Writing this in 2016, as the mountain of cryptocurrency "altcoins" grows higher and higher with no end in sight, it's easy to see the obvious parallel with the flood of paper money that took place in Germany during what we might call the "Notgeld" era of 1914-1923. (For an explanation of what exactly Notgeld is, see my handy Youtube video, "What is Notgeld?")
But the parallels go far deeper: bitcoin was not the first decentralized monetary system. During the Notgeld era, nearly every city in Germany, not to mention thousands of companies and even private individuals, were able to issue their own paper money - and prior to the Treaty of Versailles, Germany was MUCH larger than it is today.
Both Notgeld and cryptocurrency began as experimental solutions to real-world problems, and both grew to become a fad and a collecting craze as time went on. Both Notgeld and cryptocurrency created a monetary economy based on creativity, culture, and work. Both embody a visionary, prophetic, sometimes revolutionary, sometimes reactionary spirit, and both sought to bring about a return to sound money.
Neither Notgeld nor cryptocurrency were any strangers to scams and hucksters, some of them even blatantly advertising the very uselessness of their currency for the humor and novelty value!
Caption: Yes, whoever has money can pay their taxes. Whoever has none can have something drawn up!
Bitcoin and Notgeld are also both products of societies undergoing a transition from the pinnacle of wealth into poverty, and the philosophy that underlies both of them blamed the endless issuing of paper money as a central part of the problem - obviously the paper Notgeld notes did so with a heavy dose of irony! And both led, despite the best of intentions, to the endless creation of new money, most of which became worthless in a relatively short period of time. Like a moth to the flame, the printing press and the mining rig may well lead inevitably to the same glorious and ultimately destructive overdose of monetary ecstasy.
But before we get to the torrential, anarchic proliferation of monetary tokens, this achingly beautiful outpouring of human ingenuity that marks the numismatic climax of both our global digital era and the Germany of 100 years ago, and before we can see what lessons the Notgeld era and its legacy hold for the future of cryptocurrency, let's take a quick look at just how these two decentralized monetary systems arose.
Throughout history, minting or printing one's own currency has generally been considered a crime, and even in the case of Notgeld or cryptocurrency, this prohibition was technically never lifted. Notgeld notes referred to themselves using words like Gutschein (which means 'coupon' or 'voucher'), and it would be a very bad idea to come up with a new digital coin and make the claim that it's "legal tender." You might be surprised who you find knocking on your door!
But the practice of issuing paper Notgeld as money was tolerated at first out of sheer necessity - in fact, 'necessity' is one meaning of the word Not (pronounced like 'note'). Once Germany went off of the gold standard, literally at the same time it entered World War I, the silver and gold coins disappeared from circulation literally overnight, and there was no small change to be had. So the practice had to be tolerated, and it spread like wildfire - soon cities all across Germany were issuing the first Notgeld, which had only a bare minimum of security features, like a rubber stamp or signature, and was quite utilitarian in appearance.
Bitcoin's arrival on the scene, although it doesn't appear to have emerged specifically as a response to banker bailouts and the economic collapse of 2008, could not have been better timed, as the endless printing of money for the benefit of the wealthiest banks and the resonance of denunciations of this fiat system by US Representative Ron Paul and others left the world hungry for exactly the type of mathematical certainty regarding money supply that bitcoin was offering.
But these macro-level motivations were outweighed in both cases by a micro-level motivator that is impossible to overestimate: whether it was mining bitcoin or printing Notgeld, the allure of literally being able to print money is an aphrodisiac like no other. And just as Germany's wartime government was unable to prevent an ever-increasing number of cities and firms from printing small change notes, it became clear that bitcoin's blockchain protocol was nearly impervious to prohibition thanks to the sheer volume of decentralized miners, and the world's governments too found themselves in the position of being forced to accept a revolutionary new monetary innovation that threatened their currency monopoly.
The excuse that Notgeld was being issued as an emergency substitute for coins that had been taken out of circulation no longer held water by 1915 and 1916, but cities and companies weren't about to stop. That's because a substantial percentage of the notes were not being redeemed or deposited, resulting in handsome profits: the Notgeld collector had emerged. By 1917, they began to capitalize on this trend, and extremely colorful and collectible notes began to be issued that were very much directed at the collector's market.
Just as Notgeld collectors began to hoard, or 'hamster' the paper notes (as they say in German) in hopes of realizing a profit as new collectors entered the market and scarcity drove up the price, the bitcoin speculator too was quick to emerge, and the effect was exactly the same: a proliferation of new coins, miners to mine them, and speculators to hoard them. The emergence of a novelty coin like Dogecoin and the fact that it was taken seriously by so many adoring fans would not have seemed at all strange to the Notgeld collector of the post-WWI era. In fact, Dogecoin seems like a very tame Shiba Inu compared to some of the notes these Germans created - and the only drug they had (well, besides beer) was malnourishment!
So not only was decentralization key to the adoption and survival of both Notgeld and bitcoin, but decentralization - really the definitive trait of both Notgeld and cryptocurrency - is also a fundamental factor in the market that was created. Not only were the bitcoin miners and the Notgeld issuers free to mint their own coin, but the consumer was just as free to choose which currency suited their fancy as well. No centralized authority decided what coins or notes would be created or sold, but there was also no centralized authority to decide which would be bought or traded, either. The need to satisfy the market's demands, and most especially the desire to create new demand for one's own currency by marketing new coins with unique selling points, resulted in very similar creative monetary marketplaces both in Notgeld-era Germany and the crypto-era we find ourselves in today.
...and that is an excellent place to leave off as a segue into next week's article, part two of this five-part series Cryptocurrency is the Notgeld of our Time, "The Economy of Creativity and Decentralized Work"!
Here is a roadmap for the entire article, which will appear over five weeks, one part per week:
Part I: A Tale of Two Decentralized Monetary Systems
Part II: The Economy of Creativity and Decentralized Work
Part III: What Drives Adoption? Fads and Novelty vs. Stability and Utility
Part IV: Money, Money Everywhere and Not a Bite to Eat
Part V: What Notgeld Can Tell Us About the Future and Legacy of Cryptocurrency
Please do go ahead and follow me if you'd like to hear the rest of the story!