to reject me. Right?

Like the network will actually reject my claim that this is worth something else because all these prices are locked into relationships with each other. And there’s this, this collect giants enmeshing of all these things. And this is what I say, like, you know, “A currency is locked into a real economic network, the US dollar conscious, like randomly fluctuate in value, arbitrarily up and down, because it’s so enmeshed with all these real world transactions.”

I mean, there’s various types of business, other dynamics. With Bitcoin on the other hand, it isn’t. So it’s essentially a seen as a commodity that is priced in US dollars. All right. So it’s another thing on the US dollar market. It’s not the thing that’s used to price everything else, okay?

And this is one of the weird, like the problems people have in the Bitcoin community is that they’re always saying stuff like – one of the hilarious things they say is like – when the Bitcoin price is going up, they say, “Oh, this is deflation, alright, this is the demise of the US dollar.”

But it’s like, it’s the equivalent of sort of saying, like, let’s imagine – sometimes I use this analogy – but let’s imagine that there’s a limited edition concert for, I mean, I don’t know, Tom Waits or Beyonce or something, and the tickets have run out so that, and on the secondary market, the tickets are spiking in price, right? And you say, yeah, yeah. The US dollar’s depreciating relative to Beyonce tickets.

And this is total crap. I mean, what’s happening in this situation is that one thing on a US dollar denominated market is rising in relative value to other things in that market. So when Bitcoin’s going up in price, it’s not that the US dollar is depreciating relative to Bitcoin, it’s just that a speculative asset’s going up in price. I mean, that’s what’s occurring, right?

And so when people say when the Bitcoin price is going up, but this shows the US dollars is going out, it’s kind of like the opposite actually. I mean, they’re using the US dollar to derive all the value of Bitcoin itself, right? I mean, you have to want to be kind of careful with these arguments. It’s like in certain situations, I mean, you can, you know, having kind of dissed that argument.

I mean, you can hypothetically imagine a scenario where a country authentically has poor currency management. And in that scenario, people actually do turn to something like Bitcoin, but we haven’t really seen that scenario.

Grumbine (35:31):

This is great. This brings me to the hyperinflation point that you typically hear about when people worry about a government spending money on its people, the neoliberal version of the world. “What about Weimar? What about Venezuela, Zimbabwe and all these other places?” And they always had some sort of political instability, a production issue, some sort of a supply chain issue, some totally corrupt issue that has infiltrated their country and has robbed them of the ability to have this stable currency.

And then they go for a commodity of some sort, which allows them to have some sort of value walking out the door – whether it be gold, or whether it be potatoes or whatever. And in this case, they’re banking on the failure of the US dollar thinking somehow or another, this cryptocurrency is, in fact, the thing.

And they’ll talk about how suddenly Russia and China are going to have . . . the bricks are going to take over. And so the dollar’s going to die. We’re all going to die. The petrodollar, Oh my God, we’re all going to die. They come up with all these doomsday scenarios that, in my opinion, it’s a charlatan’s world here where they sell a lie, they sell you fear.

And then they say, “Oh, but here’s this thing that’ll satisfy your fear.” Now, there’s good reason based on the crash in 2008, 2009 and so forth, I believe we still haven’t really dug out from that; and I believe we could very easily go back to, ’cause I don’t think they’ve done anything to really change the underlying problems.

But the reality is, is that they use these doomsday scenarios to get people that are willing to buy into the doomsday scenarios, to believe they found the secret to overcoming this world. But this is all based on this concept of hyperinflation and so forth.

Scott (37:17):

Also, bear in mind that there’s another factor at play here, which is that a lot of the most vocal Bitcoin evangelists, are also people who are the early holders of Bitcoin, or the early adopters. I mean, I’ve been involved in Bitcoin since 2009, right? I mean, I’ve used Bitcoin a lot. I mean, I used to be paid in Bitcoin, I’ve paid people in it, I love transactions in Bitcoin.

But the people who are the most vested interest in trumping it up, or like pushing it out, like, you know, pumping it, are those who have big holdings of it, right? And, it’s not necessarily a conspiracy. It’s just that they are infused. They have this kind of, like, their economic self-interest sort of taints their view.

So there’s all these people shouting at others, “You got to get into this,” but of course the more people that get into it, the more pushes up the value of the original holders’ holdings. Right? So they’re getting richer and richer as they get more and more marginal people to come in.

Grumbine (38:11):

Is that a Ponzi scheme?

Scott (38:13):

I mean, that certainly has a similar structure to a Ponzi scheme. I mean, not exactly the same in a traditional Ponzi scheme, the money you’re being paid out is the money people are paying in, but in this case you’re getting capital gain. Right. So it’s like, we could debate whether it’s actually that the same thing, but it has a similar psychological structure at least. So, yeah, there’s a lot of this kind of like a sort of self-interested stuff by making those claims.

I mean, this is going back to your point about hyperinflation. I mean, my family is from Zimbabwe. I grew up in South Africa, but I’ve spent a lot of time in Zimbabwe. Zimbabwe is often the case that’s used to describe these hyperinflations. I’ve actually been in Zimbabwe in the midst of the hyperinflation, you know, seen all the crazy stuff that happened. But you got to see the political context of the country. I mean, you had an extremely unstable political situation.

