Bitcoin and Trust from the Perspective of a French History Teacher

Hello everyone, I am French, and I am a member of an association that promotes Bitcoin in France. The French Parliament held an association on Bitcoin and blockchain last month, and a member of our association spoke at the meeting. Because he is a former history teacher, he talked about the issue of trust from a big historical perspective, especially the situation in French history. I translated his speech into Chinese, and I have copied and pasted it below. If you are interested, you can also go to my blog: http://www.sosthene.net/jacques-galilee-confiance/

In the 14th century, there was a monk named Oresme in Normandy, France. Some people said he was the Einstein of the Middle Ages. Before the Renaissance, he had translated Aristotle's works, which was very forward-looking. As a mathematician and economist with important contributions, many of the concepts and ideas of economics and finance in his economic works are very similar to the theories of important economists in the 18th and 19th centuries (such as Gresham, Turgot, Adam Smith, Jean-Baptiste Say, etc.), which can be said to be the predecessor of modern economic theory.

Figure 1: Oresme, a Norman monk

In Oresme's time, the value of money was very unstable. By the time of his death, the currency in Normandy had depreciated by 50% compared to when he was born. During his lifetime, the local currency changed 70 times. We today certainly have not experienced such ups and downs in the economy, especially in France, which has not experienced major currency fluctuations in the last 50 years. In this case, what does Oresme's economic theory mean to us today? Can it really help us understand Bitcoin?

According to Oresme's theory, rulers do not have ownership of currency. Currency is a public property belonging to its users, and only they have the right to influence the properties of currency. Therefore, today, he may accept a relatively independent central bank, but will definitely oppose the Federal Reserve's quantitative easing monetary policy.

He believes that trust in money is not only trust in its exchange value, but also trust in its own value. Nowadays, we habitually confuse these two concepts.

So what exactly is trust? The experts who spoke today seemed to agree that people would instinctively choose to trust a centralized "trusted third party". I completely disagree. I think we humans trust each other first: I trust my brothers, friends, and neighbors, not a distant government agency. Even a person without knowledge of economics and finance generally has the experience of using "debt currency": you go to a restaurant with a friend, and if your friend treats you, you will say to him "I'll treat you next time." I think "money" does not have a very accurate starting point in history, but is similar to language, and is one of the most important communication tools and ways of existence for humans.

In French, "confiance" and "confidence" come from the same Latin root. Trusting each other also means exchanging private secrets. "Trust" was first established between people of the same ethnicity or religion other than blood relatives. From ancient times to the present, business organizations are also based on family and religious relationships, such as the ancient Lombards, Indians, Arabs, today's Jews, and some large families that control the world's diamond market.

For people, public political power is fundamentally different from blood, ethnicity, and religion. Power is by no means the basis for trust, and it is obviously unreasonable to use the current reality (which is very exceptional in history) as a basis to explain that public political power is a necessary condition for trust.

So why do people nowadays trust the government and legal tender? From a social historical perspective, this is a very new phenomenon. During the reign of Tsar Peter the Great, Ivan Possochkov constructed a new monetary theory, shamelessly writing that "it doesn't matter what material the currency is made of, what matters is the will of the Tsar: as long as the Tsar orders that leather or paper be as valuable as gold and silver, then the people must regard leather and paper as materials as valuable as gold and silver."

We in France have practiced this theory a long time ago. In 1716, the second year after the death of Louis XIV, in order to relieve the huge debt problem of the Kingdom of France, the regent Duke of Orleans commissioned the Scottish economist John Law to establish the "Common Bank" (Banque Générale), which can be said to be the predecessor of the current central bank. The paper money issued by this bank can theoretically be exchanged for a fixed amount of gold at any time. In fact, this bank relies on a partial reserve system. The gold stored by the bank does not match the total value of the issued banknotes. If most depositors question the bank and suddenly ask to exchange their own gold, the bank will definitely go bankrupt. In 1720, the "Common Bank" collapsed within a few days for this reason.

Figure 2: John Rowe, Scottish economist and banker

This practice has greatly affected the French people's trust in the paper money issued by the state. During the French Revolution, the revolutionary government also issued a revolutionary paper money called "Assignats". The currency at that time was based on gold and silver, but the assignats were different. In 1789, the French National Constituent Assembly passed a law to confiscate the property of the French church. The assignats were a currency based on the value of these properties. Due to the huge national debt during the Louis XVI period, the revolutionary government tried to issue assignats instead of redeeming the principal of the national debt. But the people did not forget John Law's bankruptcy, and they did not believe in any paper money. However, the assignats suffered a huge inflation, so the government enforced it. After 1791, anyone who did not accept it would be sentenced to death.

How does this French history teach us about trust? Through the history of John Law and the revolutionary assignats, we can understand that the so-called "trust" of the people in the rulers does not exist. The current situation is the result of certain conditions, but it is not a natural law. In fact, the universality of legal tender depends on the sovereignty of the rulers. When the rulers force people to use a currency, the result is usually that ordinary people suffer. Our compatriots have repeatedly read in the newspapers about the dangerous situation of French banks. If a bank goes bankrupt, how can ordinary people know that the government will help it get its money back? A few years ago, the French heard that the Prime Minister during President Sarkozy's period, François Fillon, said in a TV interview that France was actually bankrupt. Smart people only need to look at the case of Cyprus in 2013 to understand that bankrupt banks can directly steal people's deposits.

Who gives the value of fiat money? Why does my boss accept my euros when I buy bread in Italy as a Frenchman? Is it because we both trust the president of the European Central Bank? Or is it because the Italian boss knows he can pay taxes with my money? The tax collector is the rightful owner of fiat money, not the merchant. I think Oresme is not quite right when he said that money is not the property of the monarch, and Jesus is more reasonable when he said: "Render to Caesar the things that are Caesar's."

What does this sentence mean? Caesar is different from society. Taxes require giving money back to Caesar, while exchanges require giving trust back to society.

The relationship between modern society and rulers is very different from before. What is the difference? From an organizational perspective, the more decentralized technology becomes popular, the less people rely on rulers, so this change will inevitably continue to deepen. There is also a very important "mathematical" change: just as Galileo proved that natural phenomena can be understood by calculation, Bitcoin proves that trust can also be understood by calculation!

This means that Bitcoin's impact on social economy will be as important as Galileo's impact on physics before him. In such a "Galileo moment", if we hesitate, we will be doomed, while if we catch up quickly, we will move towards an exciting future.

Figure 3: Galileo

The word blockchain has become popular recently, but most people ignore the close relationship between blockchain and Bitcoin, and also ignore that Bitcoin is not just a currency, but also a political concept. It is not easy to explain this concept to ordinary people, especially non-Americans. The slogan "no borders no banks" is a bit too provocative. I still prefer to say that the key point of Bitcoin is the free network. This freedom has two meanings. One is that the exchange on the network cannot be controlled and suppressed by any government or authority. The other is that these exchanges are more fluid and fast, and people who interact on the network must trust and share with each other.