Spain turns to Bitcoin, prompting incoherent discussion on Today

There are problems with the currency. But not those problems.

Wired's Ian Steadman reported yesterday about the surge in downloads of Bitcoin apps in Spain, noting that:

Three iOS apps – Bitcoin Gold, Bitcoin Ticker and Bitcoin App – each jumped up the App Store charts in Spain, all on the same day, as the news broke from Cyprus. Compare their download histories to those from a country like the UK and it's clear that the upward trend is more pronounced in the more at-risk nation. Bitcoin Gold's all-time high ranking of 83 in Spain came on 17 March; for Bitcoin Ticker, 68 on 17 March; Bitcoin App reached a high of 147 on 19 March. The highest rankings for those apps in the UK are lower – 293, 201 and 48 –and they were all records set months or even years ago.

That surge has been noticed by others, too – including Radio 4's Today Programme, which had a little interview with an economist about the fledgling currency. Sadly, they didn't really do themselves proud. A choice excerpt:

INTERVIEWER: A currency supply has to be limited, otherwise it can be devalued and copied. Who limits it? Who controls it, if there's no central bank?

INTERVIEWEE: Well, it's all controLled by users of the bitcoin community, and that's the reason why it has become so popular in recent years.

INTERVIEWER: What, they're all unbelievably virtuous, they all control it? What's the mechanism?

INTERVIEWEE: Any currency, and any asset class, is basically predicated on trust. We trust the central bank, we have full faith in credit, so we go into a shop and we trust that our £20 note is freely exchangeable for £20 of goods.

Now, heaven knows I'm not the biggest fan of the digital currency, but this is doing it an enormous disservice.

The reason why gets a bit technical, but if you want to know more about the currency, it's worth learning how it works. If not, skip the next five paragraphs.

The heart of bitcoin is based on something called public-key cryptography. This technique – used throughout the web, whenever security is needed – uses very large prime numbers to create a form of encryption where the key used to lock data is different from, but related to, the key used to unlock it. What that means is that you can send copies of the first key far and wide, and so long as you keep the second key hidden, other people can encrypt information which only you can then decrypt.

But there's a second thing the technology allows. If you use your private key to lock the data, then anyone can unlock it with your – and only your – public key. That lets you sign messages in a way which, so long as people are certain that it really is your public key they have, proves it was you who wrote it.

A bitcoin is, in its purest form, a list of past transactions signed with private keys and verified with public keys. So long as you keep your private key secret, it is impossible for other people to "spend" bitcoins which the network knows are held by you, because those transactions wouldn't be accepted.

It bitcoin were a centralised currency, that would be that. But it's decentralised, and that means that there's a second problem to overcome. I could send one bitcoin to Alice with her key added to the end, and the same bitcoin to Bob with his added on. Until the two of them spoke, they wouldn't know who had the "real" coin and who had the fake one.

The way bitcoin solves this is the really clever part of the whole thing. All transactions are broadcast throughout the network, and then certain computers – called "miners", analogously to gold – work to group them into a timestamped block every ten minutes. Multiple computers do this at once, because the calculations required to make a new block are, deliberately, very difficult. Honesty is therefore enforced by the fact that the easiest group to co-ordinate is the one telling the truth about which transactions came first.

OK, back to the non-tech stuff. How is this linked to inflation? Well, if your computer is the one which solves the puzzle and makes the block, you get some free bitcoins. Currently, it's 25 every block, but that number halves every four years until it drops to 0.00 in the year 2140.

And that's it. That's the only way new coins are created, and there's just over 1.25 million made each year. So there's nothing to do with "trust" in the whole system: low inflation is inherent to the entire idea. In fact, that's actually one of the things used to attack bitcoin; orthodox economics holds that a low level of inflation is good, because it encourages people to spend rather than horde. If there was a bitcoin economy the size of a nation, it would be in a permanent state of recession, and there would be no possiblity of monetary policy saving the day.

The worst thing is, the interviewee apparently knew this, because later on in the segment, he said:

They're so popular because they offer a little bit of something new, a little bit of security, an anti-inflation side of things, as well, because they've built something into the trading algorithm which means that it actually deflates over the cause of the lifetime.

Bitcoin might or might not work as a currency – you can tell what side I come on – but if Today is going to cover it, they ought to cover it well.

