Another week, a new wave of bitcoin surprises. Keep in mind that the price of the digital currency has skyrocketed dramatically; or that Elon Musk, the flamboyant founder of Tesla, is reported to have reaped more profits for the company from bitcoin investment compared with the production of electric vehicles last year. This week, it was equally striking that Citibank told its customers that the digital currency has reached a “the breaking point“And could one day ‘become the choice for international trade’.
Cue predictable levels of celebration from bitcoin enthusiasts and of confusion from 20s financiers. Still, opponents and fans of the cryptocurrency seem to agree on one thing: bitcoin is taking financing to the realms of bold technological experiments from the 21st century.
Is it though? During such weeks, it is worth considering other evidence, such as the research conducted in Micronesia in recent years by Scott Fitzpatrick, an archaeologist at the University of Oregon, and Oregon School of Business Professor Stephen McKeon. The couple has studied an old stone money system that once existed on the micronesian island of Yap, where local communities would treat large limestone slabs as a means of exchange.
Such stone slabs, called rai, “were considered extremely valuable”, the couple noted in a 2019 magazine in the Journal of Economic Anthropology. But the stones were so huge that “given their size, weight, and relative fragility, they were not usually moved after being placed in a specific place. [and] if a rai was gifted or exchanged, the new owner of a record may not have lived near it. ”
It can make them sound pretty useless as a form of money. But the local community maintained an oral ledger that was as effective at keeping track of who owned which solid limestone baskets as Fitzpatrick and McKeon concluded that rai, as a register of value, was “an exemplary old analogue of blockchain” (bitcoin technology powered past).
The parallels between the two are limited. Limestone baskets cannot be broken down as easily as bitcoin. And because blockchain ledgers are based on (seemingly) immutable computer code, they seem more durable than shared memory. The circle of participants in bitcoin and blockchain offers is obviously exponentially larger than it was with rai – and anonymous to start.
But there are other thought-provoking similarities between the two. First, rai – like bitcoin – ordered value due to lack; just as it now requires enormous efforts to “break” bitcoin (to use the term to write the code for coins), so obtaining rai was difficult. The limestone slabs were mined from Palau, 400 km from Yap, and then carried across the seas.
This was the most impressive piece of maritime transport logistics seen in the region until the European explorers arrived in the 18th century and incredibly difficult for the time (although it was significantly smaller environmentally harmful than the dirty process of bitcoin mining, which requires huge amounts of electricity).
The other similarity is that rai only functioned as money because there was a common trust. Unlike conventional modern monetary system, the “trust” that founded the rai did not work in a vertical, hierarchical way – that is, because of belief in a leader or an institution; instead, it was “distributed” horizontally. Everyone in the audience needed to trust that everyone else would respect the oral ledger.
Bitcoin also rests on the distributed trust of an audience. Because while computer code may seem impersonal, free from capricious human intervention, the system only works if people trust the holiness of the computer code. If it ever breaks – say because of one cyberhack or a change in norms – bitcoin would provide even less value than rai does today.
There is no sign that confidence in the blockchain is being broken. In fact, the latest note from Citi suggests that standards of respect for blockchain ownership are being strengthened. The key point is this: anyone who invests in the currency expresses not only belief in algorithms, but also in a specific pattern of trust (ie that the computer code means something).
It does not invalidate bitcoin or blockchain useless; after all, the ordinary currencies that our lives depend on sometimes tough social norms also rely on. A way of shaping the competition between bitcoin and other currencies is thus like a struggle for norms – and of hierarchical versus distributed trust.
As the history of rai shows, when it comes to human economies, nothing is entirely new. In fact, a rumor periodically buzzing around the crypto world is that this is where the mysterious ancestors of bitcoin first got their inspiration (this is why some bitcoin blogs have titles that contain the word “Yap”). Perhaps Musk’s next drive would be to Micronesia, where the now useless stone circles still haunt the landscape as a sign of what happens when norms and patterns of trust change.
Hear Gillian and Mark Carney discuss FT Weekend Digital Festival, March 18-20; worldhhighways.com
Follow @FTMag on Twitter to find out our latest stories first. Listen to our podcast, Cultural conversation, where FT editors and special guests discuss life and art in the time of the coronavirus. Subscribe to Apple, Spotify, or wherever you listen.