Bitcoin Craziest Thing Since Tulip Mania: Mallaby

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March 26 (Bloomberg) -- Council on Foreign Relations’ Sebastian Mallaby discusses Bitcoin on Bloomberg Television's “Market Makers.” (Source: Bloomberg)

Tell me about bitcoin.

It is nuts.

It is the craziest thing i've seen.

If you think about money, what is money?

It has always historically been either a metal like gold and there is a limited amount of it, or it is backed by the credit of a serious government with a record and not having inflation.

If you were to invent the craziest scenario for money, you would say that someone abroad created some code on the internet and says, trust me, this is money.

You should use it.

I don't get why people are so incredulous about this.

But you know about -- as we know, that there is a very anachronistic view of what money is and you are just not with it, sebastian.

Ok, so i'm not with it, but i do know history may be better than they do.

The last time there was this issue in money was in the 19th century free banking.

And there was a financial crisis every five minutes.

That is why we created a central bank and unified the currency.

We had one currency nationwide and we got rid of that stupid system.

And now 100 or so years later, we have this.

Having said that, is there mistrust out there for the system that people want to use these currencies with crazy characteristics?

Shouldn't government be paying more attention?

There is a lesson here, too.

That is right.

There is a question of the credibility of the central bank.

I get why people are frustrated with the status quo.

I don't get why they think the other thing is better.

This is not the solution, in other words.

Yes.

Is in this beyond the frustration with the central bank and currencies?

The frustration with friends.

This is -- with rent.

It is not like mastercard and visa have a god-given right to charge you for the pleasure of doing what you are doing.

In the case of federally regulated institutions like banks, they are supposed to be providing you a service of value.

Do you think rent is part of the problem?

That is true.

One good thing about bitcoin and this type of ideas that the electronic payment system could be more efficient for consumers will stop -- for consumers.

I think that am american express and mastercard and visa are too powerful.

But i don't think that originating new money or this digital mining is the solution.

Government institutions are responding, the irs for instance, saying that it is treating it as property and not currency.

Institutions are codifying something about bitcoin.

It may just move ahead regardless of how debtors there are out there.

They're all kinds of people creating etf's where you can invest in bitcoin.

I can see this bandwagon taking off and moving.

It is symptomatic.

I see it symptomatic mainly of frustration with currency, and also all things digital are cool.

The other thing that is going on is this idea of crowd sourced funding.

But he is fed up with regular banks.

-- everybody is fed up with regular banks.

You go to a website and you lend money.

It is even worse than that.

You give money away.

Essentially.

Traditional banking has its problems, but the function for credit analysis were you try to figure out whether someone is credit worthy, some of these websites, just forget that.

Normally if i buy a service and i know what it is and i'm getting a digital book or a real one, it doesn't matter.

I'm getting something i can see.

But money is different.

It depends on credibility.

Is this a hangover from the financial crisis?

Yes.

A distrust for institutions?

Yes.

The history of the central bank since 2008 is that it will -- once more, we are worrying about deflation.

Why hasn't had bigger success in places where the financial crisis was not as keenly felt as here in the u.s.? if you are in a country like china that is capital controls and you want to tip money out without the government stopping you, then bitcoin has an attraction.

And if not bitcoin, something else.

Yes.

But that does not mean that it is a sensible way for most people in other countries to try to have a nest egg will stop those guys who did the facebook now have any tf that they are planning.

You should get them on the show and ask them.

Great to have you here.

This text has been automatically generated. It may not be 100% accurate.

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