Politics of Bitcoin

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The political undetermination of the blockchain

Stefan Eich:

(interview conducted by Evgeny Morozov)

“EM: In your essay on the utopian politics of Bitcoin, you emphasize that both the cryptocurrency but especially the underlying blockchain are radically underdetermined – in that, despite their technological specifications, they can be reinserted into political projects of various configurations, including those involving the state (as we are now observing in El Salvador, where some of the most extreme followers of Hayek and Mises are cozying up to state power, as it wants to use their favorite Bitcoin). Yet, I’m wondering if this indeterminacy is precisely what accounts for the immense political and ideological success of crypto, for the core members of its most radical groupings can always denounce any mainstream adoptions as a deviation from the “true” vision of Nakamoto or Vitalik Buterin or whoever. In other words, it is almost impossible to prove that crypto will most likely simply reinforce existing power structures, as its most radical believers would just say that it would only be so because we are currently not doing crypto “right.” How does one get out of such rhetorical predicaments?

ST: Yes, I think it is important to remember that technology does not have specific politics deterministically built in. Now, of course, it’s not exactly neutral either. Instead, its outcomes and implications are shaped by the power structures in which the technology is embedded and by the ways in which we use technology. This underdetermination might contribute to some of the ideological obfuscation but I think it actually empowers us politically and helps us to realize that we have more agency than we often realize. From that perspective it’s absolutely crucial to call out regressive and plutocratic attempts to portray deep societal and political changes as somehow the inevitable outcome of technologies. That’s just not true, that's ideology in the purest sense.

Now, that doesn’t rule out that some proponents of such a crude technological determinism are themselves victims of their own ideology. They might genuinely believe this and might even defend their “true” vision against various corruptions. But at this point, it’s helpful to remember that holding up some undiluted ideal that has to be defended against anything that actually exists is, of course, a long-standing trope in the maintenance of ideological purity that allows one to hold onto a utopia even against all evidence. As Polanyi observed with regard to the utopia of a self-regulating market, every piece of evidence that would seem to indicate that the utopia is impossible can be reinterpreted to mean that one simply has to overcome more external obstacles, be even more ruthless. So this is nothing new, we are familiar with this pattern from numerous other examples.

EM: Cryptocurrencies promise a world liberated of institutions but also of basic social mechanisms such as trust; the presence of such mechanisms in the current and earlier monetary systems is presented, rather, as the consequence of human frailty – something to be “fixed” and “solved” by crypto-technologies (in my own work, I describe such redefinitions of enabling mechanisms as technical “bugs” to be eliminated under the concept of “solutionism.”) Yet, you argue that cryptocurrencies are money in name only. Why not? And are there any antidemocratic elements in this striving to avoid all relations and power that animate the crypto community?

It's worth distinguishing here, first, between the early vision of cryptocurrencies and how they have played out so far. Contrary to the early pronouncements by Bitcoin supporters, it’s pretty clear by now that most existing cryptocurrencies, and certainly Bitcoin, have largely failed as money. The irony here is that it is precisely their wild appreciation over the last five years that has sealed their fate as currencies. A unit of account that goes up 5000% or down by 2000% is simply not what you want as your money. Interestingly, even the Bitcoin community itself seems to largely accept that by now. Most boosterish predictions of Bitcoin as the future of money have by now been replaced by naked advertisement of its wondrous qualities as a speculative asset, able to achieve wondrous returns and, moreover, to the delight of hedge funds, entirely uncorrelated with any other economic activity. That at least provides some conceptual clarity. But the cryptocurrency label continues to protect these speculative assets from some of the regulatory and tax legislation that would have long been applied if they had been perceived as what they are: speculative securities.

EM: The global public seems to be somewhat stuck between two rather unappealing vision: reliance on Bitcoin-like crypto-currencies or going with Libra-like, Facebook-endorsed “stablecoins.” What, in your opinion, is the best case to be made against the latter?

That has to be distinguished from so-called stablecoins which have dropped some of the core features of early cryptocurrencies (such as a decentralized ledger or a consensus protocol based on cryptography). Instead, stablecoins are themselves backed by fiat currencies and are essentially what used to be known as currency boards. On the one hand, this means that stable coins don’t even promise novelty or technological prowess. They are very old fashioned. It’s just a currency board consisting of a mix of fiat currencies put together into a basket by a private corporation. Stablecoins promise the security of fiat money with the ease of an app and, in doing so, they essentially offer a parasitic form of freeriding. Consequently, Ssme economists and regulators have rightly compared them to wildcat banking. These are attempts to benefit from a lack of regulatory oversight while banking on the principle of “too big to fail” in moments of crisis.

But through stablecoins the delusional vision of private money continues to live on. This is a much more serious worry and we are up against a much more serious foe. It is not the privatization of money in the sense of an end of fiat currencies, but instead privatization as freeriding: freeriding on the services, the infrastructure, and the knowledge of the central bank-run fiat money system. It’s a form of freeriding because it’s clear that in the case of any instability – anything that even vaguely looks like a run or a panic of people converting their Facebook Diem tokens back into yen, euros, or dollars – it would be the national central banks that would have to step in and essentially provide liquidity.

There is another twist to this. While initially the promise is that every Facebook Diem token would be backed by one dollar worth of fiat money (or whatever the basket composition might be in the end), one doesn’t have to be a conspiracy theorist to wonder what will happen if Diem actually comes to be accepted and widely used by a substantial share of Facebook’s two billion users. Once it has reached a certain size, a Facebook stablecoin not only becomes untouchable on regulatory grounds as well as “too big to fail” in the case of a crisis. At a certain point of acceptance, it also becomes possible for Facebook to gradually dilute the 100% backing with fiat money. Even a small reduction would essentially mean that Facebook is for all intents and purposes able to print its own money. This is not just some wild speculation. The authors of the original Libra whitepaper themselves included this possibility in their own sketch! They have since learned their lesson in Congress and are no longer so foolish as to actually say this part out loud, but one would have to be extraordinarily naïve to think it is no longer in the back of their mind.”