“Pure Gold Does Not Glitter”: Bitcoin Ideology and Utopia
Bitcoin has been called ‘digital gold’ since its emergence. Generally, this metaphor means that the cryptocurrency is resistant to inflation processes: as distinct from the fiat currency issued by central banks, the amount of bitcoins in circulation is limited to 21 million coins. Otherwise speaking, bitcoins theoretically are absolutely limited in supply as in the case of gold supply. The blockchain enthusiasts’ ideology based on the utmost faith in the technological progress as a means of addressing social and economic challenges surprisingly rests on an extremely archaic vision of the essence of money.
Bitcoin, as a concept and as a technology, supposes that there is a certain theoretical notion of the nature and functions of money. The monetary theory, being implicit in the cryptocurrency design and the discussion surrounding it, is the closest thing to the views of the Austrian economist Carl Menger. One of his articles, written in 1892, addresses the issue of the origin of money. The economist rejected classic explanations dating back to Plato, Aristotle and Roman jurists, who considered the origin of a universal exchange medium as a consequence of legal establishment or a convention. Menger argued that such a significant event could not pass unnoticed by their contemporaries, though nothing of the kind was found in the data presented by written history. An alternative argument proposed by him considered the origin of money as a spontaneous process during which particular goods, i.e. gold and precious metals, were gradually singled out in the course of overall exchange by reason of their exceptional ‘merchantability’ (Absatzfähigkeit).
Studying the bitcoin concept as a monetary theory, the American anthropologist Bill Maurer came up with a suitable term ‘digital metallism’ to characterize it by analogy with one of the main paradigms in the theory of money. At least since the 16th century the ‘metallic theory’ of money has been associated with the idea of liberty and liberal criticism of the State in the European political and economic thought: if money is ‘linked’ to gold or other precious metals the amount of which is limited in the nature, states or banks may not artificially increase money in supply and manipulate their value. The cryptocurrency enthusiasts’ ideology contains a similar argument, i.e. distrust of institutions such as the State and the banking system. The British sociologist Nigel Dodd, an expert in the field of money sociology, proposed considering bitcoin not as a currency or a technology, but as a social movement, betting on elimination of three kinds of mediation involved in the money exchange: ultimately, bitcoin would have to make money free from control by the central bank and the banking system, the State, and trust relationships established in society.
As Nigel Dodd has written, major economic crises are often accompanied by radical reform projects of the monetary system; thus, for example, during the Great Depression some have proposed abandoning the system of fractional reserve banking and shift to 100% backed money, i.e. depriving the banks of the possibility to create money by way of crediting; therefore, it is no surprise at all that the bitcoin project release and a wave of interest thereto immediately followed the recent financial crisis. In a broader perspective, interest to the blockchain technology and the cryptocurrencies can be considered in the context of the global-wide rise of populism, which social and political scientists have talked about for several years. This rise is marked with electing Donald Trump as President of the United States, as well as with the verdict of the national referendum in the United Kingdom concerning its exit from the European Union. The public success of bitcoin, other cryptocurrencies and the blockchain technology has mainly been driven by the same reasons as the growing support for populist politicians, i.e. credibility crisis in regard to main political and economic institutions and the generalized establishment taking key decisions regarding the functioning of those institutions.
Algorithm Instead of Trust
An illustrative example is ‘blockchainization projects for emerging countries’. As demonstrated by the Peruvian economist Hernando de Soto, chronic poverty is often associated with the weakness of the State, which is not capable of ensuring the basic infrastructure for specification and transfer of the ownership, rather than with the reluctance of people to enter into market relations motivated by cultural traditions. Because market exchange can take place only where the rights of ownership for objects of exchange are clearly defined, a prerequisite is trust to the State institutions, namely, the legal framework, as well as the State registers of property rights to land and real estate. Consequently, the absence of trust to the State and its information management systems caused by all-pervasive corruption makes people remain within the informal sector of economics with the result that they are deprived of the opportunity of getting the legal recognition of capital accumulated by them. In theory, the implementation of the blockchain could resolve this issue by substituting the State with a technical mediation, namely a distributed ledger, which does not require trust because it is completely transparent, and entries therein cannot be changed. In turn, a chain of the distributed ‘horizontal’ type supposes that the centralization is impossible, and therefore, the lawlessness of the ‘Center’ is impossible too.
But let us return to bitcoin. Dodd points out the central paradox of the cryptocurrency connected with the dual nature of this phenomenon as money and as a social management aimed at implementing a utopian project for disengagement of monetary relations from their institutional and social context. One of the bitcoin paradoxes lies precisely in the fact that fulfilling the promise depends on the mobilizing power of the related system of ideas rather than on technical factors. Presently, bitcoin is a speculative financial asset: its price volatility does not allow it to become good money, because it undermines one of basic functions of money, namely its capability of serving as store of value. However, of equal importance are such functions of
money as its capability of functioning as means of exchange and payment; presently, the cryptocurrencies provide only their partial implementation, and that is exactly why even for their advocates they are not money as much as a part of their individual portfolios of assets with various risk level along with the fiat currencies. In one word, the transformation of bitcoin and other cryptocurrencies in money in the full sense of the word depends on how broad the community of their users will be. The paradox here is that the success of bitcoin as the currency directly depends on its stringency as a utopia, because the use of it as money and not just a diversification tool of an investment portfolio can rest only on the faith in the project for liberation of money from the society and its institutions.
Bitcoin as a Community
First, bitcoin evangelists and users compose a rather cohesive community, a kind of a ‘special interest club’, including special-purpose web-sites and discussion platforms, trader groups communicating in Skype upon completion of trade, etc.
Second, most likely people supporting the bitcoin project adhere to specific political preferences: apparently, most of them are young American men who are identified as libertarians or anarchists. Regardless whether they support particular political programmes (in other words, roughly speaking, where they are on the spectrum from the ‘left’ to the ‘right’), one thing these people all have in common is their commitment to antiauthoritarian believes.
Third, bitcoin traders are well aware that the idea of money which is absolutely limited in supply, i.e. very ‘digital gold’, is itself the matter of trust, as it may happen that one fine day, Bitcoin Foundation employees would increase the number of coins in circulation; whether or not, this possibility is the subject of the discussion. It is characteristic that one of the arguments used by supporters of the limited supply is the necessity to protect the users’ trust whom the chain has acquired over the years.
Fourth, despite the declared commitment to the decentralization ideas, so attractive for anarchists and libertarians, the actual bitcoin creation, i.e. mining, is organized hierarchically since the growing complexity of the coin mining and the required expenditure for computing power and electric power promote the mining activity concentration. However, it is more important that the chain design does not exclude full centralization of the coin mining: the capture of all the output by one miner or a mining pool possessing the giant computing power is mathematically possible. From the viewpoint of this hypothetical scenario, bitcoin would become the most centralized monetary system, anyone had ever seen, Dodd has concluded.
Some of those challenges are addressed by alternative cryptocurrencies or modifications of bitcoin itself, but the current factional (substantially political) controversy within the bitcoin community indicates that the utopia of money that are completely excluded from social relations and brought to a ‘thing’ having certain features is unrealistic. In order to become money, the cryptocurrency will have to ‘accumulate’ trust relationship organized by the users’ communities and be locked in political nuances contrary to the transmitted image of ‘mechanical’ money. In this regard, it is hardly surprising that a kind of ‘anti-system’ technology is being increasingly integrated in the operation of conventional institutions, i.e. States, banks, and corporations, from Estonia to Venezuela, from IBM and Goldman Sachs to Sberbank.