You have the underlying productive sector, extremely destabilized, even wrecked. And then with that, the government simultaneously just trying to sort of ad-hoc issue money to try and make the problem go away. Of course, and that scenario of a collapsing, productive sector in the midst of monetary mismanagement, that would cause a hyperinflation, right?

But that is simply not the case in many, much more powerful economies, which have much larger economic networks, much stronger states, much more deeply embedded places in the world. You know, if I go to, for example, listen, think about this, the United States, let me go to Sweden and these places – extremely stable political systems, right?

Extremely strong institutions, very high levels of trust in an institution. People have no issue at all with state currency there . . . not, all right? It’s like, so these type of scaremongering scenarios really only apply to certain situations. And even in those situations, it’s not like Bitcoin will solve the problem. You know, Bitcoin, ain’t gonna solve Venezuela or Zimbabwe’s problems. Like, you got to do some much deeper stuff to solve those country’s problems.

Grumbine (40:11):

Okay. So, Brett, what I’d like to do is just let you go ahead and close out with what you see the future of not only Bitcoin, but FinTech in general, where do you see the crypto technology taking us?

Scott (40:25):

FinTech in general? I mean, as mentioned, I mean, like I do make a distinction between FinTech. It’s a much broader field than crypto is. As I say, FinTech is the automation of finance and, you know, a bank can automate many things. It can, you know, sort of digital banking as an example of automation, right? And the basic things that are going on with FinTech, uh, the banks want to fire this stuff.

They don’t want to have front office, customer service staff who are sitting in branches, dealing with you. They would rather have you interacting with them via smartphone app. All right. It’s cheaper for them. So, so there’s a front office element. This is the customer service thing, right? So they say, “Oh, use your internet bank, use your phone instead.”

And then they also want to try and automate the people within banks. They want to try to automate bankers. So for example, rather than having a loan officer who makes a decision about whether you should get a loan, they would rather put it through a machine learning system that to start to make the decisions.

And really, the part of finance you can most easily do this with is, sort of, retail finance. So it’s basically like when you’re dealing with small customers, so your everyday sort of commercial bank, and I guess that’s a very big part of FinTech. And this was a reasons to be quite concerned about that process.

There’s a lot of surveillance implications to banks increasingly digitizing all their operations, making you pay for everything digitally. Actually, when I was in Kansas City with you guys, that’s what I was talking about, ‘the war on cash,’ trying to get rid of bank notes and forcing everybody to essentially use digital payment via the banks, which creates all these surveillance applications.

But there’s many other implications to the digital finance. I mean, to give a more sort of positive spin cause we’ve kind of been critiquing blockchain to some extent. Yeah. I mean, there are some authentically interesting things you can do with this.

I mean, you know, moving away from FinTech more generally blockchain, I mean like the technology as mentioned, it’s a means to coordinate groups of people and, you know, in the libertarian imagination – sort of conservative, libertarian imagination – it was often imagined that the purpose of this is that people don’t trust each other and you need some kind of, you also can’t trust a third parties and therefore you need some kind of like automated entity to mediate between these selfish individuals.

But if you come from a sort of a more communitarian, solid background, or cooperatives background, you could also imagine that you could use this technology to form sort of large-scale cooperatives. So right now there’s a movement called platform cooperatives.

I’m not sure if you’ve been following this, but people who are saying, Hey, you know, where you have Uber and all these services like that, they’re controlled by largely unaccountable groups of people in Silicon Valley. Wouldn’t it be a better idea if we could cooperatively run the Uber ourselves, or run Airbnb as a cooperative, and you could potentially use blockchain technology as the underpinning technology for doing that.

I mean, that’s pretty authentically interesting, that kind of stuff. And there’s also some interesting currency stuff going on that’s based more on credit. There is a money like small experiments. I’m involved in a project in Barcelona, which is looking at blockchain tech for preserving people’s data privacy.

So yeah, it’s an interesting field, but I guess the main problem with the debate right now is it’s extremely uncritical. The media reports and the stuff is often very inaccurate. And there’s a lot of sort of hype merchants out there who are making unrealistic claims about the technology.

Grumbine (43:53):

You had raised a point in your talk that had made me ask a question. And that comes back to . . .You had said in an article that I read, which was that people don’t want a cashless society, but yet they’re grooming us, in fact, for a cashless society for these reasons that you kind of laid out there a minute ago, where it is about control, kind of a SkyNet-type thing.

I mean, can you just take a moment and talk about what the implications are of the push to get rid of cash so that they can look at us more closely and observe patterns or whatever it is that they might do with that?

Scott (44:29):

What’s called the ‘cashless society,’ I mean, it’s basically the bank payments society, or basically what it means is that you’re forced to rely upon the commercial banking sector to move money around, right? So essentially, transferring deposits between bank accounts and that’s what the cashless society is.

