The apparently endless rise in the prices of cryptocurrencies is a monument to greed and gullibility.
Last month a plague of kittens brought down one of the most fashionable cryptocurrencies on the internet. This might not have been news, except that the cryptocurrency, Ethereum, bills itself as “the world computer” – a distributed program that can replace large parts of both the legitimate banking system and the legal system itself, since contracts can be written into computer code.
Unless, that is, Ethereum becomes the plaything of an imaginary kitten. Like all other cryptocurrencies that have appeared in the wake of bitcoin, and like bitcoin itself, Ethereum is useless as a medium of exchange because the price fluctuates violently and unpredictably.
But it turns out to be an excellent medium for the propagation of imaginary kittens and when a small Canadian company introduced a game that let players buy and breed cartoon cats, the resulting popularity brought the whole network briefly to its knees. Had Ethereum been a real currency, this would have been as if the Beanie Baby craze of the last century had crashed the world’s credit card system.
But of course Ethereum is not a real currency, and neither is bitcoin; nor are Ripple, Monero, Litecoin, Dogecoin, or any of the other thousands of cryptocurrencies that are the focus of intense speculation today.
They are the latest manifestation of the eternal dream that we could, by magic, become really rich really quickly. Why, if only you had bought bitcoin a year ago, they would now be worth 16 or 17 times as much, or, last week, only 13 times as much. What could possibly go wrong?
Nonetheless the bubble must one day pop and the fool’s gold vanish, leaving only fools.
The central paradox of all these currencies is that we’re told they have eliminated the need for trust between humans and replaced it by mathematical guarantees; but all their tradeable value depends on blind faith and ignorance of computer code.
Only last week a Google researcher discovered a hole in some software widely used to store bitcoins which would leak all their contents to any suitably malicious webpage that the owner visited. This had in fact been pointed out to the developers months ago, but they had not bothered to fix it.
Flaws in the code of Ethereum led to the theft of $30m in the summer of 2016 and the disappearance of $170m last autumn, though all these sums are entirely notional. Even software built by gigantic, legitimate companies can turn out to have catastrophic bugs in it, as we learned last week from the publication of the Meltdown and Spectre flaws, which between them affect almost all modern computer chips.
There is even less reason to trust software developed by small teams of programmers who hope both to become insanely rich and to circumvent all efforts by governments to control them – and that is how all cryptocurrencies have been built.
But there is not much use in sober realism here. So long as ordinary people can expect to make their fortunes overnight, they will step up to the gaming table and play – at least while the cryptokittens are away.