Cryptocurrency: Revolutionary or Reactionary? By: Francis Hayes

9/6/2021

Cryptocurrency: Revolutionary or Reactionary? By: Francis Hayes

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In 2008, an anonymous paper was released through a cryptography mailing list entitled Bitcoin: A Peer-to-Peer Electronic Cash System.1 Under the pseudonym Satoshi Nakamoto, the unidentified author(s) fused together a myriad of known cryptography and consensus algorithms in novel fashion in order to create a decentralized electronic currency.

Since the inception of Bitcoin, there has been a steady climb of intrigue towards Bitcoin and blockchain, the name of the technology underlying bitcoin, from regulators, industry, and speculators. The key promise Bitcoin makes, and which makes it novel, is the notion of consensus.2 In other words, how do all parties using Bitcoin come to an agreement on the true state of things. In the context of paper banking, we have institutions that mediate and resolve these conflicts through banks and courts. But if we no longer have these centers of authority to look towards, how can we reach a conclusion as a collective?

The solution Bitcoin uses is a game-theoretic approach known as Proof of Work (PoW). In PoW, computers compete to be the first to solve an arbitrary computationally difficult problem. The first to solve this problem gets rewarded, and they become the ones to introduce the next block (a set of transaction data and metadata) onto the blockchain. The logic is that, since solving the problem expends a great deal of energy, and since there is no guaranteed reward for expending that energy (being the first to solve the problem is not necessarily deterministic, it is probabilistic in nature), then it deters malicious actors. Furthermore, if honest actors in the blockchain network disagree with the block that is added to the blockchain, they can ignore it, and the creator of that block will not be rewarded. Put simply, there are high costs and little incentive associated with putting false transaction data on the blockchain.

There are a handful of issues with this solution. Bitcoin has come under criticism due to the large amount of electricity it requires to sustain itself, even more electricity than some countries utilize.3 Larger companies have set up warehouses filled with specialized compute hardware in order to more effectively mine cryptocurrency, driving up the costs of Graphical Processing Units in particular (although many cryptocurrencies now require application-specific integrated processors in order to be profitable). The more compute hardware you have, the greater likelihood you have to be the one to create the next block and receive the next reward.

Ultimately, capital plays a major role in determining the “truth” of the blockchain. Those with more capital are able to buy more computing hardware, and thus they will have the greatest say in the state of the blockchain, and will also receive the greatest rewards. So in essence, there is little difference from a PoW blockchain and the current workings of capital. The main difference is that money itself becomes depoliticized. No longer are politicians and regulators determining the supply of money. It is now a deterministic, algorithmic approach presiding over the economy. This divide applies both domestically and abroad. The technical and infrastructural disparities between the global north and global south would be reflected in the distribution of cryptocurrency. The global north would use its capital to access greater computational resources and have more control over the global economy as their wealth increases.

Other solutions have been introduced to alleviate some of the issues of PoW, but they fall into similar traps. Proof of stake (PoS) is one popular approach. In PoS, tokens are “staked” to determine the next block on the blockchain. In other words, those maintaining the blockchain will bet their capital on the next block they think will be chosen, and the block that gets chosen is the one which more capital is bet on.4 So those with greater amounts of capital once again have a greater opportunity to control the notion of truth in financial transactions, simply by means of having more capital.

The Sublime Token of Cryptocurrency

In Zizek’s The Sublime Object of Ideology, he introduces the notion of the sublime object, with money as the leading example:

Here we have touched a problem unsolved by Marx, that of the material character of money: not of the empirical, material stuff money is made of, but of the sublime material, of that other ‘indestructible and immutable’ body which persists beyond the corruption of the body physical…5

We as subjects are able to recognize money as a sublime object. We also recognize the role that institutions play in the shaping of our economy. Thus, we still point to institutions when contradictions, failures, or catastrophes occur within the cracks of contemporary capitalism.

Instead of pointing to these institutions, or instead of pointing to natural substance such as gold, Bitcoin points to a digital void. What we are left with is an essentialist view of the market as a natural principle. In this sense, we further abstract the Marxian notion of (commodity) fetishism. Not only do we obscure social relations through the exchange of money for commodities, we now abstract the relation between our social relations and the conception of money in itself. Zizek identifies the “invisible” nature of digital currency prior to Bitcoin’s popularity:

When, in a decade or so, money will finally become a purely virtual point of reference, no longer materialized in a particular object, this dematerialization will render its fetishistic power absolute: its very invisibility will render it all-powerful and omnipresent.6

Here, Zizek’s analysis is correct, but still grounded in contemporary banking and financial systems. It could not predict and account for the disembodied nature of cryptocurrency, a notion even more powerful than simply the dematerialization of money — it can be seen, in a sense, as the dematerialization of institutions (banking, finance, contracts, etc.).

Cynicism and Conspiracy

A key concept from a Zizekian point of view is the use of cynical distancing, for the scientific modern subject to act out their fantasies and appear post-ideological:

… the prevailing ideology is that of cynicism; people no longer believe in ideological truth; they do not take ideological propositions seriously. […] Cynical distance is just one way — one of many ways — to blind ourselves to the structuring power of ideological fantasy: even if we do not take things seriously, even if we keep an ironical distance, we are still doing them.7

The exchange of cryptocurrencies such as Dogecoin, a mock cryptocurrency, are drenched in layers of satire. Even so, many speculators are getting involved in trading these tokens due to their high volatility and high reward potential. Non-fungible tokens (NFTs) are the worst offender of cynicism. In the crypto-sphere, NFTs are tokens provided as proof of ownership of some digital asset such as an image, and their authenticity is maintained by a blockchain. In 2021, NFT sales have topped over $2 billion dollars. Elon Musk has best exemplified this cynicism through a variety of self-aggrandizing acts, frequently promoting Dogecoin and NFTs.