Of course, none of what Today actually discussed helps address the real question: are the panicky Spanish savers doing the smart thing by moving their money into bitcoin? (That's assuming they actually are; as Steadman points out, iOS is small fry in Spain, and three apps increasing their sales figures does not an exodus make.) It depends what they are fleeing.

If the fear is that the Spanish banks might implement a Cypriot-style deposit tax, then bitcoin would help. As a potentially anonymous currency, it's a tax avoider's – and tax evader's – dream, but only insofar as taking money out of the bank and keeping it in cash under the bed is. You can keep your money hidden from the tax man, but when you come to spend it, you're going to raise questions. In fact, the whole thing comes back full circle, because with Cyprus on lock-down, money laundering got a bit harder to do.

If your fear instead is Spain exiting the euro and devaluing, then bitcoin is a slightly better choice – but again, only so good as holding your money in dollars in a safe. But the exchange rate matters here. If I'm right, it's actually considerably worse than holding dollars in a safe. The bubble will burst, the exchange rate will plummet, and your bitcoins, measured in a currency you can actually use to buy food in, will lose all their value.

If I'm wrong, and the 100 per cent month-on-month increase continues, or even just levels off, then moving all your money into it could leave you rich. Who knows? That's the gamble you're taking

But fundamentally, the reason for switching to bitcoin from any other currency is that you have lost trust in the very concept of governments looking after money. If you are sitting in the eurozone at the moment, that might be an understandable belief. But I still have very little hope that switching from a currency with bad monetary policy to a currency where monetary policy is deliberately impossible will help matters to any great deal.

Spaincoin! Bitspain? Spitcoin. Image: Wikimedia Commons/Alex Hern

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

Photo: Getty Images
Show Hide image

What's to be done about racial inequality?

David Cameron's words on equal opportunities are to be welcomed - now for some action, says Sunder Katwala.

David Cameron made the strongest, clearest and most high profile statement about ethnic inequalities and the need to tackle discrimination ever yet offered by a British Prime Minister in his leader’s speech to the Conservative Party conference in Manchester.
“Picture this. You’ve graduated with a good degree. You send out your CV far and wide. But you get rejection after rejection. What’s wrong? It’s not the qualifications or the previous experience. It’s just two words at the top: first name, surname. Do you know that in our country today: even if they have exactly the same qualifications, people with white-sounding names are nearly twice as likely to get call backs for jobs than people with ethnic-sounding names? … That, in 21st century Britain, is disgraceful. We can talk all we want about opportunity, but it’s meaningless unless people are really judged equally”, said Cameron.
While the proof of the pudding will be in the eating, this was a powerfully argued Prime Ministerial intervention – and a particularly well-timed one, for three reasons.

Firstly, the Prime Minister was able to root his case in an all-but-universally accepted appeal for equal opportunities. It will always prove more difficult in practice to put political energy and resources behind efforts to remedy discrimination against a minority of the population unless a convincing fairness case is made that values cherished across our whole society are at stake. Cameron’s argument, that any party which tells itself that it is the party of the ‘fair chance’ and ‘the equal shot’ must have a response when there is such clear evidence of discrimination, should prove persuasive to a Conservative Party that has not seen race inequalities as its natural territory. Cameron argued that the same principles should animate responses to discrimination when it comes to race, gender and social class. Put like that, wanting job interviews to be fair – by eradicating conscious and unconscious patterns of bias wherever possible – would strike most Britons as offering as clear a case of the values of fair play as wanting the best baker to win the Great British Bake-Off on television.
Secondly, Cameron’s intervention comes at a potential "tipping point" moment for fair opportunities across ethnic groups. Traditionally, ethnic discrimination has been discussed primarily through the lens of its impact on the most marginalised. Certainly, persistent gaps in the criminal justice system, mental health provision and unemployment rates remain stark for some minority groups. What has been less noticed is the emergence of a much more complex pattern of opportunity and disadvantage – not least as a consequence of significant ethnic minority progress.

Most strikingly of all, in educational outcomes, historic attainment gaps between ethnic minorities and their white British peers have disappeared over the last decade. In the aggregate, ethnic minorities get better GCSE results on average. Ethnic minority Britons are more likely, not less likely, to be university graduates than their fellow citizens. 

