Crypto Isn’t the Future; It’s the Past

Everything about money has changed.

Financial advice today is shockingly different than in the past, in no small part because money itself is different, too. Dollars in history bore no resemblance to those today. Generations lived their lives in a strange financial world. When they finally arrived at ours, no one wanted to go back.

No one, that is, until the cryptocurrency craze. Cryptos are a variety of digital monies, kept by computers constantly sharing information. There are many, many cryptos—currently over 9,000. The most famous, Bitcoin, has a market cap of over $2 trillion. Dogecoin, created as a joke to make fun of Bitcoin, is worth almost $25 billion. These “coins” all share one important trait. They are proudly created by people, not governments.

Leading theorists, tech titans, gorgeous celebrities, and everyday waitresses speak of an exciting new world of self-made money. Before plunging us headlong into the future, they should take a long look at the past. As it turns out, we’ve been here before.

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In 1835, a runaway slave created money from nothing. Arriving in the tiny town of Monroe, Michigan, broke but determined¹, William Wells Brown went door to door asking for work. A landlord offered Brown space to start a barbershop, a fabulous idea but for the fact he owned no scissors and had never cut hair. Undeterred, the young man borrowed shears and painted a large sign: “Fashionable Hair-dresser, from New York, Emperor of the West.” He reminded everyone that the town’s other barber had never seen the latest fashions in New York. Neither had this runaway slave from Kentucky, but no one thought to ask.

Brown quickly ran into problems. His customers couldn’t pay. In the early United States, there wasn’t enough money to go around. Everyone, rich and poor, was strapped for cash.

Brown improvised. He asked the local printer to create $20 of paper money in small denominations between 6 and 50 cents. They were good for a haircut. He traded these tickets for food, lodging and—critically—real cash. Before long, the people of Monroe were paying for beer, groceries, and rent with cash from New York’s fashionable hairdresser. After all, brewers and grocers need haircuts, too. If they had more of Brown’s bucks than they needed trims, they traded them to others.

In the early United States, that was all it took. If a runaway slave said his printed paper was money, it was—until it wasn’t. A year later, William Brown really did move to New York. The Emperor’s dollars crashed to zero. Cash was, very literally, trash.

* * *

Financial life was mind bogglingly complex² throughout the 1700–1800s. There just wasn’t enough money. To fill the gap, nearly anything counted as cash, sometimes even counterfeits. The values of “real” currency changed regularly. If you could manage to find money, know it was legit, and discern its worth, there was still next to nowhere to safely keep it. Every citizen tracked hundreds of variables. A mistake could cost your life’s savings.

The strongest money had something behind it that banks and governments wanted: good land or gold. This limited the supply, since there was only so much of either. But folks still had to pay for the seeds, tools, dresses, and beer that made life livable, so they improvised. A bewildering array of currencies arose. Tobacco Inspector’s Notes, postage stamps, Native American wampum beads, and a half-dozen foreign currencies were viable tender in early America. Coins from the defunct Holy Roman Empire stuck around in the United States for decades after the empire collapsed, since money from a dead empire was better than money from no empire at all. In total, over thirty valid payment methods coexisted.

The most common wasn’t even a dollar bill, but a “bill of exchange” that looked like a modern-day check. It was simply a written promise: You can get this amount of money if you take it to my bank in the future. Checks still have dates on them for this very reason. I’m not paying you. I am promising to pay you. Hopefully, by then, it won’t bounce.

Individuals could create their own funds, too. You could write “bills obligatory,” a kind of personal IOU for $9 in purchases that paid out $10 later. There were also personal pledges, secured by your belongings, that went around town like a floating pawn ticket for your silverware. Neighbors could buy bread with a paper claim to your wife’s wedding ring.

These worked in the best of times. In the worst, when even bad money proved hard to find, Americans survived on “Hard Times Tokens,” called shinplasters. Composed of cheap tin or paper, shinplasters were business ads doubling as store credit. Since you could use them at one store, you could usually trade them at others. If we still had that economy, you could buy gasoline with Chuck E. Cheese tickets. This is how William Wells Brown thought his way out of Monroe, Michigan.

If you’re confused, so were they. Mistakes led to dramatic losses. Philadelphia merchant William Pollard was livid when his ship’s captain accepted the wrong type of payment in another city because he “did not know a Set of Bills of Exchange³ from a Bill of Lading.” It cost a fortune.

* * *

A dollar wasn’t even worth a dollar.

Some were worth more than others. To be redeemed, the dollar must be traded back to the original bank that printed it. You could hold a Bank of Detroit dollar or a Planter’s Bank of Mississippi dollar, but it was only worth a dollar if it got back to Detroit or the Delta. If you held a Bank of Cape Fear dollar, which sounds risky, it might be worth $0.98 in town, $0.95 across North Carolina, or less than $0.90 out of state. No one in Boston was sure it was worth a dime, since that meant knowing that a bank two weeks away would still exist by the time the money returned.

Most banks weren’t good for much, anyway. About 25 percent of dollars hailed from busted banks, and it was thus utterly worthless. Another 20 percent of banks lived at the brink of failure, commanding just ten cents on the dollar. Nearly half of U.S. currency required a deep discount, and only around 5 percent got full value.

