Last week, the LSE ran a lecture titled: “Cash: the future of money in the bitcoin age“. There were a number of speakers – but I was blown away by Professor Nigel Dodd‘s segment on Bitcoin and monetary pluralism. So much so, in fact, that I spent my weekend transcribing it. Here is the long-form quote:
Good evening everyone
And thank you to the LSE Law Department for inviting me, a sociologist from another planet (as you’re about to discover) to this event.
Before I go on, I’d like to enter some caveats:
- I am often sued when I talk about bitcoin and gold – but I’m in a lawyers’ convention so surely that’s not going to happen.
- Bitcoin is one of a wide and diverse range of cryptocurrencies. 1,322 are currently listed on coinmarketcap.com.
- Those who use Bitcoin are not a homogenous group.
- Some of the most useful and exciting features of the blockchain technology that underpins Bitcoin are not about money at all, but have other uses in fields such as law.
- Bitcoin itself is money in a somewhat limited way because it is most widely used as a financial asset – as we see with the price today – not as a means of payment.
Then a note of caution about me. As a sociologist of money for a long, long time now – it’s a curse – I’m interested in the social underpinnings of Bitcoin and similary cryptocurrencies, and in technical questions only insofar as they have social consequences. So I won’t be talking about the forking debates or about many of the other arcane questions that Bitcoin geeks like to discuss. And I won’t be offering predictions about the current price spike nor about the prospects for Bitcoin Cash. Finally, although I have plenty of critical things to say about the discourse around Bitcoin, I’m not a hater. I have thoroughly enjoyed Bitcoin prove a lot of people wrong so far, and long may this continue. I have 15 minutes, I will make 15 points. I’ll start with some fast headline points and then I will try to develop an argument.
Point 1: Bitcoin is a techno-utopia.
It seems a futuristic utopia (or dystopia, of course) without politics and inefficient or corrupt institutions [with] their irrational and flawed decisions. Above all, many Bitcoiners associate the currency with the betterment of society. At stake here are four very seductive ideas:
- First, the Bitcoin network is decentered and flat, with no hierarchy, no single point of authority and, above all, no State.
- Second, Bitcoin offers reliable technological solutions to key problems of monetary governance such as inflation.
- Third, Bitcoin dispenses with the need to trust others, whether they are experts, politicians or ordinary people.
- And fourth, Bitcoin is debt-free money, just like gold.
But as I hope will become clear, the first three of these claims are probably wrong, and I fail to see what’s so great about the fourth.
Point 2: Bitcoin is backward-looking.
For all of its utopian properties, Bitcoin is much closer to the past of money. As an ideology, as a theory and as a philosophy, it is a throwback, a regressive step, almost a relic. You’ll see this case being made in what follows.
And of course, I’m trying to be provocative.
Point 3: Bitcoin relies on a flawed theory of money.
It treats money as a thing whose supply must be controlled in order for it to have value, rather than as a social process. It is also treats money as apolitical, and there is a fundamental contradiction there. Because:
Point 4: Bitcoin has politics.
While its advocates highlight the absence of hierarchy and authority, and the presence of distributed decision-making, in practice the currency is characterized by a strikingly high degree of political hierarchy and social organization. Technology cannot enact social organization on its own. As a form of money, Bitcoin has been sustained by sociological characteristics such as structure, leadership, hierarchy, trust, friendship and community much more than it has evaded.
This is surely no surprise to a sociologist such as me – my point is simply that the social reality of bitcoin is at odds with the theory behind it.
A system that originally appealed because of distributed qualities is in some ways rather centralized, which takes me to:
Point 5: Bitcoin has a social structure, with its own specific social inequalities.
This is partly about wealth concentration – Bitcoin’s 1% – and partly about mining. Bitcoin production is dominated by a very small number of mining pools. Indeed, the software favours the most powerful producers, and incentivizes monopolistic practices.
Point 6: Bitcoin is gendered.
Over 90% of Bitcoin users are male, although the number of female users is definitely rising. This is not simply about the raw number. As a social space, Bitcoin is heavily gendered. Women are often abused and intimidated, and a heavily sexist, anti-feminist rhetoric that tends to go unchallenged is not difficult to find on Bitcoin forums and other public platforms. We can discuss why this happens, but at the very least it demonstrates again that as a social space, Bitcoin is highly exclusionary.
Point 7: Bitcoiners are often (but not always) libertarian.
In practice you can find Bitcoiners right across the political spectrum, although more of them self-identify as libertarian or anarchist than anything else. What matters more, I think, is that Bitcoiners very often do have political reasons for supporting Bitcoin. Yes, they tend to be libertarian to right wing, and anti-State. But intriguingly, they are also often anti-Bank and anti-Financial Establishment in their political views.
Point 8: While Bitcoin is anti-social, Bitcoiners are social.
Going by its design, Bitcoin does indeed seem antisocial: the emphasis on a currency without trust, the reliance on technology rather than social organization. And yet in practice, Bitcoiners do communicate a lot. There are countless meetings and conventions, and a very active Reddit. So I would say that while Bitcoin as a design is inherently antisocial, I would not extend this to those who use it. Bitcoin may be a virtual currency whose production is carried out by a computer network; but those that use it often express quite a strong sense of collective identity. Far stronger, one might say, than one finds in the case of mainstream currencies.
Point 9: Bitcoin is primarily is a financial asset, and a highly successful one.
