I L L U S T R A T I O N B Y S É B A S T I E N T H I B A U L T

internal economy. People responded by vigorously trying to accumulate points. We even allowed them to offer their own goods, such as unused baseball tickets, in exchange for points. Having a unit of measure, prestige in accumulation, and a place to trade, points naturally took on a value of their own.

Growing an economy makes each currency unit more valuable, while growing a money supply makes each currency unit less valuable. These properties inform responsible monetary controls. Pre-modern currencies had built-in control: gold was rare but could be mined and wampum could be made but only with enough labor. Modern currencies expand under government control to keep prices stable.

Bitcoin has ingeniously engineered
non-government control by expand-
ing its supply only at a rate propor-
tional to the technological discovery
of prime numbers. It also promises
that the total supply will never exceed
21 million bitcoins, though it can be
subdivided arbitrarily. 13 This prom-
ise of stable supply is stronger than
any promise a government has made
when it comes to currency targets. As
taking in more than $125,000 the first
day. At least 22,000 merchants3 includ-
ing Virgin Airlines, Zynga, the Sacra-
mento Kings, and the University of Nic-
osia accept bitcoins. Accepting money
is what gives it value.

Some economists argue that, to have value, money must be backed by a government that has tax and spend authority. 10 Yet, the Iroquois, a confederation of pre-colonial tribes, had no income tax policy and traded with polished shell beads (wampum) to settle debts. The Weimar Republic in Germany had tax-and-spend authority but printed deutsche marks so fast people and countries stopped accepting paper marks and demanded goods such as gold or coal in exchange.

Such an argument confuses fiscal policy, the authority to tax and spend, with monetary policy, the authority to change the volume of currency in circulation. Both affect the value of money and the health of an economy but for different reasons.

I worked with a startup, Barter, that
developed a new kind of enterprise
software based on people voluntarily
sharing knowledge. It failed to gain
wide acceptance due to fierce compe-
tition from established sellers and a
lack of interoperability with existing
systems. But running its knowledge
exchange taught us a great deal about
how money works and why people will
hold it as a store of value.

We gave people points for the value
of ideas they shared with colleagues.
Akin to software games scores, these
points initially had no value beyond
the indeterminate prestige people felt
in having earned them. Points served
as units of account, and badges re-
flected a store of value, but no one
could trade them. Without real val-
ue, our market would freeze because
people would have little incentive to
share knowledge.c
We solved this problem by adding a
companion market where people could
spend their points. 2, 12 This decision in-
verted the insight of monetary policy,
changing not the currency in circula-
tion but the goods in circulation. We
added i Tunes gift cards, vacation days,
iPads, and lunch with the CIO to this
c Dilbert by Scott Adams (May 19, 2013); http://
bit.ly/O2vV1a.