The book Cryptonomicon is about a gold-backed cryptocurrency. Nothing special there. Except for the fact that it was published in 1999, ten years before bitcoin was launched.
Today’s Exponential Investor is a book report of sorts. Because, if you’d truly understood Cryptonomicon at any point in the ten years after it was written, you would’ve realised the potential bitcoin had before it went bananas.
If you haven’t read what is quite likely the best book ever, go and do so now. If you’ve read it, click here. If you refuse to read it, you can keep reading this instead…
The book takes place in two different time periods, with two narratives in each.
One time period is World War II, in both the Pacific and European theatres. And the other is in modern times, as something similar to bitcoin is developed.
The World War II story is about Japanese war gold buried in Southeast Asia. And about breaking the Enigma code.
A gung-ho soldier is assigned to the team which maximises the Allies’ use of Turing’s machine. As you may recall from the end of the film The Imitation Game, the problem with breaking your enemy’s codes is that they might realise you’ve broken them. At which point breaking the codes becomes useless because they’ll use a new method.
The fine art of winning WWII consisted of taking advantage of code-breaking as much as possible, without the Germans ever realising their Enigma was blown open.
One way to do this is to only win the strategically important battles. That’s what happened according to history. The statisticians managed which battles were won to avoid arousing suspicions in Germany that they were losing too fast.
Part of Cryptonomicon is about an alternative version of history. It tells the story of a team of statisticians and soldiers who create alternative explanations for how the Allies won battles or obtained information. The idea is to make the Germans believe that something other than codebreaking was behind the Allied victory.
For example, if a crucial ship full of important supplies for Hitler’s atomic bomb research were to leave an Italian port on a certain day, the Enigma code breakers would’ve known about it. They’d see to it that the thing is sunk by a submarine or bomber.
But this would make the Germans mighty suspicious, right? That particular ship? How did the Allies know to sink it?
So, how do you convince the Germans that the Allies found out about the ship in some way that does not involve breaking Enigma? How do you give them an alternative narrative they can believe in?
I’ll leave you to read the book for the answer. But I can tell you it’s a hilarious solution involving a lot of poo in barrels. And it’s only one example of how the team created after-the-fact stories for the Germans to explain how the Allies kept getting lucky.
Meanwhile, in the book’s present-day period, a descendent of those involved in the World War II narrative is busy developing a bitcoin like currency. His aim isn’t to get rich though – to launch a speculative bubble. He wants to take away power from governments and give it to the people. By making them financially independent. In the sense that they can transact anonymously, leaving governments in the dark.
For reasons I don’t recall, he ends up becoming involved in Japanese war gold. War gold that gets buried in the other World War II narrative of the book.
All four narratives come together like this: cryptography is used to make the currency work. And Japanese war gold is used to back that cryptographic currency – giving it value.
Suddenly, the concept of money is no longer in the hands of governments. And the money has real value.
No doubt you’re very confused by all this. But you can’t expect me to explain such a long book here.
The point is that the author Neal Stephenson was waaay ahead of his time. Gold-backed cryptocurrencies exist today.
The real question is where they are leading us. Cryptonomicon leads the way there too. Governments become surprisingly impotent if we can make use of the privacy that crypto makes possible.
The reason there is no sequel to Cryptonomicon is quite simple. You’re living in it. We’re finding out right now what a world with cryptocurrencies might look like.
But are you participating in that future? Discovering how to use the alternative financial system. In the effective ways that could change the world?
If not, you’re likely put off by the price action – the threat of investment losses. You think of it as a Tulip Bubble – a speculative mania. And it is, sometimes.
But bitcoin’s uses are too profound to be dismissed as only a speculative mania. Those using it effectively are not exactly going to advertise the fact…
We do have some examples of how bitcoin has changed the world though. Venezuelans use it to escape their basket-case financial system. Chinese people use it to sneak past capital controls.
If you believe, like me, that capital controls are coming as a result of Covid-19, you might also agree that it’s time to get savvy about bitcoin. And, if a lot of others agree with me, that tells you where demand and the price may be going.
But that’s only half the equation. If you insist on a reason to invest beyond being part of what could change the world, well, you have mere hours left to become aware of the best investment case there could be for bitcoin.
In his webinar, my friend and crypto expert Sam Volkering explains what that event is. You’ll see it plastered over the financial news media soon enough, if you don’t get ahead of the game by joining the webinar here.
Like I said, mere hours to go…
Editor, Southbank Investment Research