The Crypto Controversy (Is It Really Valuable?)

(c) by Mark Dempsey

Cryptocurrency--bitcoin and others--is very much in the news, but the stories about it often overlook some critical path information about currency design that has been known since currency-as-score-keeping has existed--that's roughly since 3500 B.C.E. 

That date is when obligation/credit became precise, partly because the fertile crescent needed labor to maintain its irrigation system. It was a civilization. You can still see the bar tabs and pay stubs from Uruk (current Iraq) in the clay tablets archaeologists have discovered. Incidentally, credit preceded money (coins) by millennia. This is exactly the opposite sequence of the "invention of money" myth, which says barter led to tokens (coins), and eventually led to credit. But mythical thinking is what guides most orthodox economics currently...

The problems inherent in tracking obligations with precision became evident shortly after credit was invented. One immediate consequence was that while interest on credit extended compounds to infinity, the real economy, which is the basis of repayment, has limits. (Note to history nerds, the word "interest" was not yet invented, but charges for the loans issued still existed B.C.E.)

The consequence of compounding: some loans become unpayable as a mathematical inevitability. This is why there's a biblical prohibition against usury (now called "interest").

So what happens to borrowers who have unpayable loans? Babylon opted for jubilees, society-wide clean slates (bankruptcies) typically announced when a new ruler took over. The Jews in Babylonian exile adopted jubilees too when they were repatriated to Judea (see Leviticus 25). 

The alternative to jubilees or bankruptcies was to turn ever-larger sections of the population into debt slaves. The big question then: Who would defend against the barbarian invaders? If everyone were debt slaves, the answer to that question would be: no one.

Part of the current debate seems to be about whether economic (not magical) currency should be commodity-backed, whether it's with gold and silver, or with energy-intensive calculation (e.g., crypto). 

The limitation on the commodity, whether gold, silver, or energy, makes the currency scarce, which makes it inevitably tend toward deflation. If compounding approaches infinity and the currency has built-in limitations on issuance, then it's not difficult to anticipate a deflationary train wreck. As bad as inflation can be, deflation is much worse, so that's why central banks in most advanced economies can issue fiat currency--Dollars or Yen or Pounds--literally without limit. If the economy makes more valuable things--which is the point of having an economy in the first place--and the amount of currency doesn't expand accommodate added value in the economy, a deflationary train wreck is the consequence.

Since crypto is, in effect, a commodity-backed currency, it behaves like gold, restricting the money supply and creating a chasm between creditors and debtors that, often enough, is unbridgeable. Political economist Mark Blyth says states can either have commodity-backed currency or democracy, not both. 

Such currency design sabotages anything like citizen equality, and society becomes divided between an oligarchy of creditors and the debtors, who are often historically debt slaves or debt peons. 

This is especially relevant now: BLS data shows the bottom 80% of Americans spend 105% of their income on basic necessities. The bottom 20% spend 181% of their income on essentials - food, clothing, housing, transportation, education, and healthcare. They're surviving only through government subsidies and debt.

If that's not enough to dissuade you from supporting cryptocurrency, its background in speculation, gambling criminality should provide an extra boost to disfavor it. (See this article for details)

Often, the not-so-hidden agenda of cryptocurrency is to bypass anything resembling government supervision of markets. As David Graeber reports in Debt: The First 5,000 Years, in all of human history, there have never been economic markets without some supervising authority, whether the temple or the king, or the state. It may be possible to invent some non-state market enabler, which is what the crypto fans want to do, but it hasn't happened in the 5,000 years or so markets have been around.  

Here's a comment from a Naked Capitalism account of "Abundance": from "redleg" who recounts his experience as a supervisor/regulator, and the reason deregulation is so strongly resisted.

July 23, 2025 at 11:14 am 

As a former regulator who had to issue and enforce permits, I can describe that 95% of the job is telling rich people and richer corporations no. During my time as a regulator for a US State, some of that 95% was informing local governments that the permits they were about to issue violated their own laws. We even sued a city and issued a citation to a county for following through with their permits (that only benefited rich people, of course).

The minute “red tape” regulations are weakened, and I mean minute as in 60 seconds, the squillionaire class and their class-adjacent 1%-ers will embark on building sprees of ridiculous vanity that will utterly trash entire regions. For example, a water pipeline from the Great Lakes to the US southwest (or wherever). “Red Tape” is currently the only thing preventing this, not the $5B price tag, as that’s bus money for someone like Elon.  

A Final Comment: Context is important! Midas Disease is everywhere!

Overlooking for a moment its use in such criminal activities as ransomware, crypto enables transactions between willing buyers and sellers with as little supervision as possible. Anyone who brings up those inconvenient truths about how such commodity-backed currency favors creditors, or enables thievery, is immediately discounted with an assertion that bitcoin is somehow valuable despite its problems. It's valuable! (A variation on "only gold is valuable").

Such assertions of value discount the context. Imagine the Castaway Tom Hanks played in that movie had a stack of gold bricks, or a thumb drive with lots of crypto on it. What good would it do him?

If we destroy the society--or indeed, the planet--that provides us with the goods and services we need, having a bigger stack of gold bars, a larger 401K, etc. will do us no good. We need the real wealth, not just the symbols of wealth--which is what all that public and private money is. Even the ten commandments prohibit giving one's devotion to a symbol (idol). It's pointless to discuss value without context. 

Update: AI-fueled crypto scams are booming, up 456% — and no one is safe, expert warns NY Post