A political evaluation of bitcoin

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“Despite all the drawbacks mentioned, Bitcoin remains a landmark and pivotal development, showing that globally scaleable currencies are technically feasible. It sets the stage for potential commons-based p2p-driven currency systems and the Bitcoin ledger can become a tool for self-organizing communities.”

Bitcoin is a complex phenomenom, and it is a landmark development, even a technological singularity, for good or ill. At the P2P Foundation, we also have complicated feelings about it.

The Positive Aspects of Bitcoin

Let us first summarize why Bitcoin is indeed such a singularity.

Bitcoin is the first globally scaleable, social-sovereign, post-Westphalian currency

This is not trivial. Before the Treaty of Westphalia, local currencies where the norm, many with negative interest rates, and they bolstered local independence, but the scaling effects of the printing press, which led to a Europe-wide religious civil war, made necessary a re-organization of the political space around the emerging nation-states. These nation-states outlawed local currencies, destroyed local autonomy, and also relied on sovereign currency to establish their power. While local currencies have a periodic resurgence in times of crisis, none of the complementary currencies scaled. Local currencies can therefore never be the expression of global commons power, i.e. the power of global virtual communities. Bitcoin has no intrinsic value, it is a hyper-fiat currency, i.e. it only exists because of the trust and political will of the international libertarian hacker segments of the population, in the particular algorithm.

Bitcoin is a weapon of last resort for activist communities

The mainstream monetary and payment system is at the service of a particular world order, and can be mobilized against opposition to it, as became very clear around the Wikileaks affair, where banks, VISA and Paypal collaborated with various authorities to block the fundraising for Wikileaks. In such times, access to alternatives like Bitcoin is vital for activist groups, it becomes their lifeline to funding outside of the control of the central authorities.

The potential of the Bitcoin ledger as a tool for human self-organization

Apart from being a currency, the underlying universal ledger technology of Bitcoin has potential to usher in a new era of more easy self-organisation, by enabling the possibility of smart contracts and software-driven ‘distributed autonomous organisation, as expressed by initiatives like Ethereum, Common Accord, and the crypto-equity experiment of Swarm. Though these developments and possibilities are not without danger, and though most of the current enthusiasm is utopian and mostly based on hopes and just a few budding experiments, this technology is potentially a game changer by bringing down the transaction cost for self-organization.

The Negative Aspects of Bitcoin

Notwithstanding the above, Bitcoin’s development comes with a potentially very high and anti-social price tag.

Bitcoin is not a true peer to peer currency but leads to more extreme inequality

It is sometimes asserted that Bitcoin is a peer to peer currency because any computer with mining software can create the currency, but not everyone has access to the same number of computers and not everyone has computers, hence, the design of Bitcoin, which favours early entrants and those with investing power, is an engine of inequality. Bitcoin’s Gini coefficient, a metric of inequality, is a whopping 0.87709 and according to Bitcoinica, 1% of the players own 50% of the coins.1 That inequality is not diminishing, but rising: according to Bitcoin Trader, for a given period, “the top 100 have gone from holding 1,776,434 coins to holding 2,254,634 Bitcoins, a whopping 27% increase!”2 The mining capacity is also already concentrated.

Bitcoin can’t lead on its own to a disintermediated society

We live in an epoch of techno-utopianism with a strong drive for techno-cracy. The former means that many believe that technology alone determines certain outcomes, while the latter believes it is a good thing that flawed human processes are replaced by ‘clean’ technological processes. Both attitudes are very dangerous. First, distributed technologies do not necessarily lead to distributed outcomes. We have seen this historically with the effect of the invention of printing, which led to a democratisation of knowledge and literacy, but also in time replaced the local autonomy of free medieval cities with much stronger and controlling nation-states, i.e. more political centralization, not less. Networks which have no counter-measures to maintain equality inevitably lead in time to a new concentration of resources. Hence, in Amazon and iTunes, the so-called long tail of culture consumption predicted by Chris Anderson is no longer operative, and in p2p social lending, 80% of loans are provided by big bangs and institutions, the very forces the technology was supposed to disintermediate. Again and again, we see that the potential disintermediation of power, which may affect established powers, creates new intermediaries, such as the platform monopolies. Technologies are indeed, used by social forces, who inflect technologies for their own needs. The inequality of bitcoin ownership will inevitably further affect the structures that make bitcoin operational, leading to new kinds of monopolies. Technologies are always infused with human values, no programming or infrastructure is truly neutral in that respect.

