Bitcoin Breaks Breaking Bad
Let me start by saying that Bitcoin is silly, and I think it’s more of a speculative asset than a currency due to built-in deflationary pressure. Okay, with that out of the way…
Andrea Peterson has a post up at Washington Post’s “The Switch”, arguing that Bitcoin isn’t a big deal because it just replicates the anonymity of cash. Andrea Peterson is completely wrong here – Bitcoin and other digital currencies are a big deal precisely because they just replicate the anonymity of cash. She notes that it is marginally more convenient than cash because transfers are speedy and reliable. Economists call these inconveniences of cash “transaction costs”. The potential for digital currencies to be a very huge deal is because they are anonymous and hard-to-trace, like cash, but with none of the huge transaction costs. To see why this matters, let’s step into the world of Breaking Bad.
Much of the entire dramatic tension of the show revolved around the transaction costs of cash. Walter White made meth and sold it in very large quantities for simply staggering sums of money – that he couldn’t use. Cash is worthless unless it can be effectively laundered – transacting in large amounts of cash is an excellent way to get the FBI to pay you a visit. So while he can launder enough money through his car wash to pay his bills, it piles up quickly – one needs an enormous, mostly-cash business in order to launder the millions of money he is hauling in. Like, for example, a fried-chicken chain. In real life, casinos are a favored venue. So Walter ends up with a gigantic pile of money, which he can’t spend, use or transfer. The end of the series is driven by his increasingly desperate drive to figure out a way to get this money to his children after he’s gone.
It’s easy to imagine how his story would be different with a cashlike digital currency. Simply convert the cash into Bitcoin (or what have you) and it’s laundered right there. It can then be stashed away in his children’s name anonymously, and when they come into their inheritance then they can spend it anonymously or figure out some way to launder it further into clean American digital dollars. Most of the drama of the last season wouldn’t have needed to happen!
The fact is that cashlike digital currencies would be a huge boon to criminals and tax cheats and a huge headache for governments across the world. On the upside, it’d also be a gigantic pain in the butt to authoritarian states everywhere. But it’s precisely that “cashlike” nature that would make them immensely important – not a reason why they should be shrugged aside.