Bitcoin: this is what a bubble looks like

Not if, but when, the bubble will burst.

This is what a bubble looks like:

That's the market capitalisation of Bitcoin, an innovative fiat currency which relies on some fancy cryptography to create a perfectly decentralised and unhackable store of value. The graph shows the total value of all bitcoins in circulation — and it's currently peaking at a little over half a billion dollars.

In a sense, Bitcoins are the ultimate fiat currency. There is absolutely nothing valuable about them except the extent to which others are prepared to take them as payment for goods and services. The willingness relies on a certain level of trust that the currency will stay a useful store of value, measure of exchange and unit of account in the near future; but whereas normal currencies derive the trust from the fact that they are backed up by respectable governments and independent central banks, Bitcoin derives it from a complex, and essentially permanent, set of rules which issue new bit coins at a steadily declining rate until the early 22nd century, when the total quantity of bitcoins in circulation will be fixed forever.

Currently, bitcoin is very useful for fringe-legal transactions, and as a digital-native currency, it has potential to be used in a wide array of web services. But that's not why the value of the total economy has more than tripled since January. For that, look to lessons we learned over four hundred years ago.

The South Sea bubble is one of the most famous boom-and-bust cycles in history. At the peak of the madness, famously, a huckster appeared public advertising stock in "a company for carrying out an undertaking of great advantage, but nobody to know what it is". Naturally, he disappeared soon after.

But looking back at contemporary sources reveals something else which is just as important: very few people caught up in the madness thought that they were buying something innately valuable. These weren't naïve investors spending exorbitant sums on stock which they thought would vest unrealistic rewards; instead, they knew full well the bubble they were buying into, but thought that they could sell out of it at profit before the whole thing came crashing down. Some did; but inevitably, many others failed.

Much the same seems to be at play in the Bitcoin ecosystem. It's not just people like Hugo Rifkind, who accidentally made £41 from his foray into bit coin investing; Timothy Lee, a writer for Ars Technica, holds nearly a tenth of his investment portfolio in bitcoin, having bought in last January and seen a ten-fold increase in value.

But while there's been a massive increase in bitcoin price, there's not been anywhere near an equivalent increase in the currency's use. A glance at blockchain.info, which displays all transactions, shows that the vast majority of bitcoin transactions—by number, if not by value—are made at the site SatoshiDICE, a gambling organisation. In fact, the ever-increasing value of bitcoins is like to act as to depress the bitcoin economy, as people decide to hold on to their money rather than exchange it for services, knowing that it will surely increase in value.

The crash will come. At the heady peaks it's at right now, only the slightest spark will be required to turn the trend negative. In 2011, the previous bubble burst when Mt Gox, then the most popular bureau d'exchange for the fledgeling currency, was disastrously hacked. This time, I doubt it would take that. The peaks are so high, and so many people have so much money "invested" in the currency, that the rush to be the first out of a bear market will be vicious to behold.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

GEOGRAPHY PHOTOS/GETTY IMAGES
Show Hide image

Fake news sells because people want it to be true

The rise of bullshit, from George Orwell to Donald Trump.

When is a lie not a lie? Recently, the Daily Telegraph reported that university students had demanded that “philosophers such as Plato and Kant” be “removed from [the] syllabus because they are white”. Other outlets followed suit, wringing their hands over the censoriousness of today’s uninquiring young minds. The article generated an extraordinary amount of consternation click bait. Angry responses were written and hot takes were quick-fried and served up by outlets anxious  to join the dinner rush of  ad-friendly disapproval.

It’s a story that could have been designed to press every outrage button of the political-correctness-gone-mad brigade. It has students trying to ban things, an apparent lack of respect for independent thought and reverse racism. It seemed too good to be true.

And it was. In reality, what happened was far less interesting: the student union of the School of Oriental and African Studies (Soas) at the University of London had proposed that “the majority of philosophers on our courses” be from Asia and Africa, and that the Western greats be approached from a “critical standpoint”. Some might consider this a reasonable request, given that critical analysis is a component of most philosophy courses, and Soas has a long tradition of promoting the study of the global South. Yet a story about students declaring Kant irrelevant allows the Telegraph to despair for the youth of today and permits advertisers to profit from that despair.

