We take money for granted, not making or earning money but the physical item itself. Money represents an IOU from the issuing party. We have to go to the issuer and receive something of value in exchange for the physical stuff we call money. It is, in essence, a tangible substance we can carry in our pocket. Credit and debit cards are not really money but merely a synthetic representation (some electronic ones and zeros) of money. In today’s world money usually represents an IOU from the government and demands your confidence in the honesty and stability of the government. It was not always that way.
A long time ago there was a device called the tally stick. If you and I made a deal for some other tangible stuff and I did not have the physical money to give you, we could create a tally stick from willow. On the stick we would carve how much I owed you and then split the stick down the middle. It was sort of a physical (non-paper) IOU. Then, if you wanted to “buy” something from another person, he or she might accept the tally stick as payment as long as he or she trusted me.
In May 1970, the banks in Ireland closed and it was believed that they would be closed for several months. People began writing checks to one another – IOUs backed by the ledger balances in the banks. The checks essentially became money backed by an imaginary product. You could print counterfeit money by writing a rubber check. The banks eventually reopened and the checks were processed, redistributing “money” in ledger entries. But what if the banks never reopened? Ethically, what could have been done? The closure occurred because the bank employees went on strike.
Today our “money” is issued by the government. At one point in time money in the United States was designated as a silver certificate. You could take the certificate to some government location and trade it for the “equivalent” amount of silver bullion. The equivalent amount was based on the amount of silver in a silver dollar, sort of. In 1934, the wording on the certificate was changed to silver bullion so the Treasury did not have to store silver dollars in its vaults. With the start of World War II, only the one dollar silver certificate remained. And then on 4 June 1963, Public Law 88-36 essentially ended the silver certificate. Paper money had nothing other than the government backing it up.
Clearly faith in the government and trust among citizenry is central to the monetary system. A complicated system exists between the Department of the Treasure and the Federal Reserve System for the issuance, retirement, and control of money. It is paper after all. We have an established ethical system regarding such things as counterfeiting and embezzlement and a banking system under government control for bookkeeping and management. We trust it and punish people who ethically and illegally abuse the system.
And then the bitcoin appeared in the vapor of the web, a cyber network of block-chains allowing you to “purchase” the “coins” for “real” money and then allowing you to electronically use them to purchase something from another entity as long as the other entity accepted them as “money.” Essentially, they are electronic tally sticks with a “difference.” The bitcoin is “purchased” with “real” government backed money. Obviously the bitcoin can go up or down in value based on demand, sort of like stocks and bonds. So can real money based on price changes in real goods, but it is a bit more stable.
During the 2007 financial crisis the United States, through its Federal Reserve System, “created” trillions of dollars. Actually, the Federal Reserve System can do this any time it deems it necessary. In 1820, the U.S. population was 9.6 million people. Today’s population is 33 times greater. Could the United States function if its money supply remained constant in the physical amount of cash in circulation almost 200 years ago? Obviously not, but the people, as a government, adapted.
Now return to the bitcoin and crypto currency. Since the bitcoin first became available in 2009, other crypto currencies have emerged including Litecoin, Ethereum, Zcash, Dash, Ripple, Monero, Bitcoin Cash, NEO, Cardas, and EOS. You can acquire all of these “currencies” by buying them with “real” money or earning them by accepting them as payment for something. It is sort of like the check IOUs of the Irish in 1970 except that the Irish banks had some sort of oversight. The issuers of bitcoins/crypto currency operate in the realm of the Internet, a digital space controlled by governance, not government. If a nation-state violates the rules of governance, who controls it? If a crypto currency creator has taken your government backed money for his or her coins and then shuts down, who will protect your “investment”? What are the ethics of crypto currency? What is right and wrong? And how can we establish and enforce the ethical standards?