Cryptocurrencies and Corpocracies

Cryptocurrencies are not libertarian. To be sure, aspects of cryptocurrencies, and the blockchain technology on which they are built, resonate profoundly with the libertarian ideal, but the resonance of one’s soul with an idea does not engender the resonance of theory with reality.

When I wrote my essay, “Cryptocurrencies are not Libertarian” (I’m not very good with names), I made three arguments: 

1. While the value of a cryptocurrency, and its issuance, are not controlled by the state, this is not dissimilar to how ‘traditional,’ currencies already work. The value of floating currencies is already determined by markets, while issuance is partly the result of fiat money mechanisms. Furthermore, this infrastructure minimises the role of any individual. 
2. Cryptocurrencies are not as anonymous as cash, for any transaction is recoded on a publicly viewable ledger. Further, the benefit of anonymity in terms of data protection and preserving freedom of choice are better achieved by the existence of a legislative body that can exercise power over bad actors and protect individuals. As such, anonymity is a false prophet telling a bad story. 
3. Where anonymity may be valuable is in protecting those who are performing illegal acts, or acts deemed damaging to authority. Yet, in such scenarios, cryptocurrencies serve only as tools to facilitate activities, and the real libertarian debate is around the prohibiting of activities. We should not conflate cryptocurrencies as tools with the political question of the legal authority of states.

I maintain cryptocurrencies are not libertarian. But the belief, which I might call myth, that they are is not only dangerous insofar as it captures the minds of those of a particular political persuasion in the same way gold does doomsday preppers. More subtle dangers exist; dangers which, to be sure, exist whenever new technology grabs hold of enough people’s imaginations. The danger is appropriation.

Appropriation

Reading Evgeny Morozov’s The Net Delusion, one could be mistaken for thinking the whole point of the book is to attack the foreign policies of (Bill and Hillary) Clinton, Bush and Obama. At times a slog, the premise of the book is rather simple: the power of the internet could be utilised by the bad guys as much as it could by the good.

For Morozov, the West’s reliance on the idea that the internet would supercharge the voices of dissidents and freedom fighters is folly, and almost predictably so. Dictators and totalitarian governments possess the raw force and infrastructure to assert their authority on the ground and invest in building up their authority online. While journalists and activists are given a platform to share their ideas, and while this surely annoys those they are attacking, the impact can be minimised – if not eliminated – by an army of bots, entertainment content and surveillance strategies. While the internet gives everyone a platform to speak, it is still hard and soft power which determines who is heard.

Might cryptocurrencies suffer the same, appropriated fate? I think so.

Now, the possibility of cryptocurrencies becoming dominated by states, totalitarian or otherwise, is not enough to support the claim cryptocurrencies are not libertarian. Equally, and by the same logic, the possibility of cryptocurrencies, either presently or sometime in the future, being libertarian is not enough to argue that they are. The internet, on paper, is a wonderful tool for the liberation of oppressed peoples, and for some it will be. But every opportunity to liberate is another opportunity to oppress, and oftentimes this is the case.

Cryptocurrencies may be – relaxing some arguments – a tool for liberation from various economic systems (if this is the argument you want to make, I will not stop you. My comment here is still, however, rather critical. Most people who make this argument seek only to re-forge the present economic system, rather than engaging in the more interesting question of how the technology can radically design the way we do things), but they may also be tools for the crystallisation of economic systems.

We do not know what will happen, because – as many in the cryptocurrency community are wont to tell disparagers – the technology is so new and dynamic. But let’s take a lesson from the internet, and indulge some fortune telling.

In my essay, “A Modest Proposal for aNew Social Media,” (again, I’m bad with names, and not being self-referential, apparently) I argued the future of social media will be one that integrates cryptocurrencies. This was to be a solution to an agency problem arising from the semi-unilateral harvesting and profiting off of data (semi-unilateral because a) it is necessary to provide data to use the site, and thus consent becomes a dubious thing, and b) your individual data appears meaningless when combined with millions of others’, but it is the uniqueness which gives the data value).

The idea was as follows: the social media site has a cryptocurrency, and each user receives a small payment in this cryptocurrency for engaging in content with the platform, such as liking a post, commenting, status updating, and providing basic personal information. The site would have basic currency sinks to regulate the economy of the coin (like selling personalised emojis, banners etc.), but would also have a shop where users could buy discount codes used for real-world purchases. For the provider of these codes, they would receive invaluable user data; the social media site would receive a share of the transaction when the code is used; and the user would receive payment for the ‘sale,’ of their data. (For the record, I think this would be a cynical way of fixing social media and our relationship with data, but I also believe this is a very doable and – somewhat lamentably – appealing idea to both regulators and Silicon Valley bosses)

Is this a realistic prediction of the future of cryptocurrencies? I am confident when I say this prediction will be inaccurate in several areas; there will be a revenue stream missing from the concept, or a transaction stage, or something inane like that. But is this prediction wholly unlikely? I think not.

We already know, for example, Facebook is planning to launch a cryptocurrency, possibly as early as this year. Amazon already has a token of sorts with Amazon Coins, and for sites like YouTube a cryptocurrency payments system could be an effective way of encouraging content creators without relying on advertisement revenue. Services such as Uber and AirBnB could surely leverage the advantages of cryptocurrencies too, and for many investors in the technology, this is very much something they hope will happen. But for libertarians, is any of this good?

Metallurgy or Alchemy?

In Adam Smith’s the Wealth of Nations, the process of coinage is discussed a lot. It’s an important discussion, because for Smith – whose book concerns wealth – knowing what money is, where it comes from and why it means anything are vital questions. Many libertarians like cryptocurrencies because they don’t come from a central bank or government; the price is determined by the market, of which they are a part; and the supply is limited to the amount that has been ‘mined,’ at any one time. Ultimately, when considering libertarian ideas as a nexus of power, no single authority has absolute control over a cryptocurrency.

Of course, ‘traditional,’ money used to have a similar laisse faire approach. When coinage was as much about weight and purity of metal as it was about the ability to transact with it, anyone with a sufficient quantity of silver or gold could produce their own money, and this would be essentially as valuable and useful as money produced by a central authority. And they did.

