When Crypto-Exchanges Go Broke, You’ll Lose It All

The fatal flaw in the ‘neither fish nor fowl’ gambit

A run on the bank as panicked savers demand their cash — Universal History Archive via Getty Images

If you’ve spent much time around cryptocurrency people, you’ve probably heard a rant or two about “sound money” and the need to “depoliticize money.” This is a foundation of blockchainism: the belief that money is born separate from states, and states invade on the private realm when they “meddle” in the money system.

There are at least two serious problems with this ideology. First, it’s plain wrong on the historical facts. Money did not emerge from barter systems among people. Money was and is a product of states:

https://www.theatlantic.com/business/archive/2016/02/barter-society-myth/471051/

But even if you stipulate that money didn’t originate among private markets (and I’m fully aware that there are many Reply Guys who will @ me to tell me that they disagree), there’s another serious historical problem with “sound money.”

It’s this: Central banks didn’t emerge to usurp the private sector’s control over money. Central banks were created because without them, finance was subject to wild, terrifying, ruinous boom/bust cycles. What’s more, without a central bank, money was subject to naked political meddling, which central banks (sometimes) moderated.

The idea that a society can survive without a state or other actor that can create and destroy money based on prevailing economic conditions is both ahistorical and impractical. If we all adopted cryptocurrency tomorrow, there’d still be an elastic money supply, as Yanis Varoufakis explains in this interview with The Crypto Syllabus:

https://the-crypto-syllabus.com/yanis-varoufakis-on-techno-feudalism/

“What would banks do? They would lend in Bitcoin, of course. This means that overdraft facilities would emerge allowing lenders to buy goods and services with Bitcoins that do not yet exist. What would governments do? At moments of stress, they would have to issue units of account linked to Bitcoin (as they did under the Gold Exchange Standard during the interwar period). All this private and public liquidity would cause a boom period before, inevitably, the crash comes. And then, with millions of people wrecked, governments and…