Last week, it was announced that British historian Niall Ferguson would join the board of Ampleforth, a new blockchain protocol that aspires to be a reliable store of value. If a historian advising a crypto project seems strange to you, maybe you should read more. Formerly a professor of history at Harvard, Ferguson is currently Senior Fellow at Stanford’s Hoover Institution and Harvard’s Center for European Studies, and author of fourteen books, including The Ascent of Money, a sweeping history of the financial system that should be required reading for any crypto-watcher.
He has also helmed widely-praised BBC history series, including a televised version of The Ascent of Money if you haven’t got the bandwidth for the read. As if that weren’t enough, he’s a frequently outspoken political gadfly, with positive takes on both Brexit and Donald Trump.
Ampleforth aims to create a global currency that resists both the volatility of bitcoin and the political risk of fiat money, by using an algorithm to balance supply and demand. That may sound a bit like algorithmic stablecoin projects like MakerDAO and the now-folded Basis, but Ampleforth insists it’s something new. We’ll be keeping an eye on the project, but we were interested in getting Dr. Ferguson’s broader thoughts on crypto, so we sent him some questions via email.
You’ve written perhaps the definitive history of money as a technology, and its social impacts. What do you see as the defining advances cryptocurrency makes over money as we’ve known it?
I would be wary of assuming that huge advances have been made thus far. Compared with what was promised just over 10 years ago, when bitcoin was created, relatively little has been achieved. Our existing payments system is largely a relic of the 1970s. An alternative one is evolving in China which implies massive centralization of data and loss of privacy. The rapid centralization of the internet by network platforms in the West was in many ways a disastrous development.
"So far, the most important contender to be a “cryptocurrency” has been bitcoin. And bitcoin itself is only money in a very limited sense, which I would define as follows: It is an option on digital gold."
As technology continues transforming how money works, we should be careful not to risk repeating those same mistakes. Reinventing money in a way that protects individual freedom is a hugely exciting project, and a necessary one. I remain attracted by the idea of a more decentralized world, which is part of the appeal of blockchain and other distributed ledgers.
So far, the most important contender to be a “cryptocurrency” has been bitcoin. And bitcoin itself is only money in a very limited sense, which I would define as follows: It is an option on digital gold. By this I mean that bitcoin’s role in the foreseeable future is as a liquid asset that is hard to confiscate, and thus serves as a type of insurance. You might hold your private keys the same way the European wealthy used to hold gold jewelry and precious stones. However, the experiment launched by Satoshi Nakamoto in 2008 is not yet finished. To own bitcoin today is to have an option on Satoshi’s experiment succeeding.
Is Ampleforth the first cryptocurrency project you’ve gotten directly involved with? And have you found yourself answering a lot of questions about crypto in recent years?
Not quite. I’ve spent quite a bit of time over the last two years reading my way through white papers. Most I’ve discarded. But Ampleforth is one of a handful that seemed to have real potential. I am also an adviser to a crypto fund and to a distributed ledger company.
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And yes, I’ve had to answer quite a lot of questions about crypto. The question I have often asked myself is: Do the people in the space know any financial history or are they just winging it? One of the things that made me pay attention to Ampleforth was that their team had thought about what they were trying to do in the framework of monetary history.
You say that you’re “doubtful of fiat-backed stablecoins.” Is that skepticism focused on their structure, or on the underlying fiat itself?
My skepticism is that a stablecoin backed with, or pegged to, fiat currency implicitly admits that it is not a substitute for fiat currency. And the thing you have to remember is that most major fiat currencies have performed very well indeed in recent years in terms of inflation. Building a substitute for something that is doing OK is not an obviously winning strategy.
Stablecoin builders should remember that bitcoin is an unusual kind of asset, which isn’t closely correlated to other asset classes. Investors like that idiosyncrasy. Fiat-backed coin lacks this attractive property. The problem is that, in view of its massive volatility, bitcoin is incapable of being money as a means of payment. Some stability is crucial if we are to have an independent digital money. But whatever stability is achieved has to be algorithmic.
One of the fiercest critics of the self-collateralized stablecoin concept is Preston Byrne, who legendarily referred to them as “the philosopher’s stone of finance,” saying they’re “doomed to fail” because they’re an effort to pull value up by its own bootstraps. Do you agree with that critique, and if so, what makes Ampleforth different?
This particular legend had passed me by. No, I think it makes good sense for a digital coin to seek to stabilize itself against the speculative pressures it inevitably attracts. The challenge is to establish a credible rule. You have to remember that fiat currencies have become more stable since their inception in the 1970s thanks to a variety of rules. They are no longer pegged to gold or anything else.
What are your hopes for the future of money?
Most money today is in the form of bank deposits. Today there are three tiers of financial service that banks offer. The top tier is for the 0.1 percent and it’s the equivalent of a private jet, only cheaper. For the middle class there’s a bunch of long-established banks that offer the financial equivalent of an economy seat, only expensive. The banks make their money from these customers by over-charging them for services that should be much cheaper. And then there’s a huge class of people around the world who are outside the financial system and have to rely on cash, payday loans, et cetera. My hope is that we ultimately can replace this system with a universal payments system that treats everyone equally.
"These days it’s fashionable to hate on crypto. It’s what people who used to make a living predicting the next financial crisis now do instead. But I think it’s important to put the recent bubble and bust in historical perspective."
Clearly, this new system is going to be digital. We are going to pay for less and less with coins, banknotes, and checks. So the question becomes: What form will digital money take? My nightmare would be that Amazon, Google, or Facebook creates some hugely popular version of a digital dollar at which point every transaction is going to be monitored by the network platforms’ big data and AI systems, to an even greater extent than is already true. The reason for experimenting with distributed ledger models is to come up with something that cannot be centrally monitored.
These days it’s fashionable to hate on crypto. It’s what people who used to make a living predicting the next financial crisis now do instead. But I think it’s important to put the recent bubble and bust in historical perspective. It’s wrong to compare the crypto movement with 17th-century tulip mania. It’s more like what happened with the early stock markets of 18th-century England and France. You’re seeing bubbles, yes, but also innovation, and I don’t believe that nothing will come of it all.
Your latest book is about network effects and power. Are you hopeful that blockchain technology, in addition to its impact as money, might succeed in upending data hoarders like Facebook?
I am no fan of the network platforms which are indeed, as you say, data hoarders. Anyone who believes in the original vision of the world wide web as a distributed network yearns to see the power of Facebook and the other tech giants reduced. I think the appeal of blockchain is precisely the distributed character of the ledger. Can an alternative architecture emerge to big data and centralized platforms? I hope so. That seems an objective worth working toward.
Photo courtesy Niall Ferguson.