And of course, if you actually, hypothetically did move to a system like that, it would mean every single economic transaction that you did would be recorded by some kind of intermediary, or some bank, and with various payments companies, Apple Pay, all these people who involved in an intermediation process would be involved in that.

Interestingly, like one of the philosophical backgrounds that cryptocurrency comes out of, you know, actually was a critique of the potential of – in the age of the internet – you would need a money system that didn’t enable tracking or people to be sort of monitored. I mean, cryptocurrency comes with other problems, but in that sense, there was a sense of concern about growing monitoring of people.

So that’s one element of cashless stuff. The other element that people focused on is financial exclusion. I mean, there’s lots of people who don’t actually have the ability to interact very easily with banks, or who get excluded from services from banks. And if you’re forced to use bank accounts, or you’re suddenly forced to use these new digital forms, you can actually be shut out of an economy.

And if you move away from America, this becomes particularly important. I mean, many countries – I mean, even in the states, it’s a big problem – but it’s a big problem in many other places where people do not have bank accounts to suddenly say, “Hey, you got to use the digital payment.”

I mean, it has a slightly fascist edge to it where you kind of have this almost this desire to get rid of all the kind of like people who you see as undesirable in society by forcing them to come into formal institutions. And then finally, I mean, there’s some massive cybersecurity risks. We don’t really think about this, but like when you force people to use huge, large scale digital systems, you exponentially increase your exposure to quite existential threats.

You know, you bring down electricity system, you know, people are screwed. I mean, there’s elements of the cashless society debate. If you guys want to check it out. I mean, I wrote a bunch of articles on this, “The War on Cash” and “Rise of Cash.”

And I mean, I’ve done various talks about it, but I would say some of my stuff on cash goes into the broader critique around technology systems, more generally, kind of giving people the right to have some personal autonomy rather than being spied upon by some large third-party institution. Yeah. I don’t know if that made sense.

Grumbine (46:58):

No, this was fantastic. I guess in closing, what I wanted to raise to you was that you had said, I think it was in Kansas City when we were there. It wasn’t you, it was one of the people on the panel with you said that they didn’t believe that central banks actually wanted to have this information, that they just want to pass transactions back and forth. They’re not interested in having that level of information and that ultimately it would be other parties that would be more interested in that information.

Scott (47:28):

Yeah. I mean like the libertarian imagination is going to very much jump straight towards the kind of Big Brother scenarios of 1984 and that kind of thing, you know, like, I mean on the state level, I mean, there are bits of data that banks, central banks, might want to get, but the lot, the people who actually want this data are commercial entities, right?

I mean, it’s like the banking sector itself, it’s Apple Pay and Google is people who want to sort of facilitate the process. Bear in mind, like, right, let me think about Google right now. Right? It’s got your location data. It’s got your browsing data. It’s got all these pieces of information about you, but what it doesn’t have is your payments data.

You know, your Facebook profile shows what you want the world to think about you, or your Google browsing data shows that your kind of secret life, the things you browse when people aren’t looking. But your payments data shows what you actually act upon, what you actually go out and spend your money on.

And they really want that information because they use it to train their machine-learning AI models. They use it to sell you services and do all this kind of stuff. So there’s massive commercial agendas and obtaining this data and that commercial agenda in turn builds the data sets that then, for example, states might then have a desire to use.

So often it’s actually the commercial sector that drives the accumulation of the data that then, for example, the NSA might go and browse. So, you know, this is worth bearing in mind.

Grumbine (48:52):

Oh man, I tell you, Brett, I just so appreciate it. Cause I’d like you to be able to come back at another time that maybe we can talk through an agenda beyond just the basics here, but this was so important to me to get out there. You know, we’re in here at 7 x 24 x 365 talking MMT, talking about public purpose and stuff like that.

And what we ended up getting sidelined with is this libertarian strain of progressivism. It’s kind of walked through the door and has basically told folks not to worry about the government spending, not to worry about the dollar. It’s all going away.

And we got to worry about this and it kind of sidelines us because on one hand, we’re totally for it. I understand it can help out with voting. I understand it can help out with anti-piracy, for everything from downloading music to whatever could revolutionize the entire industry.

There’s all kinds of different uses for it that are wonderful and spectacular and could actually be a tremendous benefit to society. But the problem is they conflate the purpose of a state currency and the government’s need to provision itself, and these private entities, for lack of a better term, Austrian heaven here; and by conflating the two, they end up missing the point of each one of them.

And so it’s kind of what I was trying to break through tonight. And I think you did a marvelous job. I mean, you really hit the nail on the head. I really appreciate it.

Scott (50:18):

Hopefully I’ll get back to the states very soon and we’re gonna come back on again.

Grumbine (50:22):

Thank you so much, Brett. I really, really appreciate it. And we’ll see you.

Ending credits [music] (50:34):

Macro N Cheese is produced by Andy Kennedy, descriptive writing by Virginia Cotts and promotional artwork by Mindy Donham. Macro N Cheese is publicly funded by our Real Progressive Patreon account. If you would like to donate to Macro N Cheese, please visit patreon.com/realprogressives.

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