In an interview with Time promoting his new album, Because the Internet, rapper and actor Donald Glover (who also goes by Childish Gambino) said, “We should all sit down as a planet and be like, okay, these are the rules now, because of the internet … We should definitely start looking at currency on the Internet.” By which he meant, of course, Bitcoin, the digital cryptocurrency that’s has caught the fancy of the Winklevoss twins, Silicon Valley, and a huge portion of Reddit.
But then things get a bit…off:
“Yeah, I know a lot of people are skeptical, but I feel like if everything’s going to live online, why not bitcoins? Being backed by gold seems very old and nostalgic to me. Being backed to a bitcoin, which takes time to actually make and there’s this equation that has to be done, that feels realer to me and makes more sense.”
This is one half entirely wrong, one half right, and all a bit confused.
First, the entirely wrong: No major currencies, and certainly not the dollar, are backed by gold. Gold-backing is indeed “very old and nostalgic.” In the U.S., the last remnant of the gold standard was tossed away more than 40 years ago when Richard Nixon in 1971 got rid of the dollar’s gold peg. Starting in 1944, foreign central banks could always exchange gold for dollars at $35 per ounce, underpinning a system of fixed exchange rates between world currencies.
But the real departure of the U.S. from the gold standard came even earlier in 1933. Soon after talking office, Franklin Roosevelt used an executive order to forbid the “hoarding” of gold by individuals and halted the ability to exchange dollars for gold or gold for dollars by U.S. citizens. Many economists credit this move, which lowered the value of the dollar, with jump-starting economic growth in the worst days of the Great Depression.
But where Glover is right is that Bitcoin requires “this equation that has to be done.” This is accurate: more Bitcoin are produced when computers do progressively more complicated calculations. Roughly, the computers that complete the calculations are rewarded with newly “mined” Bitcoin.