The economic problem – or benefit, if you are of the libertarian persuasion – with this, of course, is power. The person that owns a lot of gold has a tremendous amount of power over the state apparatus, and if many gold-owners get together, they can completely diminish the power of the state. For the state, it is better to use its authority to outlaw the private manufacturing of money and purchase raw materials for coinage. In effect, the state assumes the monopoly of coin minting, and all the economic power that comes with it. (For the gold-owners, it should be said, they benefit too, by – for example – having a state apparatus that guarantees the value of the money in their pockets and saves them the effort of turning all their gold into coins, before convincing others their coins are worth using as currency. In effect, the state can make markets through its perceived legitimacy which individuals cannot – again, this is a key reason why cryptocurrencies aren’t all that libertarian)

Importantly, what’s being described above is the process of monopoly formation that can arise in any unregulated market. The emphasis on money, rather than any other, ‘good,’ is that money is present in every market. The authority to issue money, therefore, extends to the authority to enable the formation of markets in other areas.

The word corpocracy is often the reserve of science-fiction writers. It refers to a system of government where a person’s rights and liberties are a function of their wealth and ownership; rather than one person, one vote, it’s one share, one vote. The natural rise of companies to supranational size invokes, at least for me, imbues thoughts of corpocracy. Likewise, Leigh Phillips and Michael Rozworski’s book the People’s Republic of Walmart emphasises how modern corporations now rival states in terms of power and resources (and, they argue, this undermines the free market idea that centrally planned economies cannot work).

Quite what the libertarian view on corpocracy is unknown to me – modern libertarianism often seems more about doing what one likes but presently cannot do than it is about critiquing whole systems of power which its anarchist cousin does excellently. My gut instinct, though, would be opposition; the rule one share, one vote, necessarily deprives those with no shares of any right to vote, which is wholly non-libertarian. Maybe we mandate everyone has a single, unsaleable share, but isn’t the mandate of unsalability itself non-libertarian? Quickly, one ends up walking around in circles, so let’s return to cryptocurrencies.

The hypothetical social media site has a monopoly on their cryptocurrency, and by extension determines the value of all data, and all things in their marketplace. Imagine if we decide 1 like is worth 1 unit of our cryptocurrency. Why? Who says our likes are worth that much? And if so, why is sharing something worth, say, 2 units, or a comment worth 3? And why is the discount code I so desperately want worth 1,000?

Facebook will never pay users in pounds or dollars for their likes and shares, because that places the value of the data they want into a medium they do not control, and it is control that is the true value of the cryptocurrency, and indeed, of money generally. Similarly, Facebook will never allow you to sell your tokens for real-world money, for that would imply an exchange value and produce the same problem. They may, however, allow you to buy their token for real-world money (this may also imply an exchange price, but here Facebook controls the supply of the token; previously they do not) or trade your token for other tokens, say Amazon’s token. Such partnerships seem likely, firstly as a way of avoiding anti-trust laws, and secondly as a way of leveraging advantage: Facebook doesn’t know anything about the logistics which would be involved in a storefront, just as Amazon doesn’t know anything about social media; together they would be an extremely powerful online entity. (For the record, in my original essay, I specify some user-specific algorithm would be used to determine the value of a given person’s like, so that they could only ‘game,’ the system in a way that is beneficial to the site. For example, if I like 100 things, the value of my like falls, but it falls less if I have 1,000 friends rather than 10, and so on)

Do cryptocurrencies lead corpocracy? That question has two answers. As above, the future of cryptocurrencies is undetermined, but the myth of cryptocurrencies being libertarian and transformative may lead to us blindly allowing the appropriation of cryptocurrencies in ways that are wholly non-libertarian. This doesn’t have to happen, but early signs suggest it is.

The second answer is no, but corpocracy does necessarily require control of the means of exchange. The one share, one vote definitional slogan can be extended to a great many other things, including rights, and when the power of a share is elevated so much, it seems natural that shares become the means of exchange. In the sci-fi corpocracy, shares are essentially cryptocurrencies, but cryptocurrencies go one step beyond shares. Shares represent ownership, and so for shares to be used as a means of exchange, owners must necessarily reduce their ownership to supply liquidity. Cryptocurrencies, with no ties to ownership, demand no such thing from shareholders.

My fear of writing a dystopian nightmare

For a corpocracy to genuinely form, monopolies must be allowed to form, and a means of co-opting the means of exchange must exist. I do not believe corpocracy is our future, but just as democracy moves through shades of freedom, so too will corpocracy move through shades of reality (if not capitalism).

A problem with economic ideas is they often become characters in stories; capitalism is the tentacular plague that seeks to dominate people’s lives; OR communism is the tentacular plague that also seeks to dominate people’s lives. Neither capitalism nor communism are conspiratorial characters, and likewise, the motives of the powerful in any society are not quite so explicit as we might imagine them to be from a distance. The rise of corpocracy will not be a conspiracy to undermine democratic liberty and entrench the abstract concept of power in fewer and fewer hands; but corpocracy does highlight the ever-present tension between capitalism (or perhaps scarcity) and democracy.

For those invested in cryptocurrency (literally and ideologically), there is not enough criticality of what the technology will evolve into. Instead, there is simply the belief that evolution is always good. Equally, I think, for those who disparage cryptocurrencies, too often too few people ask the question, “but what if what I think doesn’t matter?” Cryptocurrencies, like the internet, and like many transformative technologies, will reveal societal tension which will demand a deft hand to navigate. The myth of libertarianism will leave this role vacated and old authorities will appropriate the benefits of the technology for their own means, just as the myth of liberation left many dissidents out in the cold while totalitarians appropriated the internet for their own advantage.

The point of this piece isn’t to attack cryptocurrencies, or the people involved with them, nor is it – as the subtitle suggests – to write a dystopian nightmare. Really, it’s to ask a question: if cryptocurrencies aren’t libertarian, what are they?

