By Suhail Mayor
Throughout time, literature has been replete with a wide variety of differing accounts on the concept of money. Through these theoretical versions of discourse most of them follow a common thread; they are intensely political in nature. Money has always been and will be a talking point in relation to its control and the role of government. While one side suggests that government and laws are crucial to the nature of money, others have come to believe that currency and economic activity can arise spontaneously without a centralized authority. Emblematic of a basic law in economics inferring that government intervention always leads to inequalities in the market.
The creator/s’ of Bitcoin were inspired by the latter view. In a white paper laying out the technological basis for this protocol, “Bitcoin: A Peer to Peer Electronic Cash System”, it starts with an important deceleration of distrust: the lack of want for centralization, financial institutions and other transacting parties. Satoshi Nakamoto, who is believed to be the creator of the very first bitcoin, writes, “What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party”. Some believe that Satoshi is in itself a pseudonym and not a person, but rather a group of people.
While this article does not intend to dive into the specific mechanism of how this form of cryptocurrency works certain features of it can be noted. First and foremost, it is a crypto currency – a transactional system based on cryptography. Bitcoin is not issued by any central government authority, i.e. there are no taxes. Moreover, because it is decentralized there is no monetary policy in any real effect, rather most policy decisions have been hard coded into the protocol. It effectively solves the “double spending problem” of electronic currencies (in which digital assets can easily be copied and re-used) through an ingenious combination of cryptography and economic incentives.
Another factor to this system of payment is that it has a limited supply. While flat currencies have no limit to the circulation of money being distributed since more can always be created, Bitcoin is tightly controlled by an underlying algorithm. A small number of new bitcoins trickle out every hour, and will continue to do so at a diminishing rate until a maximum of 21 million has been reached. It further provides a form of semi anonymity and immutability (they cannot be reversed). While most traditional forms of electronic payment are identified (for verification purposes or to comply with legislation) since there is no central “validator,” users do not need to identify themselves when sending bitcoin to another user. Although today there are methods to identify people due to further network transparency.
However, it goes without saying that Bitcoin has served as a front for the payment of criminal activities. Finally, it provides divisibility. The smallest unit of a bitcoin is called a ‘satoshi’. It is one hundred millionth of a bitcoin (0.00000001) – at today’s prices, about one hundredth of a cent. This could conceivably enable micro transactions that traditional electronic money cannot.
While Bitcoin has evidently shown to be a convenient alternative to flat currency (it is one of many types of cryptocurrencies out there such as Ethereum), it is not without fault. It has seen a staggering rise in value over the years and likewise huge declines. Its hyper inflationary design feature has made it dependent on outside more stable currencies such as that of the dollar which serve as units of account. Yet through all this investors have been pouring in funds to procure Bitcoin as it speedily becomes the next best alternative.
Keeping all this in mind, it becomes very clear as to a question which lingers in many people’s heads: Does Bitcoin actually have a political purpose? It might seem ironic considering the creators made it with the intention to break from the formal grasp of a centralized economy, but as Sarah Jeong argues, this supposedly stateless currency is far from apolitical in nature. She notes that from the start Bitcoin has always been an evolving and distributed ‘constitutional’ project with goals and visions.
In her interpretation of this new movement, she believes that those who champion Bitcoin all have a political agenda; be it to oppose the existing state laws or declare solidarity to a new community rooted in technology and the internet. Her underlying notion: its advocates show a vested interest in creating a mechanism to stabilize the currency and make it a viable unit of account.
The anarchist and libertarian leanings of Bitcoin users occupy all points of the political spectrum. Jeong is suggestive of a variety of types of people; those who might seek to overthrow the government or some who aim to decouple the money from the Federal Reserve. These admittedly are quite harsh ends of the spectrum and are not representative of the average bitcoin user. However they are indicative of the possibilities. For the average user Bitcoin represents the creation of an insular community that rebels not through violence but through retreat. Its idea of semi anonymity is equivalent to evasion of the state. She argues that some see it as emblematic of anonymous political speech vested in limiting the power of exchanges i.e. bring it out of the shadows of sovereign currency by focusing on fixing its hyper deflationary and volatility issues. To idealize this, consider how Bitcoin has become a mere transaction system. Its overall value is pegged on the US dollar; hence people invest and buy in the hope to sell it back for more value. Given its volatility, vendors who do accept Bitcoin depend on exchange entities to stabilize their profits or immediately try and cash out. It in essence is more predictable to transacting parties who rely heavily on exchanges and escrow mechanism to stabilize how they come out.
She boldly states that it is an anarchic constitutional project. Although there is no attempt to build a state through sovereign fiscal activity the very retreat from the ideas of a state through Bitcoin and its outright opposition to it is itself political. Just by simply utilizing Bitcoin you are indirectly asking questions which underline the whole point of its creation: Is taxation necessary? Is a sovereign government necessary for money?
“Bitcoin Is Rapidly Becoming Mainstream.” Pastemagazine.com, Paste, 3 Nov. 2017, www.pastemagazine.com/articles/2017/11/bitcoin-is-rapidly-becoming-mainstream.html
DeDeo, Simon. “The Bitcoin Paradox – Issue 55: Trust.” Nautilus, 14 Dec. 2017, nautil.us/issue/55/trust/the-bitcoin-paradox
Jeong, Sarah, The Bitcoin Protocol as Law, and the Politics of a Stateless Currency (May 8, 2013). Available at SSRN: https://ssrn.com/abstract=2294124
“What Is Bitcoin?” CoinDesk, 29 Jan. 2018, www.coindesk.com/information/what-is-bitcoin/