By the Civil War, the country had 10,000 unique notes issued by over 1,000 banks, stores, and municipalities, each worth a different amount. To make it worse, tornados of counterfeit money⁴ regularly swept into the supply. So many fakes floated around that, today, 20 percent of the Smithsonian’s historic money collection are counterfeits.

Most Americans understood this cauldron of confusion shockingly well. Newspapers printed discount rates. Publishers sold guidebooks depicting real, counterfeit, and broken bank dollars. To the bafflement of European visitors, Americans took it in stride. Every time they saw money, a U.S. citizen went through a mental process, honed since childhood, determining a) if it was real, b) how much it was worth, and c) how fast they could spend it.

The principal money advice in early America was not to save it. Hoarding cash, even in banks, invited disaster. Horror stories abounded, especially for immigrants unadjusted to this financial wild west. A poor Irish woman in 1840s Baltimore discovered too late that her years’ savings was in useless shinplasters. Those who knew encouraged spending as quickly as possible. Seven-year-old Frederick Seward’s family taught him the trick was velocity. They “might prove worthless any day,” his grandfather explained, so “get rid of them as speedily as possible⁵.” Family letters advised buying land quickly to get rid of cash. Workers in cities tried to spend pay fast. Food in the belly or clothes on the body beat useless paper.

Ponder that. A kindly grandfather passes on the financial lesson that responsible people always spend quickly. Cash was bad, saving naive. In a world of shinplasters, counterfeits, and bad banks, wisdom looked decidedly different from today. Something obviously changed. What?

* * *

Why did a saner system take so long to materialize? Because no one was sure it would be legal. In 1863, Congress birthed the first stable U.S. currency, the greenback. The Supreme Court promptly declared it unconstitutional. A counterfeiter arrested in Ohio staked his defense on arguing that the original notes were unconstitutional anyway. A jury of his peers agreed. He went free.

A year later, the Court surprisingly reversed itself⁶, and the federal government was now in the money making game. The Treasury eliminated competitor currencies through taxation. The green ink confounded false fabricators, increasing trust. Most importantly, the new money was good for paying all government and bank obligations; you could pay your taxes and debts with it.

Financial life changed forever. Growing faith in this new single currency changed banking, too. In 1860, far more money circulated than banks held, because only a fool would hold cash. In just ten years, deposits and circulating currency became roughly equal. From there, the unthinkable happened. By 1880, there were more dollars inside of banks than outside, and by 1900 the ratio was four to one. Americans loved their new dollars, and they wanted to save them. The era of teaching kids to get rid of money as soon as possible was over.

* * *

What is money, anyway?

Libertarians say gold. Modern Monetary Theorists say public monopoly. Crypto believers say consensus. Econ 101 professors show the same PowerPoint for twenty years running: medium of exchange, unit of account, store of value. This will be on the exam.

What money is in political theory and what it was in American life differed. In practice, money was whatever Americans could use in the moment. The problem was that moments weren’t all the same. In low volatility, when things more or less behaved as normal, many things counted as currency. But when volatility struck, when everything and everyone grasped for safety in the storm, what used to be money suddenly wasn’t. As you know, I call these changes in volatility Slow and Fast Time.

In Slow Time, while sowing seed, brewing booze, and buying hair ribbons, shinplasters from runaway slaves’ barbershops worked just fine. Without Slow Time money, no one could have lived.

What everyone wanted, though, were Fast Time funds. When bill collectors came, the most stable money was what paid debts and taxes. If I could settle my mortgage with Virginia Tobacco Inspector’s Notes, I would. But I can’t. The argument that it was good enough for George Washington so it should work for me won’t fly.

In Fast Time, money is anything you can use to pay your debts and taxes⁷. At a functional, life-living level, this is all you need to know. Debates between theorists are silly when your spouse forgot to withhold their payroll deductions, and you find out in April.

Is Bitcoin money? In Slow Time, or if the economic avalanche of Fast Time is moving uphill, sure. But in a crisis, can you pay your taxes with it? I don’t mean can you trade it for dollars to pay your taxes. Stocks can do that. I mean, can you keep the county from taking your house with it? Today, three states accept crypto. Interestingly, though, not one municipality credits you in crypto. A third-party website exchanges digital for dollars. They are accepting your used bitcoin trade-in for a shiny new (electronic) greenback model.

Crypto is not the future, it’s the past. Your digital wallet is filled with blockchain shinplasters—digital wampum—which is why it plummets or rises with the stock market. We’ve tried this before. All American currencies were decentralized units of account before the greenback. Like non-fungible tokens (NFTs) and Fartcoin (yes, a real thing), anyone could issue them. Thousands did. But all shinplasters eventually go to zero.

There is one critical difference with the past. Your ancestors created money because they had too little and what they had barely worked. Our generation made crypto because it had too much money and it worked so well. The value of Bitcoin today comes from the sheer volume of dollars available to invest. The dream of online independence is a protest of just how powerful modern governments are. I’ve met two people who lost millions in digital wallet hacks. Both went to the FBI to get it back. So much for subverting the state.