Cryptocurrencies are not Libertarian

Introduction

Beyond all those discussions which confuse or concern the financier and bemuse or excite the speculator, the prevalence of opinion that cryptocurrencies are a vehicle for the libertarian’s dream seems to be a point of great consensus. However, I contend, with little abstraction beyond ordinary observation and the same liberal thinking that should be familiar to my adversaries on this account, that the belief that cryptocurrencies are libertarian is in fact a myth; the victim of a miasma of technological optimism and general ignorance that accompanies any assessment of that which is new and unknown.

My arguments, and the structure of this piece, follow in what I believe to be the most logical order. I will begin by addressing the most common point of contention: that cryptocurrencies, being decentralised and anonymised, embody and facilitate libertarian values significantly more than traditional currencies might. I dispel this first argument by pointing to the benefits of cash.

This, of course, invokes retort in lieu of financialization and an increasingly cashless society. In such a world, I confess, there may be benefits to cryptocurrency; but only insofar as anonymity is concerned, and not as regards centralisation. Here, I argue, the general ledger system of cryptocurrency is simply a parallel of online paper trails which may be generated via online financial systems and offers little new to the individual. Further, I contend, the lack of transparency that may be associated with the creator of a cryptocurrency, compared with levels of transparency that may be found in a company or a government, serves as a further libertarian deficiency of cryptocurrency.

Finally, I address the silver bullet that is anonymity. Whilst I will not attempt to refute the claims of anonymity in this piece, I will argue that the libertarian’s placing of importance on the matter of anonymity demonstrate their misplaced concerns, with the regulation and legality of that which any currency might purchase, rather than the currency itself, being the correct target for libertarian efforts.

It is my sincere hope that the logical progression of my arguments might be ascertained from the above; certainly, it is my hope that by the end of this piece, irrespective of one’s opinion on the validity of my arguments, the process of these arguments’ development is clear.

Groupthink on Value

The state is the easiest enemy of the libertarian to identify. This, of course, is a simplification – if not an error – with entities such as the state being used to supplement more abstract ideas in layperson discussions. Yet, with the state more often than not cast as the enemy in libertarian discussions, it is the term I use here.

The libertarian benefit of cryptocurrency in the first degree is that the value and the issuance of units of value – namely the cryptocurrency – are not controlled and regulated by the state or similar financial institutions such as a central bank. Insofar as the things I have read and the discussions I have had, I have been left wondering why such a feature is exactly a benefit of cryptocurrency from the perspective of the libertarian; yet, given some thought, I propose two ideas.

The first is that a cryptocurrency not produced by the state, but rather legitimised via individual consent, may insofar as the philosophy of human value is concerned, better reflect the value of a given individual. Let me explain: irrespective of any labour theory of value, if the return to the worker in terms of a wage is denominated in a currency whose value is only acknowledged and guaranteed by the state, then the worker may feel like their value added due to their labour is detached from themselves. If the end product of labour is owned by the capitalist, and the return to worker is only valuable pending the approval of some entity other than the worker, what immediate role might the worker be said to have beyond being that of a puppet whose strings past from one set of hands to another?

The contention we might make in defence of the libertarian nature of cryptocurrency is that no entity such as the state or the central bank exists to give value to the cryptocurrency. Rather, the value of the cryptocurrency is determined – besides the costs of producing the currency – solely by the attributing of value by the holders of the currency. Our hypothetical worker, in a world where they may choose in what currency they received their wage, may be said to exhibit more liberty over their labour as it is their advocation of the value of the currency – much as they might advocate the value of their labour by pointing out the quality of their work – which gives the currency value.

The second, though only subtly different, argument that I suggest is that a cryptocurrency represents a choice on the part of the individual, rather than an imposition. In whatever country a citizen lives in, baring the rare exception, we citizens have never been consulted on what currency should be commonly used. We have not been asked what the currency should be called, what assets might back it, at what rate it should be exchangeable with another currency, and for what it should be exchanged and by who. This list is not exhaustive. Like a great many things that come to form the state – what we oft call institutions – we are born into them, with little individual power to really change them. Insofar as this might frustrate the libertarian, cryptocurrency perhaps offers a solution, if only for a small part of a larger structure, as they can choose almost all aspects of a cryptocurrency. An individual can be the creator, the central banker, the account manager, the publicist, etc. of a cryptocurrency, and regain some of that liberty that, if we are honest, was dubiously lost in the first place.

Yet I lament to say these supposed benefits offer little more than a perception of enhanced liberty, and, in actuality, demonstrate little difference between crypto- and traditional currencies. My primary point of refute on both charges is that the mechanism by which the state deems a currency to be valuable is identical – practically speaking – to how an individual deems a cryptocurrency valuable.

The question of what a state is is beyond the scope of this piece; it is sufficient enough here to say a state is an identity which a large enough number of people subscribe to such that – if this identity were to be challenged – the constituent parts could defend in one way or another their advocacy for that identity. The provision of defence is necessary for this point, for it is what we might call the weight or the clout of a state which allows the value of a currency to become accepted and maintained despite the objections of any given individual. Indeed, we need not consider a state, but simply two individuals, to understand this concept. The value that the owner of an item assigns to that item can be any value they choose. Yet if they desire to convert that item into another item of the same value, they must find other individuals who are in possession of the desired item, but who also acknowledge the value of the owned item.

In other words, whilst the individual might desire and – in isolation – be able to prescribe a value to themselves, their work and their possessions, it is only through the acknowledgement of value in such things by others that gives those items any semblance of objective value.

In both benefits, whilst an individual may feel a sense of liberty from choosing to use a cryptocurrency over another unit of value, there is no legitimate claim to the individual giving it value. Instead, the individual must rely on others to recognise the value of the cryptocurrency in much the same way a state gains the legitimacy to guarantee a currency. I dismiss any arguments of subjective value: should an individual be able to survive based on their subjective valuation of things alone, then there is logically no need for a cryptocurrency, and thus no benefit to be gained, as that individual is already master of all that which they require, and may – it is hoped – always be able to strike a deal with oneself on the price of a good.

