May 06, 2024 | Read Online

Byron Gilliam

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"Too much of anything is bad, but too much good whiskey is barely enough."

- Mark Twain

Crypto's Whiskey Rebellion Is Underway

Whiskey used to be money.

In the 18th century, farmers in the mountains of Pennsylvania typically turned any surplus grain remaining after a harvest into barrels of whiskey — not because they wanted to drink it, but because, unlike grain, alcohol doesn't spoil.

Just the opposite — whiskey gets better with age, making it a far better store of value than perishable grain, which only gets worse.

It was a much-needed store of value, too, because fiat currency was in short supply in those early days of the US republic — so much so that the medium of exchange for goods and services in the Pennsylvania mountains was more likely to be the whiskey that farmers produced and stored.

So, when the US government introduced a tax on distilled spirits in 1791, you can understand why tax collectors venturing into Western Pennsylvania were met with violent resistance.

Treasury Secretary Alexander Hamilton, mistakenly thinking he was imposing a tax on a discretionary item (alcohol), was in fact imposing a tax on an indispensable one (money).

Whiskey was how farmers stored the value of their excess labor and also how they swapped that value for essential goods and services.

That made whiskey money and imposing a tax on it threatened farmers' ability to trade and therefore survive.

The rebellion was ultimately suppressed when George Washington sent a force of 13,000 militia into Western Pennsylvania — and whiskey's central role in the mountain economy gradually faded as banks expanded westward and dollars became less scarce.

But, even today, whiskey can still be a great way to store value: A rare bottle of Macallan recently sold at auction for $2.7 million, for example.

Could it be a medium of exchange, too?

Crypto tokens are even easier to exchange than dollars, so, with everything now being tokenized, it might be time for whiskey to be money again.

Extra ultra sound money

Whisky has a chance to become rebellious money again because the crypto-based marketplace Baxus is safekeeping collectors' high-end whiskies in warehouses and issuing receipts that make them tradeable on blockchains.

If warehouse receipts don't sound like a financial revolution to you, consider that fiat money got its start when London goldsmiths issued receipts for the gold they warehoused on behalf of customers; that, until 1971, the global monetary system was based on receipts for gold warehoused in the vaults of the New York Fed; and that the current age of passive investing was ushered in when State Street starting offering receipts redeemable for a basket of 500 S&P stocks they warehoused on behalf of investors.

Simply making assets more easily exchangeable is what's made warehouse receipts so revolutionary for traditional finance.

Crypto, however, does this even better.

Consider a poker game in which you hold a royal straight flush but you can't call your opponent's bluff because all your available fiat money is already in the pot (or your opponent's pockets).

You're unable to raise with the SPY ETF in your Vanguard account or the gold bars you keep in a bank vault because neither of those is directly transferable — you'd have to sell them for dollars first and then transfer those dollars to the winner and that would take days (and require your opponent have a US bank account).

You could, however, stay in the poker hand by offering a fraction of your whiskey collection — because Baxus has put a tradeable receipt for that whiskey on a blockchain where they're instantly transferable.

Better yet, because the receipts trade on a blockchain (and not a stock exchange), they're potentially composable in a way that only crypto receipts can be — anyone can now build an app that would enable an entire poker tournament to be conducted with only whiskey for antes, calls and prize money.

That is a frivolous example, of course, but spirits are a not-at-all frivolous investment — it's just a difficult-to-access one.

Whiskey was money on the cash-starved frontier because it was easier to store and transfer than perishable grain.

That is no longer much of a selling point. In this modern age of easy money, spirits are, of course, not as easy to hold or move around as fiat currency.

If it were, though, there's evidence that traditional finance would embrace it.

Investors have always paid a high multiple for shares of Rémy Cointreau, for example, even in times (like now) when business is not very good — they're willing to pay a premium for Rémy because they recognize the value of all the cognac and whiskey aging gracefully in the company's vaults.

Warehouse receipts on blockchains make it much easier to invest directly in cognac and whiskey being held in vaults.

Their introduction should present an especially welcome opportunity for crypto investors looking to diversify out of their magic-internet-money without moving their assets off-chain or having to sit idle in stablecoins pegged to an ever-depreciating US dollar.

Tokenized whiskey is an appreciating asset because 1) whiskey gets more valuable with age and 2) whiskey consumed is whiskey unavailable for investment.

If ether is "ultra sound money" because its supply occasionally decreases when activity spikes on Ethereum, whiskey is extra-ultra sound money because its supply decreases every time someone opens a bottle.

Once it's easy to move around, that kind of asset might prove as popular with 21st century investors as it was with 18th century mountain men.

― Byron Gilliam

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WTH is intersubjective truth?
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a) Objective truth: mathematical statements, scientific law. Mathematical statements can be proven using cryptography.
b) Social truth: all things we socially consider true. Intersubjective is another term for social… twitter.com/i/web/status/1…

May 6, 2024

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Stacy Muur @stacy_muur

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