Wednesday, August 10, 2016

Book Review: The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order

I recently finished a book called The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order by Michael Casey and Paul Vigna. This book gives a complete overview of Bitcoin as a technology (the blockchain) and as a currency (BTC). It covers a very wide range of topics from the white paper published by Satoshi Nakamoto and his unknown identity to the regulatory hurdles that Bitcoin entrepreneurs have faced. (I have linked a website that I believe does a very good job of describing how blockchain technology works). The authors of this book emphasize the future implications of Bitcoin’s blockchain technology, which they refer to as the Blockchain 2.0. The Blockchain 2.0 is an umbrella term for all applications that are using Bitcoin’s core technology, the blockchain, in ways that go beyond transferring money. There were two main applications of the Blockchain 2.0 that the authors mentioned: smart contracts and asset transfers. I did not understand how these blockchain applications worked, after reading this book, and hope to explain them in following posts.
            The authors approached the challenge of explaining what Bitcoin is by first attacking the underlying question, “What is Money?” According to the authors, there are two contrasting views to this question. The ideology of metallism is founded on the belief that money has have some underlying value, think the Gold Standard, while chartalism is founded on the ideas that currency is an intricate network of trust and has value due to its characteristic as a medium of exchange.1
I really enjoyed the author’s description of the Yapese monetary system. It is a great example of chartalist theory of currency, as well as an analogy for Bitcoin. The Yapese currency is based upon large round stones known as fei. Since these objects are so massive, it is very inefficient to transfer them to the new owner after each transaction, so they usually remain in the possession of the previous owner. But even while the physical stone may not move into possession of the new owner, the new owner is recognized as possessing the value of the stone. 1 This example does a great job of illuminating how money is based upon a system of trust that other people will accept it as a unit of exchange and how Bitcoin is based on a public ledger where people acknowledge each other’s credits and debits, even though there is no physical asset.  
            While I don’t believe the authors do a great job of describing how the technology behind the blockchain and Bitcoin works, this book is a fascinating and informative read. I had very limited knowledge about Bitcoin and did not even know that the blockchain existed before reading this. Now, I am intrigued by both of these technologies and believe they will have a large impact on the future of financial networks. I also think Bitcoin is a fascinating experiment to think about in terms of a new monetary system. Bitcoin is deflationary and has no central bank, unlike most every other currency that we use today, and I am curious how this will impact monetary economics.

1) Vigna, Paul, and Michael Casey. The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order. New York: St. Martins Pr.