If these are the only benefits, insofar as libertarianism is concerned, that can be gained from the decentralised structure of cryptocurrency, then I must conclude presently that cryptocurrencies offer no libertarian benefit as they, as with traditional units of value, demand the acceptance of value from others. One might, I concede, gain benefit from the feeling of choice that cryptocurrencies allow – ignoring the lack of markets where cryptocurrencies may actually be used – yet I contend that few individuals would find such feelings satisfying when faced with the reality of a valueless asset.

Considerations of cash, credit and consent

We shall return to arguments of state and decentralisation. It is now I would like to turn -  having established the commonality of traditional currency and cryptocurrency in terms of value – to a discussion of anonymity and cash. This argument, I believe, is a very simply one.

Whilst I cannot deny the anonymous nature of cryptocurrency, I feel compelled to defend traditional currencies against the claims of the libertarian that traditional currencies may not be similar. Let us make one thing clear; insofar as there is any substance on the matter, my decision to enter a store and purchase an item with cash preserves my anonymity. Should such a purchase be performed on credit, this statement is disputable, yet I will address such a dispute shortly.

First, however, it might be argued that my statement is false as there are repercussions to my purchasing an item with cash that do in fact infringe my anonymity. Is it not the case, it might be supposed, that my anonymity is tarnished by those who see me entering the store; by the shop workers who facilitate my purchase; by the cameras that capture my image and store it for as long as interested parties desire? I cannot deny these activities as being necessary for any purchase to occur; but let us think rationally.

The concern over cameras, for example, is an issue of liberty, but it is not one that concerns the means by which I purchase an item. For the libertarian to take aim at the cash in my pocket, rather than the surveillance utilised by others, is to mark such a person as senseless in their priorities. Of course, there remain others who might identify me in the process of purchase; who might destroy my anonymity. To this point, I feel compelled to express sympathy to any person who imagines this to genuinely be a problem worthy of concern. Is not the alternative – again, irrespective of the currency used – to be a hermit, to hide away in self-imposed isolation such that some mystical notion of anonymity might be preserved? Is it not a foolish admittance of desperate anti-social behaviour to argue the witness of others threatens one’s anonymity, and thus strengthens the libertarian claims of cryptocurrency? I think so.

What might strengthen these claims, I do admit, is if such a purchase is done on credit. Before all else, it is necessary to explain why such a method may infringe my anonymity. To this point, I offer a discussion of consent. By virtue of it being necessary, I consent to the shop worker participating in any purchase I make from the store; further, in keeping with the values of individual liberty which any reasonable person will accept, I accept the reality of others seeing me when I make me way to and from the store; and I consent, as part of my obligations to purchasing an item from a store, to be photographed and recorded doing so. Even if questions of consent regarding these issues may still be raised, for the sake of our present discussion, let us allow for my consent on these things to be given actively and unquestionably.

To what activities do I consent to my credit card company doing with my purchase information? Let us be sensible: I consent to their handling of my money, requiring access to my financial information and knowledge of with whom I am transacting; I consent to their sending me billing information so that I might pay the costs of the service, and as such I consent to their having my address and again access to my purchasing information; and, by the act of being a customer, I consent to whatever fees are associated with their service.

I do not necessarily consent to a stranger, an individual at the credit card company, looking at, analysing or wantonly distributing my purchase information. Further, I do not consent to the company holding my data forever. These are valid points, and in establishing the boundaries of consent in any transaction, we might begin to see how cryptocurrency purchases may diminish the opportunity for our consent to be violated – for our liberty to be preserved. It stands to reason, therefore, that any libertarian benefit of cryptocurrencies must improve on the weaknesses of credit cards by – in my simple analysis – keeping my data private, even from the eyes of those who handle the data, and by keeping no record of my purchase, or at least a record which I control.

Those who are familiar with blockchain technology must acknowledge, either partly or wholly, that cryptocurrencies do neither. Let us consider the latter point first. Blockchain technology records the transactions between parties of a particular cryptocurrency in an online, distributed ledger. It is not possible, and would certainly undermine the innovative thinking behind blockchain, if a transaction could be removed off the blockchain. Whilst my credit card purchase might eventually be deleted off the company’s system or diminished within a literal paper trail of historic transactions, the blockchain ledger remains. One might argue the anonymity of a posting to the blockchain invalidates this point – indeed, at this time I have no rebuttal which I would dare to call strong – but one also cannot deny this is a weak defence of the spirit of libertarianism, predicated only on the infallibility of online anonymity.

The spirit is weakened in another regard: the blockchain is publicly visible. This is a necessary part of maintaining the sanctity on blockchain transactions, one that promotes transparency and which I applaud. Yet, when compared to my credit card transaction which could only be seen by those who had access to such data at the company, the spirit of anonymity, or the spirit of individual privacy, seems to me so much more publicly exposed by cryptocurrencies than alternative technological methods. In actuality, this claim might be dubious; but in actuality, again, one must surely see that the two methods are more similar than they are alien. If one is a panacea to a libertarian crisis, then is the libertarian not twice cured? If one is not, surely the libertarian is still sick?

But, allow me to interject one final point before moving on. I have offered the state as the enemy of the libertarian, though I have done so acknowledging this is an over simplification. As such, let us now complicate it: are not the issues of consumer rights regarding credit cards, of data access and distribution and security and so on, are those concerns not countered by state legislation? Legislation which, less we forget, does not necessarily exist with cryptocurrencies. From the simplified perspective of libertarianism, I agree this makes cryptocurrencies more libertarian; but even the famed liberal John Stuart Mill, and a great many critics thereafter, acknowledge that some legislation and regulation may actually preserve and enhance liberty! Such laws as govern the treatment of consumers and their data give me confidence to use credit cards, allowing me – through such use – to exercise my liberty. It is not my contention, but it should not go unsaid, that concerns regarding the security of cryptocurrencies may infringe a person’s capacity to exercise their liberty.  Such a thought requires addressing by those advocates of this whole libertarian affair.

Returning to question of state

The above is perhaps a preamble as to what I would like to discuss now. Partly as an aside, but yet I hope soon obvious, is mention of the irony that so much surrounding cryptocurrency seems to be applicable to that old adage of two sides to every (bit)coin. We have seen it above, to various degrees, be it the similarities in value mechanisms between traditional and cryptocurrencies, or – as I would contend – the false positive claims of greater liberty through reduced regulation.

