Is Bitcoin the Future of Money?
The political cast of the Bitcoin universe is mostly libertarian, but it does have a left wing. These users celebrate Bitcoin’s evasion of state surveillance and policing—which, in the post-Snowden era, is nothing to sneeze at.
Take sex workers, often subjected to outrageous degrees of scrutiny. A Marxist-feminist professional dominatrix who practices in Britain under the name Mistress Magpie is an enthusiastic Bitcoin proponent. She explains her enthusiasm as beginning with her deep techno-geekiness, and adds that Bitcoin is also practical for someone in her line of work—anonymity is important, whether operating in real life or online. Unlike libertarians, who see cryptocurrencies as a possible gateway to a new society, the socialist in Mistress Magpie sees them as a way to operate furtively under capitalism, in a way that might not be needed in a more open socialist society. Even for her, though, Bitcoin doesn’t go far—the majority of her clients are not well versed in digital currencies. Furtive payment is also good, of course, for drugs and other illegal procurements—a sort of anarchic market operating beyond regulation. Though the FBI shut down Silk Road, the online mall of illicit goods, its offspring live on. A friend whose politics are well left of center—and not unusually anti-statist either—loves that he can pay for DMT (a short-acting hallucinogen) using bitcoins in an encrypted transaction.
Apart from anonymity, though, it remains difficult to see what problem Bitcoin solves for people with left-wing politics. The switch to paper money was a response to the crisis of the old gold-centered system, and Bitcoin has managed to replicate many of gold’s bugs with few of its features. Leaving aside the entrepreneurs and speculators, who are simply looking to get rich quick, the political vision of Bitcoin is of a decentralized, stateless world with competing money systems.
Competitive currencies that would end the state’s monopoly over money have long been a dream of the right. In a 1976 paper, Friedrich Hayek argued for allowing multiple currencies to circulate within individual countries; competition would lead to the use of the soundest—meaning most austerity-friendly—currency and put a check on the attempts by governments to inflate their way out of trouble. That would mean no fiscal or monetary stimulus in an economic crisis—just let things run their purgative course. In this view, the New Deal lengthened the Great Depression; had the bloodletting continued after Roosevelt’s inauguration, things would have righted themselves sooner or later. And we should have done the same in 2008 and 2009. Cryptocurrencies would be an advance over the idea of competitive currencies—improvised money systems that could challenge the state monopoly itself.
There are big reasons to think, however, that neither Bitcoin nor any of the myriad cryptocurrencies emerging online will ever pose a serious threat to the state monopoly on money. In the nineteenth century, the United States did have competing currencies: all kinds of little banks issued banknotes that often turned out to be worthless because they were accepted only within a small radius and weren’t actually backed by anything. Some Bitcoiners drag this out as a worthy precedent anyway. But Bitcoin could never establish itself as a currency in any serious way without regulation and some sort of insurance scheme, because investors and consumers would not trust substantial savings to it. But were Bitcoin to legitimate itself through regulation and become a serious money, it’s impossible to imagine that states would tolerate it for long. It would be simple to outlaw cryptocurrencies, enforcing a ban at the point of conversion from state money to cryptomoney without attempting to crack the coin’s infinitely complicated algorithm.
Bitcoiners share with other hard-money proponents a fear of inflation and financial collapse. But there is no inflation, and government money has proved far more stable than its alternatives, either gold or Bitcoin. No bank deposits were threatened during the financial crisis of 2008, because they were FDIC insured; you can’t say that about Bitcoin in its short life. But libertarians—and there are a lot of them in tech and finance, the two parents of Bitcoin—are always worrying about inflation. They worry about it the same way that hedge fund titans see talk of eliminating their tax breaks as a rerun of Nazi Germany.
But maybe I’m just bitter. I bought 0.05 bitcoin on February 5 for $39.72. As of April 24, it was worth $24.79—down 38 percent. Some bulwark against the irresponsible state.
Read Next: Doug Henwood on “How the 1 Percent Rules”