Essay of the Day: The Political Economy of Bitcoin

* Essay: The (A)Political Economy of Bitcoin. By Vasilis Kostakis, Chris Giotitsas. Triple C, Vol 12, No 2 (2014)

From the Abstract:

“The still raging financial crisis of 2007–2008 has enabled the emergence of several alternative practices concerning the production, circulation and use of money. This essay explores the political economy of the Bitcoin ecosystem. Specifically, we examine the context in which this digital currency is emerging as well as its nature, dynamics, advantages, and disadvantages. We conclude that Bitcoin, a truly interesting experiment, exemplifies “distributed capitalism” and should be mostly seen as a technological innovation. Rather than providing pragmatic answers and solutions to the current views on the financial crisis, Bitcoin provides some useful and timely questions about the principles and bases of the dominant political economy.”

An excerpt:

“Bitcoin is widely viewed as an “apolitical currency”, devoid of the troubles that burden other currencies due to it being just code, controlled by no one. Yet this is not the case. Besides the fact that there are signs of emerging governance structures in Bitcoin, we can also see that its entire logic follows the key rules of other currencies. The code is in charge instead of central banks but as Lessig (2006) puts it, on the Internet the “code is law”, thus pointing out the politicalness that is imbued in each piece of software. In the real world, the law enables banks to mediate credit transactions between various parties. The law ensures the credibility of contracts, protects property rights, and regulates money circulation (Lessig, 2006). Whereas in the digital world, according to Lessig (2006), code assumes this role and defines what users can and cannot do. Therefore Bitcoin as a piece of software is imbued with ideas drawn from a certain political framework.

We have seen that Bitcoin is deliberately scarce. By limiting it to 21 million units, Nakamoto, or whomever is actually behind this project, has inadvertently created a condition in which the more popular Bitcoin becomes, the higher its price gets, making it more and more difficult to use. The buyer will be motivated to stall any transactions to take advantage of the climbing price, while the seller, for instance an artisan, would buy material now and by the time the final product is ready, the price would be unfavourable. In short, a deflationary currency puts pressure on the producer/seller to sell as fast as possible, while buyers prefer to wait in order to maximize their purchases. This situation clearly leads to crises. Presumably, the creators’ intention was to create a currency that is rid of debt in the spirit of various politico-economical critiques of the credit system. As previously mentioned Bitcoins do not come about as credit relations between two parties but as “private” information in a network.

The formulation of a Bitcoin “aristocracy” is the result of the code’s architecture. Members of this aristocracy are those that got into the Bitcoin game early on, when it was easy to create new units, and the owners of the so called “monster machines”, powerful computers that specialize in Bitcoin mining (Davies 2013). This small percentage of users has accumulated a great amount of Bitcoins, thus exhibiting features of the credit system it is supposed to be trying to overcome but also threatening the viability of the whole project.

Bauwens and Kostakis (2013) claim that Bitcoin is not a Commons-oriented project aiming to satisfy the needs of society, but a currency that reflects a new type of capitalism— “distributed” capitalism. This new iteration of capitalism conforms to the characteristics of the network era and utilizes the peer-to-peer infrastructures to achieve capital accumulation. Bitcoin is designed to allow multiple users, though in a competitive framework. It might appear as though it exists outside the financial system, but by promoting scarcity and compe- tition this project aggravates the over-accumulation of capital and exacerbates the social inequalities that it is supposed to combat. Distributed capitalism is premised on the idea that everybody can trade and exchange; or to put it bluntly, that “everyone can become an independent capitalist” (Kostakis and Bauwens 2014). The libertarian political ideology underlying this view advocates the elimination of the state in favour of individual sovereignty, private property, and free/open markets. In theory you have equipotential individuals (that is, everyone can potentially participate in a project), but in practice what one gets is concentrated capital and centralized governance. One could postulate that the anarcho-capitalist de- sign of Bitcoin, based on the Austrian school of economics, in many ways exacerbates the characteristics of the neoliberal era (Kostakis and Bauwens 2014).


Bitcoin should be viewed like a new technology, not just a currency. It has paved the way for new types of currencies that utilize new technological infrastructures and whose dynamics should not be ignored. Bitcoin as a protocol enables a decentralized network to achieve consensus without requiring any trust between parties. The potential of its innovations (for instance the blockchain) is so big that it has caught the attention of major banking institu- tions. The ability to embed scripts is also revolutionary and can set up terms and obligations within the blockchains, since it provides the possibility to enforce certain behaviours and limit corporate greed. However, we would say that the most important achievement is that it envisions an alternative approach to tackle the major problems of the current credit system. As an open source software programme, Bitcoin can get upgraded and it can get forked. The forking feature means that when an already set up economy becomes problematic it can be cloned by its users and given a new path. We are witnessing a plethora of new digital currencies and economies based on Bitcoin that aim to surpass the issues that were discussed in the previous chapter. Their efforts revolve around the belief that the current financial system is based on an unsustainable principle of continuous growth and attempt to implement social values into their structure.”

Leave A Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.