These debates, these positives and negatives and the ensuing tug of war for argumentative dominance are not surprising when we consider that questions of liberty are messy, if for no other reason than perspectives bend and break, switch and grow, and what one might consider perfectly acceptable, another considers abhorrent, and so on. Nothing is new here, though I remind the reader the state most often is the subject of many disparaging remarks in these debates. I speculate, if I might for a moment, that this is because – almost ironically – the state is the great unifier; the omnipresent other of which we all know intimately, and yet inevitable feel detached from. Perhaps, I suggest, even those individuals who find great strife with one another may unite against the state should it attempt to deny the warring peoples their strife.

Above, I offered the state a reprieve. I now offer it another. A strong, positive argument for the proliferation of cryptocurrency is improved transparency. Ignoring the distant laughs of tax authorities and criminal enterprises, the blockchain does seem – at least theoretically – to promote transparency of exchanges even if the exchangers remain anonymous. Compared to the great behemoths of the state, of central banks and the financial industry more widely, we should acknowledge the beauty of the blockchain idea.

It is necessary, however, before proceeding, to clarify why the question of transparency is crucial to the libertarian debate. First, liberty insofar as the natural sciences allow, and its denial, requires someone to deny said liberty. One can deny their own liberty but may just as easily reclaim it; it is only through the interaction with others that a person’s liberty may become diminished. Secondly, I would argue that any interaction with another in some way reduces a person’s liberty, be it through violence or obstacle or the then-established prejudices of another, the initiation and continuation of a dynamic with another reduces a person’s liberty (it may, of course, enhance their liberty. My point should focus more on a person’s changing sense of liberties; where one door opens, another may close. That person is not necessarily worse off than they were previously, but they are changed, and insofar as they don’t want to be changed, as they desire to return to a time without the bonds of this connection, they are left stranded. More, of course, could be said of this issue, but it is not the intention of this piece to do so). This though, is not necessarily a matter of moral repugnance. If the reader will recall, I may consent to the restriction of my liberties to assume various benefits from compliance, or to adhere to my own beliefs. Considering all these things, it follows that the entity which seeks to deny us of liberty must be sufficiently transparent for us to consent or reject the entity. This notion, loosely, is an abstraction of the Rawls’ (1971) publicity principle, an idea previously considered by Kant.

Now we may return to cryptocurrency. Cryptocurrency, it appears to me, solves the transparency problem by claiming to remove the second party – the party that is necessary to deprive a person of their liberty. Supposing this is the case, it is easy to see why many would call cryptocurrency a libertarian tool. Similarly, considering the bureaucracy of state – indeed, the very existence of the state! – those same individuals will surely argue that centralised institutions are abhorrently opaque, and thus fail a test such as the publicity principle.

I have demonstrated above, in regard to data security, evidence of this flawed thinking. I now offer my retort to this accusation directly. To do so, I ask a simple question: how might one be anonymous, and yet transparent? For all the rhetoric that may surround the state or private banking institutions, let us not forget we know who they are. I can, should my dissatisfaction become so great, change my bank, vote out my representatives, or indeed move to a different country entirely. I can write letters to CEOs and politicians whom I am disgruntled with; I can hold protests and write essays exclaiming my frustrations; I can, if I want, even challenge directly the positions of those individuals with whom I am so irate.

It is an insufficient argument to say that the state or a bank is too large to surely know which specific individual it is that is violating my liberty at that moment, for such a grievance may be handled in a manner that is sufficient simply by knowing the party or the bank with whom this individual is associated. Can I do the same with cryptocurrency? I cannot.

Whilst I can access the blockchain and perhaps see evidence of market manipulation, I cannot see which person or organisation is behind it. Whilst I can know exactly how much of a particular cryptocurrency has been mined, I cannot petition more to be realised, as I might be able to petition a central bank to increase the money supply. Note the difference: I need not know the person who operates the printing presses at the Bank of England for my concerns to be discharged at the bank generally; but given the nature of cryptocurrencies, my screams may echo into the aether. This is liberty, but only nominally. This is transparency, but only technically.

This argument is perhaps the beginning of my attack on the claims of anonymity, but I would rather consider it a defence of the merits of the state, of which I would hope any wise libertarian would acknowledge there are. If this argument feels detached from the rest of this piece, that is unfortunate, but perhaps inevitable. Let us turn, therefore, back to the claims of anonymity once more.

The correct target

In my introduction, I described anonymity as the silver bullet of cryptocurrency, a feature which serves a purpose and fulfils a promise of the technology that no rival has come close to dislodging. The promise of anonymity, insofar as the libertarian is concerned, is panacea, for it offers the chance for the individual to do whatever they like and not suffer the consequences of these actions. It is now, therefore, that we must address criminal activity.

Let me be clear here: it is not the purpose of this piece to levy a moral judgement on such activity beyond that which all civil society must surely agree is repugnant. As short commentary on this matter, I see no point in debating the content of this piece with that person so fanciful of the doctrine of libertarianism that they might permiss those activities that bring harm to others. This is not a clear line, as any scholar of the harm principle will know; but I take solace in the belief that at the extremes the colours are less grey. It is the person whose colour is much distinguishable from grey, and much the opposite of the average person’s, to whom I address my repugnance.

The anonymity of cryptocurrency enables individuals to purchase a whole range of illegal products and services online. By doing so, these individuals seem to circumvent the laws of society and insofar as libertarianism advocates the liberty of all people, this feature of cryptocurrency certainly seems initially to be libertarian. There will be, of course, those libertarians that do not support this argument; those who argue we should be granted maximum liberty within the confines of the law, law which exists for a valid reason. I recognise this perspective, despite having never myself met a libertarian who did not advocate some adjustment of the law in one way or another, and for this I am glad. Just as those who might permit repugnant acts in the name of libertarianism ignore the wider debate of what should and should not be legal, so too do those that only challenge liberty within the confines of the law, and do not push for debate – all be it from the opposite direction to their counterparts.

