Say what you like about organised crime, but it knows how to get things done.
There are few organisations more ruthlessly efficient than a criminal syndicate. That’s not to say what they do is admirable, far from it, but the way they do it is certainly interesting, and often surprisingly innovative.
A story that emerged about the fabled Italian mafia last week illustrates this perfectly. And it gives us some valuable information on how “parallel currencies” can emerge and become dominant.
It turns out that in Italy, organised criminals have been transacting not in euros, but in lira.
There is apparently a whole underground economy that still runs on Italy’s long defunct national currency.
In a short article last week, Bloomberg quoted senior Italian policeman Giuseppe Arbore, saying the police still uncover “big amounts” of lira, which “still constitute parts of illicit transactions.”
“When a banknote is accepted by an organisation internally, even if it is outside the law as a legal value, it can settle transactions,’’ he said.
Parallel currencies, parallel powers
The news surfaced as Italy is floating plans to make its own official parallel currency with the euro. Although it will not officially be a currency, as this would get it into deep trouble with the European Central Bank.
These new notes would be called mini-BOTs, and they have the financial elite very worried.
Investors are concerned that the mini bills could become a de facto parallel currency, since they could be used not only to pay taxes but also to buy goods and services from the government and might be traded. They have even been touted as a temporary means of payment in a transitional period following Italy’s exit from the euro. The government has denied they would be legal tender, as only the European Central Bank can print money in the euro zone.
As we know, those in power do not like other parallel systems of power emerging. And for good reason.
Given that countries’ currencies are now merely backed by decree, they are really only as legitimate as people’s belief in them.
So if a parallel currency emerges and becomes accepted by the populous, be it bitcoin, the lira or mini-BOTs, the government has a major issue on its hands.
And that issue is a loss of control:
If the lira is used, the Italian government loses control of its money.
If mini-BOTs are used, the European Central Bank loses control of Italy’s money.
And if bitcoin is used… well, they all lose control. That’s the beauty of bitcoin. And that’s why it’s anathema to “the establishment”.
Control control control
I do find it quite funny that we have this cascading loss of control and establishment outrage depending on which “currencies” people adopt.
This is why many cryptocurrency proponents refer to it as a “revolution”. By using crypto, you’re in effect revolting against the current financial system.
And it’s also why bitcoin was created in the first place. It was designed to be a better, fairer financial system that took power away from “the establishment” and put it in the hands of the people.
So, as you may imagine, the announcement that Facebook is creating its own cryptocurrency called Libra has not gone down too well.
Its PERMISSIONED “cryptocurrency” will be governed by a cabal of 28 establishment members, including Uber, PayPal, Visa, MasterCard, eBay and a number of other venture capital firms.
The reason I have put permissioned in big block capitals there is because the fact it is permissioned means it is not really a cryptocurrency at all, as it is not decentralised.
If you want to know why decentralisation is so important to cryptocurrencies, you can read my piece on it here.
But to sum up: the fact that a cabal of companies controls Libra’s governance means it is no more freeing for the public than any other national currency. In fact, it is much, much worse.
Instead of Libra’s network being put in the hands of the people, like bitcoin, or in the hands of a few elected people, like most national currencies, it is in the hands of a number of morally dubious companies.
In effect, it is even less egalitarian than most national currencies. Do you really want Facebook and Uber to have control over your money?
Of course, Facebook has assured people that it won’t interfere with the currency, or sell Calibra users’ private data to advertisers. But how many people believe that, really?
Facebook also said it would never roll out ads on WhatsApp, but then it did.
It will be very interesting to see how this all plays out over the next few years. But I have a feeling Facebook’s coin could end up driving more people to use real cryptocurrencies, which can only be a good thing.
After all, from what I’ve seen so far it will be fully exchangeable with other cryptos, and could bring a whole new audience into the world of crypto.
And if it all goes to hell, maybe we can just start transacting in Italian lira.
As you can probably imagine, Facebook’s dive into crypto has created a big splash in the markets.
This week’s announcement, and the hype surrounding it, is arguably the main driving force behind bitcoin’s latest push over $9,000.
The first time bitcoin hit $9,000 back in 2017, everyone was losing their minds. Today, the response is much more subdued. But the crypto resurgence has been quietly making some people very rich.
There are a number of top coins up more than 300% year to date. That kind of return is unheard of in any other asset class.
And if you’d like to know how you can get involved, you need to read my colleague Sam Volkering’s book, Crypto Revolution.
It contains everything you need to know to start buying, storing and using cryptocurrencies for yourself, and a whole lot more besides.
In my opinion, it is one of the best introductions you can get on the subject, and it is only available here.
Until next time,
Editor, Exponential investor