Bitcoin funds a dangerous ideology

The big danger to the social movements of the industrial era were fascism and stalinism, both forms in which the power of the state became extreme. But what fascism is to the state, propertarian libertarians are to the markets: they aim for the realization of a total market, where every aspect of human life is commodified. The design of Bitcoin is anarcho-capitalist, i.e. it is designed to favour the freedom of property owners, and the more you own, the freeer you are. Because such propertarians do not want to see the existing inequalities in society, decreeing them to be the result of free choice, they inevitably ally themselves with oligarchic forces and support their political programs of the dismantling of social solidarity mechanism, and any regulation which limits the freedom of powerful corporate forces. The valuation of Bitcoin means an important transfer of social wealth to this political tendency, which allied with venture capital and the oligarchies that invest in Bitcoin, alters the balance of power away from emancipatory and progressive political forces. Early libertarian investors in Bitcoin, can sell their bitcoins at a premium to new entrants, thereby capturing substantial speculative value. So while the claim that Bitcoin is a pyramid scheme is obviously false, it does institute a rent from new entrants to existing owners. In this sense, Bitcoin, far from being a tool of distribued equality, which is already a false empirical claim at present, is an ideal tool for the development of hyper-capitalist economic models. In this sense, Bitcoin is an ideal tool for netarchical capitalism, the hierarchies that enable, but also control the networks, and capture value from it.

In Conclusion

Despite all the drawbacks mentioned, Bitcoin remains a landmark and pivotal development, showing that globally scaleable currencies are technically feasible. It sets the stage for potential commons-based p2p-driven currency systems and the Bitcoin ledger can become a tool for self-organizing communities.

12 Comments A political evaluation of bitcoin

  1. Mike Riddell

    This is the best argued critique of Bitcoin, I’ve ever read.

    Bravo and thanks!

    @mikeriddell62

  2. David Orban

    This is a very valuable addition to the conversation around themes that are seldom discussed at sufficient depth. The political implications of the Bitcoin architecture are not fully understood, and too many people passively expect the genius of its creator(s) to have had a all-seeing power and desire for positive change.

    Your corrections of several superficial generalizations about the opportunities for equality and emancipation that this specific implementation of Blockchain based cryptocurrencies offers are very lucid. The way you highlight the immediate capacity of existing forces to bend abstractly neutral technologies to their advantage is important.

    We are only at the beginning of course in understanding how all of this is going to unfold. Your mention of the promise of 2.0 cryptotech like Ethereum, underlining their promise but confirming that they need additional empirical proof through close to perfect execution is I an indication of a balance that one can seldom find elsewhere.

    I am very happy that your conclusions are positive, and I am looking forward to continuing the dialog both here and on other platforms of online conversations.

    PS: I also posted a version of this comment sharing your post on Facebook in the “Internet of Money” group, and if you have the opportunity I’d welcome your additional comments there as well. https://www.facebook.com/groups/internetofmoney/permalink/703760969679715/

  3. Keith Hart

    All very true, Michel, and a beacon of clarity which I have already circulated to my friends. Given your title, I imagined that you would focus on the politics of Bitcoin. Maybe you thought the political implications of your assessment are obvious. But it needs to be said that Bitcoin shares with neoliberal experiments like the euro and techno-utopians everywhere the dream of a pure money without politics. And when the politics of money is not openly acknowledged, it goes underground in all sorts of perverse ways, as with the bad money retained by French and German banks or the role that Mt Gox once played as a pseudo-central bank or that the Fed and China can still play in dertermining its future.

    Keith

  4. David Week

    Hi Michel. Very helpful article. Now I can stop arguing about bitcoin and just point to this.

    One amusing typo you should (perhaps sadly) correct:

    “…80% of loans are provided by big bangs and institutions,”

  5. Poor Richard

    Can I be opposed to propertarian libertarianism (and other antisocial uses of private property) and still be positive towards the socioeconomic utility of conditional ownership of private property?

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