One of the few men to get out in time before the Wall Street crash of 1929 did so – legend has it – because he was offered a stock tip by the boy who shined his shoes. He immediately sold all his holdings. If the mania for gambling on the stock market had reached down to the children on the streets, the bubble must have been due to pop at any moment. The corresponding moment for the cryptocurrency bubble will only be discernible in retrospect, but we have some pretty strong candidates already. The endorsement of one project by the reality TV star Paris Hilton has already happened. Posters have appeared on the London underground urging people to gamble in bitcoin futures on the margin. The production – or “mining” – of bitcoins now uses more electricity than Ireland or Nigeria.
There are many cryptocurrency schemes which are sold on the same grounds as the greatest South Sea Bubble prospectus: “For carrying on an undertaking of great advantage, but nobody to know what it is.” But there is one novel element in today’s lunacy, and this is the apocalyptic hope common in Silicon Valley that it is possible to replace all messy human institutions with clean and infallible computer code. The blockchain technology underlying the various cryptocurrencies is meant to make human decisions redundant and to replace faith in governments with indisputable rationality. The delusion that this might be possible has produced one of the most astonishing outbursts of irrational exuberance in financial history. When this bubble bursts, it will be clear that so long as there is greed we will need laws to tame it.
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