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.

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What Charles Windsor’s garden reveals about the future of the British monarchy

As an open-minded republican, two things struck me. 

First we are told that the Chancellor, Philip Hammond, has lost his battle for a “soft” Brexit. In a joint article, he and the International Trade Secretary, Liam Fox, the hardest of the ministerial Brexiteers, seem to agree that the UK will leave the European customs union in 2019. Then we get a reverse ferret. Hammond will go for a softish Brexit, after all. A government paper states that the UK will seek a “temporary customs union” in the “transition period” that, it hopes, will follow Brexit.

All this is a taste of things to come. We shall see many more instances of hard and soft Brexiteers celebrating victory or shrieking about betrayal. We shall also see UK and EU leaders storming out of talks, only to return to negotiations a few days later. My advice is to ignore it all until Friday 29 March 2019, when UK and EU leaders will emerge from all-night talks to announce a final, impenetrable fudge.

Lessons not learned

What you should not ignore is the scandal over Learndirect, the country’s largest adult training and apprenticeships provider. An Ofsted report states that a third of its apprentices receive none of the off-the-job training required. In a random sample, it found no evidence of learning plans.

Labour started Learndirect in 2000 as a charitable trust controlled by the Department for Education. It was sold to the private equity arm of Lloyds Bank in 2011 but remains largely reliant on public money (£158m in 2016-17). Since privatisation, 84 per cent of its cash has gone on management fees, interest payments and shareholder dividends. It spent £504,000 on sponsoring the Marussia Formula One team in an attempt to reach “our core customer group… in a new and exciting way”. The apprentices’ success rate fell from 67.5 per cent before privatisation to 57.8 per cent now.

This episode tells us that, however the Brexit process is going, Britain’s problems remain unchanged. Too many services are in the hands of greedy, incompetent private firms, and we are no closer to developing a skilled workforce. We only know about Learndirect’s failure because the company’s attempt to prevent Ofsted publishing its report was, after ten weeks of legal wrangling, overthrown in the courts.

A lot of hot air

Immediately after the Paris climate change accord in 2015, I expressed doubts about how each country’s emissions could be monitored and targets enforced. Now a BBC Radio 4 investigation finds that climate-warming gases emitted into the atmosphere far exceed those declared under the agreement. For example, declarations of methane emissions from livestock in India are subject to 50 per cent uncertainty, and those in Russia to 30-40 per cent uncertainty. One region in northern Italy, according to Swiss scientists, emits at least six times more climate-warming gases than are officially admitted. Remember this when you next hear politicians proclaiming that, after long and arduous negotiations, they have achieved a great victory.

Come rain or come shine

Climate change, scientists insist, is not the same thing as changes in the weather but writing about it brings me naturally to Britain’s wet August and newspaper articles headlined “Whatever happened to the sunny Augusts of our childhood?” and so on. The Daily Mail had one in which the writer recalled not a “single rainy day” from his family holidays in Folkestone. This, as he explained, is the result of what psychologists call “fading affect bias”, which causes our brains to hold positive memories longer than negative ones.

My brain is apparently atypical. I recall constant frustration as attempts to watch or play cricket were interrupted by rain. I remember sheltering indoors on family holidays with card games and books. My life, it seems, began, along with sunshine, when I left home for university at 18. Do psychologists have a name for my condition?

High and dry

Being an open-minded republican, I bought my wife, a keen gardener, an escorted tour of the gardens at Highgrove, the private residence of the man I call Charles Windsor, for her birthday. We went there this month during a break in the Cotswolds. The gardens are in parts too fussy, rather like its owner, but they are varied, colourful and hugely enjoyable. Two things struck me. First, the gardens of the elite were once designed to showcase the owner’s wealth and status, with the eye drawn to the grandeur of the mansion. Highgrove’s garden is designed for privacy, with many features intended to protect royalty from the prying public and particularly the press photographers’ long lenses. Second, our guide, pointing out what the owner had planted and designed, referred throughout to “His Royal Highness”, never “Charles”. I am pondering what these observations mean for the monarchy and its future.

Sympathy for the devil

Before leaving for the Cotswolds, we went to the Almeida Theatre in north London to see Ink, featuring Rupert Murdoch’s relaunch of the Sun in 1969. Many accounts of Murdoch  portray him as a power-crazed monster and his tabloid hacks as amoral reptiles. Ink is far more nuanced. It shows Murdoch as a mixture of diffidence, charm and menace, in love with newspapers and determined to blow apart a complacent,
paternalistic British establishment.

You may think that he and the Sun had a permanently coarsening effect on public life and culture, and I would largely agree. But he was also, in his own way, a 1960s figure and his Sun, with its demonic energy, was as typical a product of that decade as the Beatles’ songs. The play strengthened my hunch that its author, James Graham, who also wrote This House, set in the parliamentary whips’ offices during the 1970s, will eventually be ranked as the century’s first great playwright.

Peter Wilby was editor of the Independent on Sunday from 1995 to 1996 and of the New Statesman from 1998 to 2005. He writes the weekly First Thoughts column for the NS.

This article first appeared in the 17 August 2017 issue of the New Statesman, Trump goes nuclear