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.

Nicola Sturgeon and Tony Blair. Photo: Getty
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Nicola Sturgeon's SNP, like Tony Blair's New Labour, is heading for a crash landing

The fall of Tony Blair should be a set text for anyone wishing to know what happens next to the SNP.

If there was one thing the SNP and New Labour had in common, it was the hope. Both offered themselves as a burning torch of optimism to publics that had become tired of the same old gang running things in the same old way. Both promised a fairer, more equal society and a fearless embrace of the modern world with an appealing freshness and energy. The voters bought it: both won big, repeatedly.

The thing is, if you’re elected on a mandate to be different, you’d better be different. In many areas, for a long time, New Labour managed to be just that. The smiling PM with the huge majority pushed through radical policies, some of which even worked. Tony Blair’s methodology was so successful and so convincing that the Conservatives and the Lib Dems reshaped themselves in his likeness. Arguably, a form of New Labour won in 2010 and 2015.

But, as they say, it’s the hope that kills you. When the inevitable attritional realities of governing start to weigh, when you make, as you will, bad decisions, when the list of enemies grows long, when you’ve just had your time, you’ll fall like all the rest – only, when you’ve soared so close to the sun, you have that much further to plummet.

The fall of Blair and of Labour should be a set text for anyone wishing to know what happens next to the SNP. Sunday night’s debate between the Scottish party leaders was, I think, a foretaste of what’s coming – a public that until recently was politically and emotionally invested in the Nats is growing restive. In time, this will turn to disenchantment, then anger, then revenge at the ballot box. This is the unbreakable cycle of democratic politics.

Some of us have warned since the start that the SNP had over-promised and could only under-deliver. Its raison d’etre is independence; everything else - literally everything else - is just another brick to build the path. And so education reform cannot be either radical or unpopular, even if it needs to be so to work, because the SNP cannot afford to alienate teachers or the teaching unions or parents. Bricks, you see. Same with the NHS and doctors and health unions and patients. All the separatists have done – all they could have done, given their nature - is deploy the rhetoric of the radical while in reality body-swerving hard choices and conflict at any cost. And where they have found themselves taking flak, they’ve pointed south to Westminster: "it’s no’ our fault, it’s theirs".

But voters show signs of wearying of the predictable blame game and waking up to the time-limited strategy of show-over-substance. Middle Scotland is either ignored or maligned by the middle-class socialists who drive the nation’s political debate, but it is where elections are won. The SNP has secured the support of enough of these people to win every recent election in style, but somewhere along the way the party seems to have forgotten this was a mandate not for independence, but for good government. Ten years in to SNP rule, each new audit of public services seems to wail like a warning siren – things aren’t just not improving, they’re getting worse. The SNP is not keeping its part of the deal.

So, during Sunday night’s debate it was Nicola Sturgeon, not Ruth Davidson or Kezia Dugdale, who found herself in the audience’s cross-hairs. It will have been a strange experience for a woman more used to public adulation and a clamour for selfies. There were the teachers, who complained about the damp squib that is the Curriculum for Excellence, the SNP’s flagship education policy; who pointed out that a fifth of primary pupils are leaving without basic literacy and numeracy skills; and who warned that lowering the standard of exams in order to push up the pass rate was not a mark of success.

Then there was the nurse who said she had been forced to use a food bank (the existence of which has been used repeatedly by the SNP as a stick with which to beat the Conservatives and Westminster): ‘I can’t manage on the salary I have [which is set by the Scottish Government]. You have no idea how demoralising it is to work in the NHS. Don’t come on your announced visits, come in in the middle of any day to any ward, any A&E department and see what we’re up against.’ She delivered the evening’s killer line: ‘Do you think your perceived obsession with independence might actually cost you… in this election?’

The list of reasonable criticisms is growing and will grow further. The ideological obsession with free university tuition for Scottish students is increasingly seen as a sop to the better-off, while in England the fee-charging regime has seen the number of students coming from poorer families climb. Ms Sturgeon’s demand for a quick second independence referendum, when a worried middle Scotland was focused on what Brexit might mean for its future, was tone deaf.

The SNP has another problem (one that New Labour, for all its flaws, didn’t face): its doctrine of infallibility. The Nats’ constitution explicitly prohibits its elected members from criticising the party, its policies or each other. While total unity is useful when you’re on the climb, it starts to look bonkers when the cracks are showing. Allowing public self-criticism, far from being a sign of weakness, is a necessary vent for inner tensions and a sign to voters that a political party is something more than a cult.

That ‘cult’ word has long dogged the SNP and its supporters. The party has tried hard to normalise its electoral appeal while keeping the flame of independence burning bright, but it has been a difficult balancing act. The pro-independence mob is an ugly thing when it is unleashed (and it has suited the leadership to open the cage at times). Claire Austin, the nurse who criticised the First Minister on Sunday, has found herself at its mercy. Immediately after the debate, the Nats briefed (wrongly) that she was the wife of a Tory councilor. The SNP branch in Stirling said Tebbitishly that if she was having to use food banks "maybe she needs to tighten her belt a bit more?" Joanna Cherry, a QC, MP and the SNP’s Home Affairs spokesperson, was forced to publicly apologise for spreading "Twitter rumours" about Ms Austin.

The ravening horde has largely kept its head down since the 2014 independence referendum, but we now see it hasn’t gone away - it is not enough for the SNP’s critics to be debated, they must be destroyed. This isn’t the behaviour of a normal political party: it’s the behaviour of a cult.

I might be wrong, but I have a feeling that when the SNP does fall it will fall quite quickly. Its belief in its infallibility, its inability or unwillingness to do self-deprecation or apology, will increasingly aggravate voters. There is nothing to suggest the current public policy failings will be addressed, and plenty of signs that things will get worse. How, then, do you arrest your fall?

The SNP offered hope and promised it was different, and the voters believed. The sense of betrayal could make for a very hard landing indeed.

Chris Deerin is the New Statesman's contributing editor (Scotland). 

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