The Intersubjective Foundation of Economic Confidence: Why Bitcoin will crash...

Simmel understood that money was a codification of inter-human relations - it codified expectation. Marx had a similar view. How the codification actually happens can vary. Money might be linked to the actual value of the precious and scarce metal in a coin. Equally, it might be linked to a promise made by an institution on a piece of paper issued by that institution (fiat money).

Codifying expectations is a way of establishing trust between humans, and that essentially means that communications can be made with some security that conversations can be managed by both parties, that irrational acts are unlikely, and that space exists for negotiation and manoeuvre if something goes wrong. The bank's promise acts in a similar way to the universal recognition of the value and scarcity of a diamond. One is a speech act (what Searle calls a "status function"), the other involves many other levels of description (aesthetics, etc) in addition to speech acts.

The context within which expectations are established is critical to the whole thing working. Technology is changing the context within which we deal with money, and the shared expectations it brings. First of all, the model of "flexible pricing", used by airlines, holiday booking sites, Uber and so forth, looks set to become more widespread. What this means is that the bank may promise to pay the bearer the sum of £5, but the exchange value of that £5 might depend on the time of day, the insurance group of the owner, and the extent to which the owner really wants to buy a particular thing. What might this do to codified expectations? Nobody knows yet.

At the same time, technology has been used to change the rules of fiat money. Bitcoin is fiat money with a difference: the promise to pay the bearer is not made by an institution, but the requisite trust for the currency is established through the way the algorithm works. In this shifting of parameters around fiat currency, some variables are overlooked which might render Bitcoin worthless. For example, banks are subject to political forces where Bitcoin isn't. Some see this as a strength of Bitcoin. I'm not so sure. Political forces themselves result from individuals grouping together for a common cause: in the face of catastrophic uncertainty, they look to each other for support, and organise themselves to change their environment. The best way of managing catastrophic uncertainty is to look into the eyes of another human being facing the same thing. This is the essence of trust, not a shared ledger.

Human trust is an intersubjective phenomenon. It may be mediated by objects: a coin, or a shared ledger are objects. But objects themselves merely illuminate the humans  who deal with them. It is through human engagement with objects that humans understand each other better. We may think that we trust the ledger, or the bitcoin, or even the £5 note. But this is to miss the point that it is each other that we really get to know better, and through this illuminated "getting to know" we establish trust.

The problem with hype - whether around Bitcoin, or around University (which is another bubble about to burst) - is that the codification of expectation it manufactures is only indirectly the result of a particular object. Like the Emperor's new clothes, trust finds a way of establishing itself with the removal of the object too.

Bitcoin has got no clothes on. The illumination it brings to our understanding of each other can be equally well-established by its absence, and as circumstances become more and more intense, the search for new ways of establishing human trust and the codification of expectation also intensifies. Indeed, if trust and intersubjectivity is what it's all about in the end, we may ultimately have little need for "shared objects" like money at all...