Bitcoins and Animal Spirits

For a few years I've been warning about the dangers inherent in the digital currency bitcoins. Not because of the virtues of its creators, but because of the lack of a regulatory infrastructure needed to prevent predatory values from corrupting it. With the failure of Tokyo-based Mt. Gox, the largest bitcoin exchange, we're beginning to see the end of this brave experiment. Or at best, its maturation into a phase where the only way forward is through normal regulation just like any other currency.

This entire industry was born into of the values of online gaming and virtual existences, which are a part of the Internet's "Democratization of Resources" values. These values are a part of the egalitarian and communitarian Sixth Level value system in the Spiral Dynamics-Memenomics framework. Based on decades of research, many who are in this value system rarely see hierarchy or exhibit respect for the cultural complexity that elevated them to where they are. It was natural for the creators of this virtual currency to think of it as a Utopian alternative to current exchanges; a disrupter of business as usual like the rest of the digital economy.

Most currency traders today describe bitcoins as a form of exchange built entirely on the faith of its users. With today's global diversity, and the billions who have access to the Internet, money and faith in others are not seen through the same values lens as the egalitarian system views them. When it comes to the study of value systems, money means different things to different people depending on where their values are on the Spiral of human development. For the TV character Tony Soprano, money and faith in others take on a different meaning than with the founders of Google. The former being a representation of the Third Level of values while the latter is a representative of the integrative Seventh Level value system.

In a modern-day economy if there's one place in need of regulation it is currency, because its history is so intertwined with modern humanity. Money has been around for over 8,000 years. It only became an acceptable form of exchange after centuries of trials and errors. It might not seem so today with investment bankers and naked day traders, but money has always been a representative of hard work and human productive output. It is through centuries of cultural complexity that it evolved from its pioneering form in Mesopotamia as the original Shekel, which offered a bushel of grain as a standard unit of exchange to what it is today -- paper money backed only by the trust in the government that prints it. Bitcoins were supposed to the next incarnation of this companion to the human experience, or so we were made to believe by the investment houses who saw an opportunity to exploit its potential and drive the price of its stock through the stratosphere.

Throughout history, money has played two essential roles in cultural emergence: The first is it helped humanity exit the compulsive phase of existence -- the Third Level value system that seeks immediate gratification through pillage and conquest -- and on to the Fourth Level system, the values of temperance and postponement of impulsive acts for the promise of future rewards. This is how we learned to save for a rainy day, which became the original basis for capital accumulation and the creation of wealth. The second role it still plays is as a catalyst towards higher values and standards of living. It is what the pursuit of modernization in all about. Since the days we were farmers, money has been a store of hard work with many safeguards in place that insured its continuity as one of the oldest and most important social contracts. The existence of a Fourth Level regulatory value system has always been a necessity to insure that the success of currency is not derailed by predators who prey on people's hard earned living. Historically, the presence of a regulatory structure was the only deterrent to insure the safety of deposits from bank robbers to scrupulous investment bankers.

In the age of virtual existence predatory behavior does not disappear, it only changes form. It's no longer Bonnie and Clyde or Jessie James with guns robbing banks. It is young hackers with predatory values who have little respect for other people's hard work, and probably a lot of resentment towards their counterparts in suits, the investment bankers who rob the world's resources and do so very strategically. The historic victim in all these cases has stayed the same, the unsuspecting investor driven by the promise of high returns then losing everything in the absent of a regulatory structure that is supposed to protect him. While many are asking for government to get off our backs, I bet the investors who lost 100's of millions with the closure of Mt. Gox wish that government was a bit more present in the field of financial regulation.