At present, I feel I am offering a reasonable defence for the libertarian nature of cryptocurrency as it allows individuals to interpret the grey areas of legality safely – by which I mean anonymously – which I will not deny may have benefits. But this, I contend, is actually a great weakness of cryptocurrency as a libertarian tool, and the impetus for the invalidation of anonymity as a worthwhile feature.

Remember the cameras. The anonymity of cryptocurrency is only necessary when pertaining to the purchase of illegal items because such items are illegal. If those items were legal, the narrative reverts to the isolated hermit terrified of the world, less common sense be allowed to take over. Anonymity as a feature is a result of the illegality of some items that may be purchased. As such, I suggest it is not libertarian to tout cryptocurrency as a libertarian tool; the liberal activity is actually the debate surrounding the legality or illegality of those items being purchased. Recall our discussion on the merits of cash; my purchasing from a store may just as well have been a purchase of illegal substances. Should I be caught, justice – rightly or wrongly – will be levied not on the means by which I purchased those substances, but on the act of purchase and possession of those substances.

It is thus the debate about the illegality of the substances that is relevant to the libertarian and should be the target of their efforts. Cryptocurrency, beyond the benefit recognised above, merely serves as a substitutable method amongst many others, and should not in und itself be considered the focus of libertarian attention.

But there is a further point to be had. The great defence of cryptocurrencies as being anonymous and thus libertarian crumbles when we realise that anonymity is only relevant when it comes to the purchase of illegal items, and in all other cases, be it the charge of transparency or of value, anonymity is perhaps harmful to the libertarian cause. Of course, I do not seek to belittle the debate; I simply charge libertarians with identifying the wrong area of debate – not the currency, but the item for purchase.

Let us debate the illegality of various things but let us simultaneously relegate cryptocurrencies to the realm of simple units of value. Let us not place anonymity on a pedestal, for anonymity – when necessary – may be found in all currencies and is only necessary in almost all circumstances when they facilitate the purchasing of illegal items. Anonymity is not a feature that should be touted and, insofar as questions of liberty are concerned, anonymity offers little practical benefit.

Concluding remarks

It is easy I believe to take the remarks I have presented here and see an author wholly opposed to cryptocurrencies. I am not. But, with an arrogance I fear has pervaded this piece, I charged some readers with ignorance at the start of this piece. I am surely ignorant also.

However, on this matter I stake a defence. Cryptocurrencies are not libertarian. This does not mean they detract from the libertarian cause, and it does not mean I am opposed to them outright. On the contrary, throughout this piece I have argued the features of cryptocurrencies often mimic that of regular units of value – a strategy I would contend may facilitate the widespread adoption of the technology.

But in far too many discussions I have heard this rhetoric repeated: cryptocurrencies have many libertarian advantages over traditional units of value. I hope I have conveyed to you why this is false:

1. As a means of value being determined, multiple people must agree on a value; as such, the individual is not free to set the value;
2. Cash is insofar as it practically matters as anonymous as a cryptocurrency;
3. Where credit is concerned, blockchain creates a record of transaction that – at least in spirit – fails to differentiate cryptocurrencies and credit;
4. Anonymity shrouds cryptocurrencies in shadows, making adherence to the publicity principle difficult and diminishing the individual’s power of objection;
5. Anonymity is only necessary for the purchase of illegal items, with such items being the true centre of any libertarian debate, rather than the means of purchase

In writing this piece, other ideas came to mind. But I feel, in one form or another, any objections that I presently have the power to predict may sufficiently find redress in the content of this piece.

If I may repeat myself once more: I am surely ignorant also. There is not a semblance of belief in my mind that I have the vision to imagine the future of this technology, nor the cognitive power to predict all the nuances attached. I only levy this one charge, based on the content of this piece: cryptocurrencies are not libertarian.

The Colour of Bitcoin

Stock markets tend to go up at the end of the year. Quite why this happens isn’t all that obvious, but it may be fair to say even stockbrokers feel the holiday spirit once in a while. The fact that stock markets tend to fall slightly in January and February may also be testament to this – I mean who likes January?

As much as it is a novel trait, it is dubious to impose such a trend onto the virtual currency market. Throughout December Bitcoin has been on a generally upwards sloping trend, with the new price heights the currency has reached bringing to the fore, quite prominently, concerns of a bubble. The trouble with virtual currency, unlike say, the dotcom bubble of the late nineties, is that virtual currencies are not simply new investment products within a new technology (almost like tech shares in the new online space), but possibly a catalyst – or at least a necessary tool – for the emergence of a truly digital economy. And, further, as regulators around the planet have been slow to act, the conditions surrounding the growth and innovation of the industry remain unbounded, and thus – apparently – unpredictable.

But the dotcom bubble is vitally important to remember in this discussion, not just because it was a bubble, but because it was a bubble formed within unexplored horizons. It is fair to look to dotcom when pondering the future of virtual currency. However, I aim to argue within this short piece that whilst the parallels between the current virtual currency market and previous bubbles exist, the likes of Bitcoin and others pose a unique challenge that warrants perhaps more concern than it is receiving.

How many sides to a Bitcoin?

To start, we must consider the two conditions of the most popular virtual currency, Bitcoin, that affect its would-be viability as a ‘real,’ currency.

The basic philosophy of a virtual currency is the philosophy of all fiat, namely that something has value because people believe it has value. I, amongst others, would suggest a thing only has value at the point it is used in the exchange of goods, which is to suggest money in the bank, or indeed your pocket, is only worth something when someone is willing to take it in exchange for an item you value (for the purposes of simplicity, I am ignoring the consideration of the value derived from a thing’s potential to be transacted, which I do believe is a form of value also, and I have written about previously). Given this proposition, I would suggest Bitcoin, with few entities accepting it as valid payment, has no value. Yet this argument is plainly void, and not really of concern here.

The immediate concern is of utility, namely a currency must be able to be utilised in order to have value. People may believe Bitcoin is worth several thousand dollars, but my point of contention would be it is worth dollars. Until there is an active trading market for Bitcoin, by which I mean you can buy and sell things in Bitcoin, the value of Bitcoin must always be determined as the value of an alternative, utilisable currency. Bitcoin in itself has no purchasing power. If one wanted to see a sign of a bubble, I would suggest mass investing into an item that in itself cannot be utilised for any valuable purpose is one, for the emperor most certainly has no clothes in this regard.