People didn’t start pumping out this stuff because they decided to abandon journalistic ethics. They did so because such principles are hugely expensive and a hard sell. Even those of us who create and consume news can forget that the news is a commodity – a commodity with a business model behind it, subsidised by advertising. Rigorous, investigative, nuanced content, the sort that pays attention to objective facts and fosters serious public debate, is expensive to create. Talk, however, is cheap.

Fake news sells because fake news is what people want to be true. Fake news generates clicks because people click on things that they want to believe. Clicks lead to ad revenue, and ad revenue is currently all that is sustaining a media industry in crisis. Journalism is casting about for new funding models as if for handholds on a sheer cliff. This explains a great deal about the position in which we find ourselves as citizens in this toxic public sphere.

What has this got to do with Donald Trump? A great deal. This sticky, addictive spread of fake news has fostered a climate of furious, fact-free reaction.

Press outlets give millions of dollars of free coverage to Trump without him having to send out a single press release. The reality TV star is the small-fingered god of good copy. The stories write themselves. Now, the stories are about the threat to the future of journalism from the man who has just entered the Oval Office.

Trump’s first press conference in six months, held at Trump Tower in New York on 11 January, was – by any measure – extraordinary. He did not merely refuse to answer questions about unverified allegations that he had been “cultivated” by Russia. He lost his temper spectacularly with the assembled press, declaring: “You’re fake news! And you’re fake news!”

Trump did not mean that the journalists were lying. His attitude to the press is straight from the Kremlin’s playbook: rather than refute individual accusations, he attempts to discredit the notion of truth in journalism. The free press is a check on power, and Trump likes his power unchecked.

Writing in the Guardian in 2015, Peter Pomarantsev noted of Putin’s propaganda strategy that “these efforts constitute a kind of linguistic sabotage of the infrastructure of reason: if the very possibility of rational argument is submerged in a fog of uncertainty, there are no grounds for debate – and the public can be expected to decide that there is no point in trying to decide the winner, or even bothering to listen.”

If people lose trust in the media’s capacity to report facts, they begin to rely on what “feels” true, and the influence rests with whomever can capitalise on those feelings. Donald Trump and his team know this. Trump doesn’t tell it like it is. Instead, he tells it like it feels, and that’s far more effective.

Fake news – or “bullshit”, as the American philosopher Harry G Frankfurt termed it in a 2005 essay – has never been weaponised to this extent, but it is nothing new. George Orwell anticipated the trend in the 1930s, looking back on the Spanish Civil War. “The very concept of objective truth is fading out of the world,” he wrote. “Lies will pass into history . . . In Spain, for the first time, I saw newspaper reports which did not bear any relation to the facts, not even the relationship which is implied in an ordinary lie . . . In the past people deliberately lied, or they unconsciously coloured what they wrote, or they struggled after the truth, well knowing that they must make many mistakes; but in each case they believed that ‘facts’ existed and were more or less discoverable.”

This is the real danger of fake news, and it is compounded by a lingering assumption of good faith on the part of those who believe in journalistic principle. After all, it’s impossible to prove that a person intended to deceive, and that they didn’t believe at the time that what they said was true. Trump may believe in whatever “facts” he has decided are convenient that day. When he insists that he never mocked a disabled reporter, whatever video evidence may exist to the contrary, he may believe it. Is it, then, a lie?

Of course it’s a lie. People who have no respect for the concept of truth are still capable of lies. However, they are also capable of bullshit – bullshit being a register that rubbishes the entire notion of objective reality by deeming it irrelevant. The only possible response is to insist, and keep insisting, that the truth still means something.

Laurie Penny is a contributing editor to the New Statesman. She is the author of five books, most recently Unspeakable Things.

This article first appeared in the 19 January 2016 issue of the New Statesman, The Trump era