So I was walking along one day when I was suddenly accosted by a Canadian Mountie in full uniform: red jacket, jaunty hat, the works. He saluted me smartly and asked: “How about some Canadian dollars, eh?
“No thanks,” I replied and tried to walk away, but he followed. “Please listen! I want to give you Canadian dollars!”
“Sorry, I’m quite happy with my American dollars.”
“No, sir, I’ll give them to you for free. No strings attached.”
I stopped. “For free?”
“That’s right! All you need to do is prove to me that you have American dollars, and for every dollar you have, I’ll give you a Canadian one.”
“I want you to invest in Canada. The US has reached its natural limits of growth, but in Canada, we have big blocks of land just waiting to be exploited by investors like you.”
“But aren’t those big blocks mostly useless frozen tundra?”
The Mountie looked irritated. “Maybe today, but it’s about the potential, an investment in the future. Look, it’s free money, do you want it or not?”
This smelled like a scam, but I was still intrigued. “Well, let’s say I do. How exactly do I prove that I have U.S. dollars? Do you want me to lend them to you or something?”
“No need! Let’s go to your bank and ask the teller to show me a bank statement. I don’t need to know your name, address or anything, just that you have a bank account with money.”
“Huh,” I opened, and eyed the Mountie. He did look terribly earnest, standing there at attention. “Fine, let’s do it.”
So we went to the bank, I showed my ID to the teller and told her to give me a paper on bank letterhead showing my bank account and its balance. The teller did so, and when the Mountie saw I had $10,000 in bank, he opened up his suitcase, took out a stack of $10,000 in Canadian dollars and handed them to me with a flourish. “Enjoy your loonies! Gotta run, bye!” And he took running off after another customer who was just leaving the bank. “Excuse me, sir, can I give you some Canadian money? Sir? SIR!”
“Well, that was weird”, I thought, then turned around to the teller and asked her to convert my shiny new loonies into U.S. dollars. And now I had $17,900 in my U.S. account. Ka-ching!
But right after I left the bank I was accosted again, this time by a disheveled hippie in a poncho. “Hola, dude. Can I give you some awesome Peruvian soles?” “What’s a sol?” “It’s the currency of the sun, man! They represent solar energy and the pathway to a more inclusive economy!” “And what do I need to do to get them?” “Easy: just like us on Facebook, and show me your bank statement!”
I was about to give the thumbs up, when out of nowhere a Vietnamese lady in a slinky white ao dai appeared and stepped in front of the hippie, almost impaling his Birkenstock-clad foot with a 5-inch stiletto heel. “Ignore this man,” she commanded. “I will give you dong.”
“Pardon?” “Vietnamese dong. Excellent currency, great growth prospects, backed by full might of Communist Party of Vietnam. Just show me your bank statement, and I will give you this magic box that you can install in your home. Every month, when the full moon rises, the box will print many millions of dong just for you.”
“But why do you both want to give me money? What do you get out of this, and why don’t you just give money away to everybody?”
The hippie shuffled uncomfortably. “Well, these soles, they are real money, but they are hard to use outside Peru. We want to make soles a strong world currency, like the U.S. dollar.”
A lightbulb went off. “So if you give away your soles and dong to people who are already rich…”
“…they will become interested in our money, and buy more of it, and we will all be rich!”, said the Vietnamese lady.
“Well, speaking as a rich person, that sounds like an excellent business plan. Let’s do it.”
Soon enough, I had 3,200 soles and 27 million dong. I walked back into the bank, converted them to $2,100 U.S. dollars, and looked at my new balance of $20,000. All in a day’s rent.
~ ~ ~
This little parable is, of course, patently ridiculous. Nevertheless, ridiculous or not, it’s also exactly what’s happening in the weird world of alternative cryptocurrencies (altcoins).
In the specific case of Bitcoin Cash, where a single existing chain was forked, there’s an entirely sensible reason for getting “free” coins, although as many observers noted, there is no rational reason for the sum of the old and the new to exceed the value of the old. (US and Canada is an imperfect analogy; imagine instead that California were to split away from the US and launch its own fiat currency. Would the combined two be stronger than the original?)
So what’s the irrational reason? Speculation. And this also explains to the phenomenon of the “airdrop”, where an altcoin simply decides to give away free money to entice users. The first airdrop, Auroracoin, altruistically handed out equal amounts to all residents of celand, but later drops just hand out their coins to people who already have lots. Stellar Lumens, without a hint of irony, justifies their reverse welfare as “connecting people to low-cost financial services to fight poverty”, while Byteball takes a more fatalistic “this is what we gotta do to survive” approach and Bitcore doesn’t even pretend to be anything other than a Ponzi scheme (“three percent interest Every. Single. Week”).
Anybody want to take a bet on how long the party lasts?