A Fishy Tale, of Insider Economies and a bit of Bitcoin’s History

By maya | Blocksparks | 25 Apr 2019

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Most of the myriad means of buying and selling things in the 21st century can be regarded as part of a global ecosystem of interconnecting marketplaces, on some level.

Even though some countries attempt to restrict the flow of sovereign currencies for political reasons, their citizens tend to use more ingenuity than most in finding access to different forms of exchange to circumvent such measures, including bitcoin and other cryptocurrencies. So unlike in previous centuries, we can generally think of pretty much any asset having a value in relation to other things, even if that varies a lot on a local basis.

Of course, it wasn’t always like that. I once wrote about the Rai of Yap, the big stones used to denote ownership on a South Pacific island, which functioned perfectly as an exchange of value for years because of the natural constraints on availability and difficulty of extraction… But when American captain David O´Keefe was saved from a shipwreck by Yap islanders, his grateful return with modern ships and quarrying tools effectively wrecked the local economy.

In exactly the same way, in the 15th-century European glass trade beads, being extremely rare and precious in Africa where glassmaking technology was uncommon, became known as ‘slave beads’ — with all the horrific implication thereof. In both cases, a formerly closed and well-functioning economy was suddenly ruined and deflated by external influences, and a hard currency became soft overnight, leaving it devastatingly vulnerable to external corruption.

We don’t have many examples of closed economies left, but there are isolated bubbles within communities which are closed by definition, or at least severely restricted in their interactions. One example of this is within a prison. With very limited cash permitted for exchange of goods at a small commissary, the internal economies of federal jails can tell us a lot about how money works, as well as about human behaviour.

Over the years, cigarettes traditionally served as the primary medium of exchange in such residential facilities in many parts of the world, and had the added advantage of high levels of naturally-incentivised literal ‘token burn’ (!). But smoking restrictions have constrained (though not eliminated) such markets. Prisoners have had to become more ingenious and creative — and continue to prove over and over that trading and exchanging is a fundamental part of what it is to be human, even in dehumanizing circumstances.

A lovely tale was told to NPR a few years ago by early Bitcoin legend Charlie Shrem. In a lifecycle as volatile as the market-cap of any crypto, Shrem we all know shot to millionaire heights with the success of Bitinstant, the first ever crypto exchange, which processed $1m worth of bitcoin daily at its peak in 2014 when its CEO was just 22. But then due to the involvement of one of his biggest customers in the infamous Silk Road dark web marketplace, Shrem was arrested and charged with aiding and abetting the operation of an unlicensed money transmitting business, and sent to federal prison for 18 months.

Shrem has spoken openly and movingly about his experiences “inside”, but one story made me think about the Yapese stones and the slave beads, and the role of both ledgers and supply control in money. At the time of his incarceration cigarettes were outlawed, and the main unit of trade in his particular establishment were cans of mackerel in soybean oil.

This was a pretty good candidate for hard money in many ways, with a long shelf life, the fungibility of identical branded cans, reasonably easy to transport and store, and a fixed flow supply rate — with each prisoner permitted to purchase a maximum of 14 packs per week at the commissary. This is a bit like the bitcoin mining difficulty algorithm, continually adjusting to keep the supply steady, in a way which is actually far more predictable than gold mining or oil extraction.

Being “hard money” it was also completely independent of third party control — the wardens couldn’t manage who sold mackerel to whom for what, nor could they reverse transactions if someone’s tins were stolen from under a mattress or surrendered under discreet persuasion in a dark corridor.

However the ‘reserve bank of the screws’ did find a way to crash the value one day, when a prisoner was unexpectedly released or relocated and their big stash of tins unearthed. Rather than put these back on the shelves of the store and filter their return to the marketplace, the powers that be — who doubtless were well aware of the economy under their noses over which they had no real influence — dumped the lot in a communal space for anyone to grab and fight over, thus causing massive overnight inflation.

Does that remind anyone of similar price manipulation in the crypto world?

The oldest tricks in the book keep on working, as human nature is the one constant. If they’d all agreed to trash the new stash they could have protected the value of their own assets, instead it was every man (and mackerel) for themselves. Talk about the “prisoner’s dilemma”

In the interview, Shrem mused about the idea of ‘digital mackerel’ instead, and a distributed ledger of commissary notebooks to act as nodes in a distributed ledger. The logistics of everyone syncing their blockchain of transactions in the exercise yard to keep track of it all might have been a bit unrealistic, not least as some of his fellow inmates were possibly not the most trustworthy of oracles — and they might quickly have got a load of bad blocks generated through disputed transactions, which in the circumstances might have ended pretty badly.

Shrem just wanted to keep his head down and do his time. And his personal stock is now on a bull-run again, as CTO of Intellisys Capital, and presumably no longer sporting the electronic tag he showed off proudly in the “Banking on Bitcoin” documentary.

Which reminds us that these things are always cyclical, and always dynamic. Peer to peer trading seems to be a basic human characteristic, as much as breathing and eating, we just change the contexts in which we do it.

Remember in cryptoland, truth is sometimes stranger than any story, and if a tale smells fishy then perhaps something is indeed off. But dig below the surface and you might unearth some fundamental truths about the psychology of money and behaviour, in the most unlikely circumstances.

Originally published at https://medium.com/@mayamiddlemiss/a-fishy-tale-of-insider-economies-and-a-bit-of-bitcoins-history-dcbce5a94d49


Maya Middlemiss is the CEO and lead writer at BlockSparks


BlockSparks are the marketing communications specialists for the blockchain space - sharing news, information, and trends, about cryptocurrency and blockchain startups worldwide


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