Left Critiques of Cryptocurrencies

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Daniel Pinchbeck:

"In the last part of this essay, I considered a few of the main criticisms of cryptocurrency coming from the traditional Left. To review:

Leftists argue that cryptocurrencies are not actually a new form of money – a universal unit of exchange for purchasing goods and services – but mainly function as speculative assets that are highly volatile and prey to market manipulation, such as “pump and dump” and “rug pulling1” schemes. Leftists think that cryptocurrencies, in general, increase the “financialization” of the economy (the movement away from producing goods to trading complex financial products) as well as the privatization of public goods or commonly held resources. They believe these ongoing trends have caused negative outcomes over the last half century, such as Structural Adjustment Programs in the developing world and the 2008 crash of the global financial system.

Not just Leftist critics but critics from across the political spectrum — including both Hilary Clinton and Donald Trump – warn that cryptocurrency may disrupt fiat currency as money becomes privatized. The private creation of money-like tokens could lead to increasing wealth inequality as more people “invest” their money into crypto (or, in other words, get swindled by crypto scams). It could disempower governments without providing any better answer to our social and environmental needs.

Traditional Leftists (socialists and communists) believe that national governments should maintain control over the creation of money. Hence, the Leftist project should focus on reforming government, as someone like Bernie Sanders wants to do. Structural inequality can be addressed using traditional techniques like taxation – increasing taxes on corporations and the wealthy and then redistributing capital through social programs – or even reparations, where money is given to indigenous people and the contemporary descendants of former slaves, to ameliorate unjust legacies.

In The Politics of Bitcoin: Software as Right Wing Extremism, David Golumbia argues that the design of Bitcoin and other cryptocurrencies have an intrinsic Libertarian bias – that this political ideology is “encoded in the software itself.” Crypto is a way to avoid regulation and taxation, and ultimately bring down governments which, Libertarians believe, limit human freedom. Golumbia writes that Bitcoin’s core proponents seek an “anarchic apocalypse” to put governments out of business: “This, in the end, is the extreme rightist—anarcho-capitalist, winner-take-all, even neo-feudalist— political vision too many of those in the Bitcoin (along with other cryptocurrency) and blockchain communities, whatever they believe their political orientation to be, are working actively to bring about.” Traditional Leftists like Golumbia want a strong centralized State but one aimed at their goals: Wealth redistribution, demilitarization, protection of civil rights, and universal social programs.

Yet, in a country like the US, it doesn’t seem possible to overcome the entrenched inertia of the system, which is beholden to corporate power and the financial elite. The people no longer trust the government and seek alternatives. Out of frustration, many are embracing Right Wing authoritarianism. Any significant challenge to our current political-economic system must come from outside of it — from the private sector or from hackers in the tech world. Blockchain-based technologies can redefine the creation and distribution of both economic value and political power. Rather than rejecting them, we should use them to build something new.

Critics also note that Bitcoin and other cryptocurrencies are environmentally destructive. Bitcoin mining uses an incredible amount of energy – more than a country like Sweden, or more than all of the solar panels currently operating in the world. Bitcoin investors and promoters will argue around this point in a number of ways. For instance they will insist that the Bitcoin mining industry is somehow leading the way in accessing renewable sources of energy, such as hydro-power. But this doesn’t hide the reality of the ruinous impact of “proof of work” mining. All of the energy going into solving complex mathematical puzzles could be used, instead, for actual necessities, at a time when we must radically reduce CO2 output or face imminent planetary catastrophe. (Of course, some on the Libertarian Right still insist, all evidence to the contrary, that anthropogenic global warming is a myth or a Deep State conspiracy).

Ethereum is currently in the process of transitioning from “proof of work” to “proof of stake” mining, which requires far less energy. But this has not yet been accomplished. Critics such as Michel Bauwens and Alex Pazaitis, in a recent report for the P2P Foundation, argue that there are inherent problems with both modes of maintaining distributed ledgers: “Both proof-of-work and proof-of-stake protocols do not present fair mechanisms for the distribution of power in decision-making. Proof-of-work creates soaring demands in energy and processing power… proof of stake is explicitly based on ownership of stakes, which represents the outcome of the very same unequally-distributed underlying dynamics” found throughout Capitalism with its hierarchical power structures.

One of the main terms used to promote cryptocurrency adoption is “decentralization.” Yet critics argue that this ideal of decentralization is both a bit of a fraud and problematic in a number of ways. Some critics make an analogy to the way “democratization” was used to promote the adoption of Web2.0 technologies such as social networks and blogging. In the end, it is unclear if these tools have promoted democratic values. Authoritarian movements and regimes make effective use of them and appear to be growing around the world. Similarly, decentralization could easily lead to a recentralization, through Central Bank issued digital currencies or by other means.

Critics argue that promoting decentralization as a goal of the movement is misleading in a few different ways. One problem is that certain aspects of the creation and distribution of cryptocurrencies tend to become more centralized over time. For example, originally it was possible for individuals to mine Bitcoin on their personal computers. As the network grew, it required more computing power to perform its ongoing calculations. Bitcoin creation is now mainly done by a small number of huge, centralized mining operations who, presumably, have a great deal of influence over the network.

As ‘Amazon’s Server Outage Took Down a ‘Decentralized’ Crypto Exchange,’ an article from Vice reveals, many of the so-called decentralized tokens and exchanges rely on highly centralized infrastructure, such as Amazon’s Web Services (AWS). They are thus prone to failure or potentially can be targeted for attack. The article notes: “It's clear that the "decentralized" part of "decentralized finance" has a bit to go in some cases, and Amazon's cloud dominance is now pretty much a core part of the web, whether that's web1, 2, or 3. And that can cause all sorts of problems.”

While Blockchain-based cryptocurrencies are not as decentralized as they seem to be, they are also not devoid of internal political battles, which was supposed to be another selling point. Crypto-economics holds out the vision of a world where messy political contests are unnecessary because the purity of the code resolves such dilemmas. Yet in actuality, many cryptocurrencies reach points in their development where complex decisions must be made through traditional political means, with factions of stakeholders holding emergency summits and frantic Zoom calls to piece the thing back together."