The second condition, much more unique to Bitcoin than a ‘real,’ currency, is the ability to mint more of it. There is only so much Bitcoin in the world, just as there are only so many dollars or pounds in the world. Yet tomorrow the Federal Reserve or Bank of England could choose to print more of their respective currencies. This would incur inflation, and impact confidence or alter interest rates. All of these things would impact the exchange rate, which is essentially the metric we are using to value currency (a weakness of the point above – Bitcoin must be valued against another currency, for the value of one unit of currency is meaningless without comparison. The point above is more trying to suggest the consequence of purchasing power, namely that Bitcoin has none, and thus its value might only be reflected in the dollar’s purchasing power). Of course, part of the appeal of Bitcoin and other virtual currencies are the absence of central banks and governments, in what some will surely see as a truly democratised currency. Yet without the ability to create more Bitcoin, I suggest Bitcoin is identical in substantive terms to gold.

Gold, just like Bitcoin, holds no intrinsic value in und itself. Nor will a shop keep accept a bar of gold or a transfer of Bitcoin, instead preferring the dollarized value. Finally, and returning to the point, there is a finite amount of gold on the planet, just as there is a finite amount of Bitcoin left to be, fittingly, mined. The consequences of this perspective are interesting – it may bring calm and alarm to the current situation. Calm as the volatility in the price of Bitcoin is similar volatility that has been seen in the price of gold for centuries, and thus we might question whether recent events are really a cause of concern. Alarm, because it means rather than betting on the future, as some Bitcoin speculators surely think, they are essentially betting on the price of gold and hoping – through the sheer act of betting – that the price rises. In short, and irrespective, the nuance is lost.

Not the same story

Of course, the parallels between the dotcom bubble and golden Bitcoin also exist. Ignoring some important considerations such as voting rights and dividend pay-outs, Bitcoin, gold and stocks might be grouped similarly, all owing value, but value found through conversion. Indeed, in a discussion with colleagues regarding the vast increase in the number of ICOs, the dotcom bubble was raised in the following context:

perhaps there is a bubble, and many of these coins are worthless and will be swept aside. But companies such as eBay and Amazon were born in the days of the dotcom boom. Right now, people are simply looking for the Amazon of virtual currency, whilst aware many more will fail.

The above is paraphrased, but the point remains clear. However, my issue with that line of thinking is it is too simplistic. Whilst accepting a bubble exists, the search for the Amazon of virtual currency assumes that the currency exists to be found. I would argue we cannot find hope in virtual currency in the same way we found hope in the late nineties because that assumes the likes of Bitcoin does something fundamentally different to, say, Ethereum. After all, Amazon did not survive whilst others failed because of random chance – they survived because they were better than their competitors.

If confidence in the virtual currency market is lost, just as in the days of the dotcom bubble, the loss will affect every currency. Some will argue that, within the coding of various coins, exist tangible features that enable them to rise above the rest. This may well be true, but until the market exists for these coins to be utilised, and thus these features’ benefits demonstrated, the differentiating factors are irrelevant. At least with a company like Amazon (in its early days) one could at least test out their recommendations service, even if they remained sceptical of the viability of the actual company. Currently, there is no logic in thinking the emergence of a bubble in virtual currency is just the same economic natural selection in progress. I suggest this is because our way of thinking about virtual currency is profoundly flawed.

Who are we betting on?

Why does the dollar exist? I’m sure there is a complicated historical reason, but the pragmatic answer is the nation of America required a currency for the purposes of conducting trade between themselves and others, just as the British did with the pound or the French with the franc. The currency existed not for its own sake, but because the country that backed it (with gold, most prominently) and utilised it existed. That concept of country was itself backed by the intangible sense of nationality, and the more tangible threat of firepower. Another question to consider is why did the dotcom bubble occur? One might find emphasis in the bubble part of that question, but fundamentally the dotcom bubble occurred because the internet came into being, which facilitated the creation of online companies.

For the most part, the trading of a currency is not the trading of a country, just as the dotcom boom was not about betting on the internet itself, but about betting on entities being founded in the online space. Colonisation may also be considered – the territory colonialists sort to settle was never in question; they were gambling on their ability to settle.

Really, beyond the question of is there a bubble in Bitcoin, and beyond the technical conditions that distinguish and make interesting virtual currencies, is what is the point of virtual currencies? We already have a largely online banking system, whilst the internet remains without sovereign status and the very real power of nuclear weapons protects the global financial order. To answer this question, I am going to move away from some of the metaphysics discussed above, and explain why I believe the question must not concern whether there is a Bitcoin bubble, but rather whether there is a much more explosive fragility in the virtual currency market itself.

The real problems of virtual currency

The rise of virtual currency is found in its alternative name – cryptocurrency. It is no surprise that the transactional market for the likes of Bitcoin stems from its use in the anonymous purchasing of illicit items. This aspect is, on the one hand, a criticism in itself, and on the other, a point worthy of praise – in the age of big data, with the need to ask questions about who owns our personal data, and the anonymity of cryptocurrencies may be a valuable tool in this area. It is not the purpose of this piece to argue for one hand over the other, though I do confess as an answer to my rhetorical question, “what is the point of virtual currency,” anonymity may serve as a valid reply.

But today, anonymity seems only a point of technical excitement for those in developer circles, and unable to explain the cacophony of speculation that surrounds Bitcoin’s December ascendance. Instead, I want to again consider the paraphrase above, as well as the novel story of the Ice Tea shop that increased its value massively simply by adding ‘Block Chain,’ to its name. A quick Google search will show that 2017 saw a meteoric rise in the number of ICOs (initial coin offerings), ranging from obvious jokes to serious propositions. And, importantly, the money generated in these offerings is real, and for some extremely large. This practice of rapid production for quick public offering does and should raise echoes of the dotcom boom or just a classic bubble, but unlike the dotcom boom there is a much more pressing concern – who is issuing these virtual currencies?

