Rather than liberating people from big banks and regulators, Bitcoin reproduces present inequalities, says Andrew Smart
Last year was the year that Bitcoin went mainstream. Everybody in San Francisco and Silicon Valley is talking about crypto. There’s Litecoin, Ethererum, Ripple, Monero, Bitcoin Gold and countless other “coins” that are built on top of the original Bitcoin technology. On the fringes of the tech world, murmurings of cryptocurrency have been going on for a long time. But like using PGP encryption to send emails and documents, cryptocurrency remained an obscure hobby for cybernerds, and of course drug dealers and human traffickers. The famous Silk Road anonymous online marketplace – where you could buy banned drugs and pretty much anything illegal – relied heavily on Bitcoin because it is untraceable and you don’t have to trust any third parties or even the person paying you: Bitcoin automates trust.
You have surely heard of Bitcoin mining. Mining Bitcoin is simply using your computer’s CPU to “mint” new Bitcoins to circulate. Mining a Bitcoin is the reward you (or rather your computer) gets for verifying other Bitcoin transactions. It does this by finding a “hash” code for the transactions – an unique identifying number. This is the same technique used for storing passwords, for example. But the reason it takes so much computing power is because your computer must use brute force guessing until it reaches a hash number that is less than or equal to the target hash number. Once it does that, the unique hash number associated with the Bitcoin transaction is added to the end of the ledger, or Blockchain.
In exactly the same way that computer processors in distributed systems trust each other using consensus voting, Bitcoin software uses a distributed ledger. When you get the Bitcoin software, your computer becomes a node in the Bitcoin system. Every transaction using Bitcoin gets recorded and copied to your computer, and your computer approves the transactions by agreeing that they’re real. This agreement from your computer gets broadcast to the rest of the Bitcoin network, and each node records this agreement. Thus, you can imagine Bitcoin as millions of people each having a paper accounting ledger on their desks that magically updates itself every time a transaction takes place. The transactions are anonymous with regards to the identity of the people participating in them, but each Bitcoin is unique and each time it is exchanged the ledger records it with a unique number. This is what is known as the Blockchain.
Just like with other types of money, elite institutions and people are attempting to hoard as much Bitcoin as possible
The utopian promise of Bitcoin is that it would eliminate the need for banks, government institutions, or even money itself, because trust and exchange are entirely automated and encoded in the distributed ledger. This has naturally attracted many so-called libertarians to the Bitcoin world who also happen to share many of the uglier aspects of libertarian ideology. David Golumbia, author of The Politics of Bitcoin: Software as Right-Wing Extremism: “What concerns me about Bitcoin is how it contributes to the spread of deeply right-wing ideas in economics and political philosophy without those right-wing associations being made at all explicit.” Indeed, Bitcoin may be the ultimate incarnation of an Ayn Rand society horror, where each atomised individual lives and dies by software. But there are those on the Left who also embrace Bitcoin’s seemingly liberating promise from the intrusiveness and scamming of banks, and the invasive government institutions who wish to survey our every move. However, it seems that, just like with other types of money, elite institutions and people are attempting to hoard as much Bitcoin as possible. And thus Bitcoin seems poised to simply reproduce or even exacerbate the vast inequalities already present, not liberate the little people from the fetters of government currency, big banks and regulators.
And whether Bitcoin is truly bulletproof from hacking is controversial. Several famous hacks of different exchanges have occurred and there are still many deep security issues with the automated trust systems. And for Bitcoin to gain wide acceptance as a medium of exchange it must make the arcane technical knowledge required to even understand what a Bitcoin is, simple and accessible to a broad audience. However, in a generation we might all be zapping each other, Bitcoins from our phones rather than our credit cards, and for all intents and purposes this might not feel all that different. The question will be as always, who controls the levers? Who has hoarded the most? These are not technological questions but social and political ones. There may be no technical solution to capitalism.
This piece appeared in Idler 59, March/April 2018. Buy a copy here.