Is it Ponzi-esque? Bitcoin itself seems too old now to make this case, although there have been other similar currencies that do look a little bit Ponzi. But even though the price continues rising, there are obviously some serious problems connected with the exchanges, security, scaling and energy use – which nobody has mentioned yet.
I am in favour of polar bears.
Point 10: As money, Bitcoin sucks.
I guess this is the heart of what I need to say today. For a start, it is hyperdeflationary, and nobody wants to use a currency, surely, whose value either fluctuates wildly – as Bitcoin sometimes does – or rises inexorably.
Bitcoin can still of course be used with another unit of account, like the dollar, but this begs the question that I guess we’ll all want to talk about: “Why use Bitcoin as money at all?”
Point 11: Bitcoin has parallels with gold and appeals to money-users as a return to fundamental value, albeit it in digital in form.
While the comparison between Bitcoin and gold often focuses solely on price, there are some deeper connections. Like gold, Bitcoin supply is finite. I also think there may be a deeper yearning within Bitcoin (or the Bitcoin community) for more profound and stable forms of value in an era where value itself seems to have lost any anchorage in reality. The 2008 crisis was a crisis of fictitious capital. And paradoxically, Bitcoin appeals to some of its users as an antidote to this. Digital gold: only an improvement on gold, whose production is controlled by machines.
Point 12: Bitcoin is memory.
Used solely as distributed ledger that is effectively just a database, blockchain technology encourages another epistemological utopianism that goes beyond money. Contrary to the infinitely copiable world that plenty will associate with digital media, the blockchain makes finitude and singularity possible. From the idea that money is a thing, whose production can be regulated and controlled, through to the notion that each of our actions or transactions are votes: buying property, medical vaccinations, getting married, receiving a degree [are each] a uniquely verifiable event.
I am on the blockchain, therefore I exist. I am on the blockchain, therefore I am unique. I am on the blockchain, therefore (for lawyers, this one) I am beyond contestation. This may help to explain why:
Point 13: Bitcoin is cultish.
Blockchain technology tends to be supported with a quasi-religious zeal – I’m sure we’ll see one or two questions which demonstrate that.
The blockchain appeals not only because it can remember every discrete event within the network, but crucially because its memory is infallible (or is held to be infallible). The blockchain seems to promise a world of absolute certainty: Godlike guarantees, but no God.
Perhaps Bitcoin offers existential security during a post-value post-truth era. The conversation around Bitcoin is peppered with Biblical language: references to Old Testament version of the Bitcoin design; Roger Ver’s nickname is Bitcoin Jesus; comparisons between different protocols and the Tower of Babel (and we know how that ended); and of coure, Bitcoin’s so-called founder Satoshi Nakamoto is often referred to as the Bitcoin Messiah.
The latter story came to a head last year when a man called Craig Wright made the serious claim supported by a serious PR machine that he was Satoshi. This was merely one of a series of stories claiming to have discovered who the real Satoshi is. Craig, it turned out, was not the Messiah […]. What interests me is why it even matters: why a form of money that advertises itself as above politics, above people, above trust, and above organization, seems to be so deeply embroiled in its own origin story.
As I said earlier, Bitcoin is as much about looking backwards as about looking forwards.
Point 14: Bitcoin can be part of a diverse monetary ecology.
Bitcoin is both a symptom of increasing monetary pluralism in the advanced capitalist societies, and an embodiment of monetary diversity in its own right. Neither Bitcoin nor any other cryptocurrency will ever be our only form of money. What we are seeing now is the opposite tendency: towards monetary pluralism. The range of monies we regularly use is increasing. I think this is positive.
We can choose which forms of money we want to use according to convenience, taste, necessity or ideology. There are issues here, of course, when there are just too many forms of money. Money works best when we don’t really have to think about it.
But what I also see here is the more worrying trends, wherein there are closer connections between our money and our identity; between what we use money for and privately-owned data. Money is becoming a very powerful tool of surveillance. And because so many of us seem either ignorant of this or uncaring, I would like to see this acknowledged more openly and debated more rigorously. Who has access to our payments card data? And should this data be sold? Moreover, our formal legal identity as citizens is increasingly being anchored in our status as financial subjects. What I just said might be taken as an argument in favour of Bitcoin – and perhaps it is. But this brings me to:
Point 15: Bitcoin will not replace cash.
If Bitcoin offers an opportunity to use money outside the massive apparatus of finance and state surveillance, this is surely a good thing. But Bitcoin performs poorly as a means of payment – so this really would be a better argument for cash…
And I would like to end with this.
We are increasingly seeing confident predictions about the end of cash. In some countries, such as Sweden and South Korea, this process is well underway. But pause before celebrating. Cash tends to be used disproportionately by the poorest members of society, many of whom aren’t very appealing to banks, unless they can be charged distortionate borrowing fees. Should we be obliged to embroil ourselves in the banking system in order to be able to function in a practical sense in society – indeed, in order to be able to exist as citizens in society?
Debates about the future of money should not simply focus on questions of efficiency and convenience and regulation, but on the values and ideals that we associate with money. This is why I don’t really see the future of money as defined by Bitcoin – which not only replicates, but exacerbates, the self-same inequities of wealth and power that can be found in the existing financial system.
Bitcoin, and cryptocurrencies in general, are part of a diverse future of money. A pluralistic monetary system, where Bitcoin is used alongside cash, payments cards, local and community currencies, is likely to be more resilient, more open and more democratic.
Thank you very much.
Rolling Alpha posts opinions on finance, economics, and sometimes things that are only loosely related. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha. Also, check out the RA podcast on iTunes: The Story of Money.