Another silicon valley technocrat, Jack Dorsey, has been in the news for his support of Bitcoin and anarcho-capitalism. Recently, he has tweeted “#wtfhappenedin1971”9 — a reference to a website with anarcho-capitalist leanings that blames the issues of the US economy on Nixon’s decision to leave the gold standard. This seems to be fetishism at its most severe. Money, once it becomes fully digital and the “last traces of its materiality disappears,”10 it paradoxically becomes a virtually-material substance. A talk given at Bitcoin 2021 best summarizes this view:

“When you own bitcoin you own the thing, you have a claim to the thing. That is what cash was supposed to be to gold.”11

Is this not simply the search for greater meaning, and a failure to acknowledge the social role of money? To avoid identifying money as social, it becomes naturalized as a mystical thing, just as in commodity fetishism. The thing stands in as a representation of a hidden substance contained in an object, which Marx identified as human labor. Here it is clear that the libertarian view can not properly historicize the events following the Nixon shock, thus, there is a quick move to project this gap in their ideology to a positive object, in this case gold, to explain the crises of late-capitalism.

Liberating Potential

In Karl Marx and the Blockchain, Basu and Gabbay argue that Blockchain in its current state is a utopian pipe-dream, however, they recognize the potential of the technology to relieve some of the contradictions Marx pointed out:

There seems nowhere to turn, the system is wobbling, and the key component of trust in that system, is ebbing away.

If so, then this is an arc which Marx predicted. The endpoint of his prediction was a social collapse which may yet happen, and (so the fear) we may be trapped on this trajectory by an economic logic which we struggle to escape.

[…] Next to this, cryptocurrencies promise a way out which is not obviously any more crazy than anything else, and this is why Bitcoin has bounced back from one disaster after another and why research and investment continue to flow to blockchain tech, trying to make it work.12

Their analysis is fairly reasonable as they identify the need of democratization in order for cryptocurrency to succeed, pointing out that “this democratization and diffusion is likely to change the tech beyond recognition.”13 While there is potential in the original ideas proposed by Nakamoto, it will require great effort, research, and collaboration to change the form into one that can be used in a truly egalitarian way.

I can’t help but think of Jodi Dean’s notion of communicative capitalism, the contemporary form of neoliberal capitalism in which the internet has combined individuality, liberal democracy, and capitalism into a body which suppresses collective action and desire, particularly with an emphasis on the commodification in communication systems.14 There are parallels that can be made here as well. The decentralization of the economy may simply be a parallel to that of our forms of communication, in which every individual can broadcast their ideas to the internet. Though Bitcoin and other cryptocurrencies are often represented as a game-changer, they are ultimately just a shift in form as capital transmutes and finds new ways to sustain itself. As the pseudonym Satoshi Nakamoto points to a void, an empty signifier, a non-person — so too does Bitcoin point to a void, a depoliticized hierarchical currency, with no anchoring body. In order to truly break free from unnecessary hierarchy, we must continue to fight for radical egalitarianism, leveraging technological advances, while not being dependent on them as an easy solution.

Notes

1.     Satoshi Nakamoto, “Bitcoin: A Peer-to-Peer Electronic Cash System.” 2008.
2.     For more information regarding the problem of consensus, see Leslie Lamport, Robert E. Shostak, and Marshall C. Pease, "The Byzantine Generals Problem." ACM Transactions on Programming Languages and Systems 4, no. 3 (1982): 382-401.
3.     Cristina Criddle, “Bitcoin consumes ‘more electricity than Argentina.’” BBC. February 10, 2021. Accessed August 21, 2021. Retrieved from https://www.cnbc.com/2021/04/13/nft-sales-top-2-billion-in-first-quarter-with-interest-from-newcomers.html. Accessed August 21, 2021.
4.     Vitalik Buterin, and Virgil Griffith, “Casper the Friendly Finality Gadget.” 2017.
5.     Slavoj Zizek, The Sublime Object of Ideology (Verso Books, 2009), 9.
6.     Slavoj Zizek, In Defense of Lost Causes (Verso Books, 2017), 35.
7.     Zizek, The Sublime Object of Ideology, 30.
8.     Robert Frank, “NFT sales top $2 billion in first quarter, with twice as many buyers as sellrs.” CNBC, April 13, 2021.
9.     Retrieved from https://twitter.com/jack/status/1426892980749848579?s=20. Accessed August 21, 2021.
10. Zizek, In Defense of Lost Causes, 302.
11. This talk occurs at Bitcoin 2021, a conference promoted by Bitcoin Magazine. Video retrieved from https://www.youtube.com/watch?v=nxX-90cz9aM. Accessed August 21, 2021.
12. Devraj Basu, and Murdock Gabbay, “Karl Marx and the Blockchain.” 2020, 10-11. Available online at https://arxiv.org/pdf/2007.13346.pdf.
13. Ibid.,16.
14. See The Communist Horizon by Jodi Dean.

Author

Francis Hayes is an activist focusing on international relations, development, and technology. Francis has a Master's degree in Computer Science with a focus on social data mining.