As a result of that progress, Cameron’s intervention comes at a moment of significant potential – but significant risk too. Britain’s ethnic minorities are the youngest and fastest-growing sections of British society. If that educational progress translates into economic success, it will make a significant contribution to the "Great British Take-Off" that the Prime Minister envisions. But if that does not happen, with educational convergence combined with current ‘ethnic penalties’ in employment and income persisting, then that potential could well curdle into frustration that the British promise of equal opportunities is not being kept.  Cameron also mirrored his own language in committing himself to both a ‘fight against extremism’ and a ‘fight against discrimination’: while those are distinct challenges and causes, actively pursuing both tracks simultaneously has the potential, at least, depolarise some debates about responses to extremism  - and so to help deepen the broad social coalitions we need for a more cohesive society too.

Thirdly, Cameron’s challenge could mark an important deepening in the political competition between the major parties on race issues. Many have been struck by the increase in political attention on the centre-right to race issues over the last five to ten years. The focus has been on the politics of representation. By increasing the number of non-white Conservative MPs from two to seventeen since 2005, Cameron has sent a powerful signal that Labour’s traditional claim to be ‘the party of ethnic minorities’ would now be contested. Cameron was again able to celebrate in Manchester several ways in which his Cabinet and Parliamentary benches demonstrate many successful journeys of migrant and minority integration in British society. That might perhaps help to ease the fears, about integration being impossible in an era of higher immigration, which the Home Secretary had articulated the previous day.

So symbolism can matter. But facial diversity is not enough. The politics of ethnic minority opportunity needs to be about more than visits to gurdwaras, diversity nights at the party conference fringes and unveiling statues of Mahatma Gandhi in Parliament Square. Jeremy Corbyn’s first speech as Labour leader did include one brief celebratory reference to Britain’s ethnic diversity – “as I travelled the country during the leadership campaign it was wonderful to see the diversity of all the people in our country” – and to Labour bringing in more black, Asian and ethnic minority members - but it did not include any substantial content on discrimination. Tim Farron acknowledged during his leadership campaign that the Liberal Democrats have struggled to get to the starting-line on race and diversity at all. The opposition parties too will no doubt now be challenged to match not just the Prime Minister’s rhetorical commitment to challenging inequalities but also to propose how it could be done in practice.

Non-white Britons expect substance, not just symbolism from all of the parties on race inequalites.  Survation’s large survey of ethnic minority voters for British Future showed the Conservatives winning more ethnic minority support than ever before – but just 29 per cent of non-white respondents were confident that the Conservatives are committed to treating people of every ethnic background equally, while 54 per cent said this of Labour. Respondents were twice as likely to say that the Conservatives needto do more to reach out – and the Prime Minister would seem to be committed to showing that he has got that message.  Moreover, there is evidence that ethnic inclusion could be important in broadening a party’s appeal to other younger, urban and more liberal white voters too – which is why it made sense for this issue to form part of a broader attempt by David Cameron to colonise the broad centre of British politics in his Manchester speech.

But the case for caution is that there has been limited policy attention to ethnic inequalities under the last two governments. Restaurateur Iqbal Wahhab decided to give up his role chairing an ethnic minority taskforce for successive governments, unconvinced there was a political commitment to do much more than convene a talking shop. Lib Dem equalities minister Lynne Featherstone did push the CV discrimination issue – but many Conservatives were sceptical. Cameron’s new commitment may face similar challenges from those whose instinct is to worry that more attention to discrimination or bias in the jobs market will mean more red tape for business.

Labour had a separate race inequalities manifesto in 2015, outside of its main election manifesto, while the Conservative manifesto did not contain significant commitments to racial inequality. The mid-campaign launch in Croydon of a series of race equality pledges showed an increasing awareness of the growing importance of ethnic minority votes - though the fact that they all involved aiming for increases of 20 per cent by 2020 gave them a slightly back-of-the-envelope feel. 

Prime Ministerial commitments have an important agenda-setting function. A generation ago the Stephen Lawrence case opened the eyes of middle England to racist violence and police failures, particularly through the Daily Mail’s persistent challenging of those injustices. A Conservative Prime Minister’s words could similarly make a big difference in the mainstreaming of the issue of inequalities of opportunity. What action should follow words? Between now and next year’s party conference season, that must will now be the test for this Conservative government – and for their political opponents too. 

Sunder Katwala is director of British Future and former general secretary of the Fabian Society.