Just like the Ice Tea company (cynically) leveraged the furore surrounding block chain technology for profit, so too will celebrities leverage their fame to make a quite buck. Unlike the sale of shares in a company, or the entering of a loan agreement, or even the good faith transaction that occurs via crowdfunding sites, the launch of virtual currency comes with no obligation on the part of the issuer to honour or maintain the value of the currency. And, though the same could be said with a share issue, there is at least the acceptance of risk on the part of the shareholder that their investment may lose value. When we mentally evaluate virtual currencies, there is a danger we think of the purchasing of Bitcoin simply as a currency transaction, with no evaluation of risk because the cash in our wallet does not (often) become worthless overnight – why would the cash in our virtual wallet do anything different? (I don’t really want to talk about all of this here, but I think a mention of how the industry is branded and marketed is important. Calling virtual currency portfolios wallets as opposed to accounts, for example, associates the ‘investment,’ with something innocuous. Similarly, the presentation of trading websites, with an emphasis on user friendly access – not in itself a bad thing – should raise the alarms of a bubble. When something complex is sold as something simple, mistakes will happen)

But celebrities may simply operate on the periphery. Companies might choose to raise capital via a coin offering in the knowledge that they as the issuer have no obligation for the performance of the currency there after. If these offerings were then used in share buybacks, as has been the habit on Wall Street in recent years, we would see a massive and baseless shift surrounding corporate wealth. This, of course, ignores the fragility that is unearthed when considering the issuing of virtual currency by corporations – what happens to the value of all other virtual currencies when Google, Facebook or Apple engage in their own ICO? For virtual currencies, where value is derived entirely from the confidence people place in them, the above companies will certainly command a great deal of confidence – and belittle others as a result. Further, when these companies issue coins whilst retaining data rights to the coin’s ledger, they cement their monopoly positions, and destroy the benefits of anonymity. For those that praise the anonymous aspect, they must become aware of this. For the technologists that presume virtual currencies to be inevitable, they must re-imagine their paradise with various corporate logos.

Finally, we must consider the role of countries in this emerging market. As it stands today, when a country wishes to borrow money they issue gilts on the bond market, and repay those gilts in accordance with the conditions of – what is essentially – the loan. My question would be when will we see countries engaging in the virtual currency game, again, for the same benefits as those of already discussed? The phenomenon would, essentially, be the same – the leveraging of perceived prestige and security to create confidence in the ICO, only for it to be discovered later that neither the prestige nor the security are part of the deal. It is here we find another point of contention.

That same idealistic technologist mentioned above may well retort to much of my criticism that once the digital economy has fully developed, with the transactional capabilities of say Bitcoin proven, the problem of the reliance of confidence will be absolved much like the fiat nature of many ‘real,’ currencies is accommodated already. But, I argue, there are two fundamental problems with this logic when we introduce corporations and countries as players into this market. The first is that, in order to reduce their exposure and protectionist burden towards a virtual currency, a country might actively discourage the integration of that currency as a part of the economy. The second, and I suggest more realistic response, will be extremely tight regulation of virtual currencies such that the benefits are maintained for the issuer and not for the holder. In this new, imagined digital economy we must question whether it remains a free market economy.

Regardless – and I do believe the above rhetoric is weak – it would be a mistake to assume our current currency structures, which have developed over centuries, will immediately make the leap into the virtual world.

The involvement of nation states into the virtual currency market is not fantasy however, and I believe is much more inevitable than many realise. The primary example currently is Venezuela, which finds itself in the mists of economic turmoil. With an economy dependent on oil, and many traditional lines of credit unavailable to the Venezuelan government, the talk of an ICO for the country has been making the rounds. Some will argue this is merely a conflagration of headlines – on the one hand Venezuela’s crisis, on the other hand Bitcoin’s ascendancy – turning into an idea that will never actually come to fruition. I argue otherwise. If we are to believe virtual currency and the fully realised digital economy are inevitable, we must look to the game of empire played centuries ago by the world’s leading super powers to see they will either forge the path, or be left behind. Whilst nuclear missiles and battleships might ultimately maintain the dominance of the dollar, those same resources will, I believe, ensure a similar power for America’s eDollar.

In many ways, for the purposes of advancing the digital economy and maintaining a certain level of financial stability, the involvement of nation states into the virtual currency market may be the best outcome. Yet, assuming my prior cynicism is unfounded, that surely means the benefits of decentralisation and anonymity currently enjoyed by virtual currencies will be lost, in which case I return to a previous question – what is the point?

Conclusion

To conclude, Bitcoin is quite clearly in a bubble at this moment in time. But this bubble is not the serious point of contention when we consider virtual currency. As I have argued, the problem with virtual currencies is that they are masquerading as real currencies, with no sovereign state nor regulation to maintain their value – only confidence. I suggest confidence is a dubious thing, and I believe I make a compelling argument in comparing the investible nature of virtual currency to the investible nature of gold. I also dismiss the claims that the current virtual currency market is simply the re-imaging of the dotcom bubble by pointing out that all virtual currencies suffer from the same flaws, and thus the emergence of an Amazon of virtual currency is a fallacy position.

I believe absolutely that virtual currencies are here to stay. Really, this is why I believe governments will end up embracing virtual currencies, rather than persisting with the current policy of reactionary regulation. And despite my apparent tone in places, I do not dislike them.

However, I believe in the same capacity that we must – as a society – debate the role of big data and social media from a health and liberty perspective, so too must we approach virtual currencies with caution. I remarked above that the bubble of Bitcoin has formed in the unexplored horizon of virtual currency; I am not the first to make the parallels between the American Frontier and the digital economy. But the Frontier eventually met the Pacific Ocean, at which point consolidation, integration and regulation of the territories was vital to ensure prosperity. We must do this now with virtual currency, though the decisions we make will fundamentally influence the shape of the digital economy, and who holds power in the digital economy. It is futile to argue about a bubble in Bitcoin – whether it explodes tomorrow or not is irrelevant, virtual currencies are here to stay. Let’s accept that fact, and have a much more profound discussion about what we want this technology to be.