Welcome to the CoinDesk Weekly Review 28th March 2014 – a regular look at the hottest, most thought-provoking and most controversial events in the world of digital currency through the eyes of scepticism and wonder.
Your host … John Law.
Unterguggenbergercoin - your time has come
Iceland is an odd place. The only neutral country invaded in World War II by the British, who were terribly apologetic about it, it has Bjork, sagas, NSFW necropants, and hakarl, a local snack made by fermenting urea-saturated shark meat in a hole in the ground for a few weeks. By repute, it tastes worse than it sounds.
It’s also had some remarkable fiscal adventures, which have led to a generally low opinion of corporate finance. Thus, it is a fitting home for auroracoin, the first experiment in a national cybercurrency. First indications are that it’s off to a rocky start with few Icelanders taking up their free allocation, and a rapid drop in value against bitcoin.
Yet these are early days, and other putative national altcoins such as Scotcoin, are looking on with interest. In such projects, a large number of coins are created and issued before mining (if any) takes place; in this respect, as in many others, such ideas are most similar to local or community currencies.
Here, a group prints up some pseudo-banknotes and encourages their use in local shops, to pay for hired help on small jobs, and to support local charities. The idea is to encourage the local economy, and they’re particularly popular in the UK where some 400 similar projects are underway.
However, they can have more profound effects. One almost-forgotten experiment, which John Law finds most intriguing, became known as the Miracle of Wörgl.
Wörgl is a small town in Austria. In 1932, weathering the global depression, it had around thirty percent unemployment and 200 destitute families. It also had 40,000 schillings in the bank.
Mayor Michael Unterguggenberger had a list even longer than his name of civic projects he wanted to fund but the money to hand wouldn’t begin to cover the costs of one of them. Yet he had a workforce standing idle.
So, he created a local currency. He put the money in a bank and used it to guarantee the issuance of a large number of local banknotes that had one special feature. Every month, to stay valid, they had to have a stamp attached – which cost one percent of the value of the note. In other words, the money deflated in value automatically, every month, by one percent. He spent the lot of this stamp scrip on the first of his projects.
The result was spectacular. People became highly motivated to spend the money as quickly as possible. They paid their taxes early, passing money back to be issued in new projects.
As more and more work was done, such as planting trees, stuff was generated that could be traded outside the currency zone. Mayor Michael got his projects – roads repaired, mains water supplied, bridges built – and more. It’s estimated that each of the stamp scrip schillings generated more than ten times the amount of employment than the government fiat currency circulating alongside. And the local economy was otherwise remarkably stable – the rapidly circulating money didn’t cause price rises.
People took notice. Surrounding villages adopted similar schemes. Economists flocked in, and the Mayor become a celebrity. With some 400 other areas getting interested, the national bank took fright and banned the idea – and Austria tried another form of national salvation, with less savoury results.
There are many ways in which the local conditions helped the experiment to flourish; the local economy was much more localised than it is today, and levels of despair were much higher. Other deflationary economies have been marked by long periods of stagnation and productivity decline.
But John Law highly recommends others more astute than he take a long look at Michael Unterguggenberger’s remarkable feat, and in the cybercurrency zeitgeist now afoot take another crack at it on the back of a local currency experiment.
If someone does, John Law will fly to Iceland and eat one piece of hakarl for every letter in the Mayor’s last name. Now that should be profoundly deflationary.
Californian dreamers get down to work
The CoinSummit San Francisco event over the past few days was profoundly optimistic – some might say irrationally so, given the latest half-rumour/half-news that China has slapped bitcoin down yet again.
That’s the trouble with Chinese bans – a month after you’ve had one, you need another. And, to be fair, it’s unlikely that a Californian conference about new technology is going to be overburdened with pessimism.
What was notable about CoinSummit, though, was how little time was devoted to bitcoin itself, at least in its current febrile state. Instead, most discussions centred around generic problems of adoption, the whole altcoin scene, the state of official acceptance of cryptocurrencies in general, and – most significantly – what sort of ecosystem is growing up around the technologies and what new directions it may take.
There were a lot of grown-ups there, too, some, like Marc Andreessen, positively revelling in the prospect that the wilder fringes of bitcoin fanaticism were being driven away in disgust from the onslaught of suits (well, smart casual).
There was a sense of confidence in cybercurrency’s robustness, after a tumultuous period where bitcoin bogeymen such as black-market trading, fraudulent companies and official condemnation had been largely despatched. Time to get on with business.
John Law recommends that if you have a spare half-hour and want to recalibrate your sense of what’s worth thinking about as 2014 unfolds, you could do far worse than take a virtual trip to San Francisco and read through the reports.
Don’t put too many flowers in your hair – the city’s been the home of failed cultural revolutions in the past – but you’ll end up far better informed than 95 percent of the Internet.
Is your Android phone burning through battery life? Is it sluggish and unwilling to be your friend? You could have secret mining software, unwittingly installed alongside an apparently legitimate app. But, to be honest, you probably don’t.
There was a mild flutter this week with the revelation that a couple of apps from Google’s Play store have been found to have malware miners, ostensibly taking over your phone to create bitcoin for some secret villains.
These follow a tradition almost as old as bitcoin itself, of people slipping in such software where no software ought to be. Universities, gaming networks and Linux users have all been hit in the past; there’s even one variant targeting gadgets such as home routers and smart TVs.
But the flutter soon died down. Google quickly takes down – and can forcibly de-install – Play store apps that break the rules, and only a couple of apps had the malware. And besides, the sages say, phones are far too weedy to mine. If you need banks of custom ASICs running for days to see any return, what can a Samsung do?
This set John Law thinking. A back-of-the-envelope calculation suggests that a modern quad-core phone can probably manage around 1 MHash/s if you don’t mind it getting hot and having the battery life of a mayfly on crystal meth, or just running while the thing’s charging.
At the current difficulty level, that would generate one bitcoin per 28,000 years – if you want to calculate the effect of bitcoin’s ever-increasing difficulty rate to find a real number, knock yourself out.
That does indeed seem a poor use of your mobile phone, even if you upgrade every two years. But does that mean you can’t mine anything with your phone? Not at all. Other altcoins have much lower hashrate requirements, or use other proofs of work altogether. There’s no reason why a mobile phone only altcoin couldn’t be created, with all the parameters tweaked to have reasonable behaviour on such limited resources.
It’d take a bit of extra smarts to stop people building mining rigs that merely pretended to be phones, but the phone system has been created to prevent fraud and enforce identity so the network has the requisite tools.
Just because you can do something, doesn’t mean you should – a lesson John Law may not quite have learned yet – but the idea of a mobile-only cash ecosystem may open up more efficient in-game purchases, or a way to stop phone spam by charging for received texts or calls from unknown numbers.
On the whole, though, it would probably just encourage malware and burned hands. One experiment we can all probably live without. Unless you plan on living to the year 30,014.
John Law is an 18th Century Scottish entrepreneur, financial engineer and gambler. Having reformed the French economy, invented paper currency, state banks, the Mississippi Bubble and other ideas essential to modern economics, he took 300 years off in a small cottage outside Bude. He has returned to write for CoinDesk on the foibles of digital currency.
Wörgl Note image via Wikipedia Creative Commons
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.
Learn more about Consensus 2023, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.