Crypto Criticism, Part Two
Confronting the Left's negative critique of cryptocurrency
Critical Paths
In the last part of this essay, I considered a few of the main criticisms of cryptocurrency coming from the traditional Left. To review:
Leftists argue that cryptocurrencies are not actually a new form of money – a universal unit of exchange for purchasing goods and services – but mainly function as speculative assets that are highly volatile and prey to market manipulation, such as “pump and dump” and “rug pulling1” schemes. Leftists think that cryptocurrencies, in general, increase the “financialization” of the economy (the movement away from producing goods to trading complex financial products) as well as the privatization of public goods or commonly held resources. They believe these ongoing trends have caused negative outcomes over the last half century, such as Structural Adjustment Programs in the developing world and the 2008 crash of the global financial system.
Not just Leftist critics but critics from across the political spectrum — including both Hilary Clinton and Donald Trump – warn that cryptocurrency may disrupt fiat currency as money becomes privatized. The private creation of money-like tokens could lead to increasing wealth inequality as more people “invest” their money into crypto (or, in other words, get swindled by crypto scams). It could disempower governments without providing any better answer to our social and environmental needs.
Traditional Leftists (socialists and communists) believe that national governments should maintain control over the creation of money. Hence, the Leftist project should focus on reforming government, as someone like Bernie Sanders wants to do. Structural inequality can be addressed using traditional techniques like taxation – increasing taxes on corporations and the wealthy and then redistributing capital through social programs – or even reparations, where money is given to indigenous people and the contemporary descendants of former slaves, to ameliorate unjust legacies.
In The Politics of Bitcoin: Software as Right Wing Extremism, David Golumbia argues that the design of Bitcoin and other cryptocurrencies have an intrinsic Libertarian bias – that this political ideology is “encoded in the software itself.” Crypto is a way to avoid regulation and taxation, and ultimately bring down governments which, Libertarians believe, limit human freedom. Golumbia writes that Bitcoin’s core proponents seek an “anarchic apocalypse” to put governments out of business: “This, in the end, is the extreme rightist—anarcho-capitalist, winner-take-all, even neo-feudalist— political vision too many of those in the Bitcoin (along with other cryptocurrency) and blockchain communities, whatever they believe their political orientation to be, are working actively to bring about.” Traditional Leftists like Golumbia want a strong centralized State but one aimed at their goals: Wealth redistribution, demilitarization, protection of civil rights, and universal social programs.
Yet, in a country like the US, it doesn’t seem possible to overcome the entrenched inertia of the system, which is beholden to corporate power and the financial elite. The people no longer trust the government and seek alternatives. Out of frustration, many are embracing Right Wing authoritarianism. Any significant challenge to our current political-economic system must come from outside of it — from the private sector or from hackers in the tech world. Blockchain-based technologies can redefine the creation and distribution of both economic value and political power. Rather than rejecting them, we should use them to build something new.
Critics also note that Bitcoin and other cryptocurrencies are environmentally destructive. Bitcoin mining uses an incredible amount of energy – more than a country like Sweden, or more than all of the solar panels currently operating in the world. Bitcoin investors and promoters will argue around this point in a number of ways. For instance they will insist that the Bitcoin mining industry is somehow leading the way in accessing renewable sources of energy, such as hydro-power. But this doesn’t hide the reality of the ruinous impact of “proof of work” mining. All of the energy going into solving complex mathematical puzzles could be used, instead, for actual necessities, at a time when we must radically reduce CO2 output or face imminent planetary catastrophe. (Of course, some on the Libertarian Right still insist, all evidence to the contrary, that anthropogenic global warming is a myth or a Deep State conspiracy).
Ethereum is currently in the process of transitioning from “proof of work” to “proof of stake” mining, which requires far less energy. But this has not yet been accomplished. Critics such as Michel Bauwens and Alex Pazaitis, in a recent report for the P2P Foundation, argue that there are inherent problems with both modes of maintaining distributed ledgers: “Both proof-of-work and proof-of-stake protocols do not present fair mechanisms for the distribution of power in decision-making. Proof-of-work creates soaring demands in energy and processing power… proof of stake is explicitly based on ownership of stakes, which represents the outcome of the very same unequally-distributed underlying dynamics” found throughout Capitalism with its hierarchical power structures.
One of the main terms used to promote cryptocurrency adoption is “decentralization.” Yet critics argue that this ideal of decentralization is both a bit of a fraud and problematic in a number of ways. Some critics make an analogy to the way “democratization” was used to promote the adoption of Web2.0 technologies such as social networks and blogging. In the end, it is unclear if these tools have promoted democratic values. Authoritarian movements and regimes make effective use of them and appear to be growing around the world. Similarly, decentralization could easily lead to a recentralization, through Central Bank issued digital currencies or by other means.
Critics argue that promoting decentralization as a goal of the movement is misleading in a few different ways. One problem is that certain aspects of the creation and distribution of cryptocurrencies tend to become more centralized over time. For example, originally it was possible for individuals to mine Bitcoin on their personal computers. As the network grew, it required more computing power to perform its ongoing calculations. Bitcoin creation is now mainly done by a small number of huge, centralized mining operations who, presumably, have a great deal of influence over the network.
As ‘Amazon’s Server Outage Took Down a ‘Decentralized’ Crypto Exchange,’ an article from Vice reveals, many of the so-called decentralized tokens and exchanges rely on highly centralized infrastructure, such as Amazon’s Web Services (AWS). They are thus prone to failure or potentially can be targeted for attack. The article notes: “It's clear that the "decentralized" part of "decentralized finance" has a bit to go in some cases, and Amazon's cloud dominance is now pretty much a core part of the web, whether that's web1, 2, or 3. And that can cause all sorts of problems.”
While Blockchain-based cryptocurrencies are not as decentralized as they seem to be, they are also not devoid of internal political battles, which was supposed to be another selling point. Crypto-economics holds out the vision of a world where messy political contests are unnecessary because the purity of the code resolves such dilemmas. Yet in actuality, many cryptocurrencies reach points in their development where complex decisions must be made through traditional political means, with factions of stakeholders holding emergency summits and frantic Zoom calls to piece the thing back together.
Blockchain Leftism
On the other side of this argument, there are some who believe that blockchain-based innovations are necessary. They can reinvent our economic and political systems to be far more equitable and ecologically regenerative. A number of new projects are working in this direction. I will briefly mention a couple of initiatives here. I hope to look at these projects – among others – more closely in future newsletters.
P2P Accounting for Planetary Survival
This report from the P2P Foundation focuses on ways that blockchain-based technologies can be the backbone of a profound redesign of society. According to the authors, the current political-economy of capitalism combines “strategies of artificial scarcity and pseudo abundance in a way that increase[s] social injustice and inequality”:
The idea of pseudo abundance is based on the mistaken premise of infinite material growth on a finite planet, where natural resources are actually fundamentally limited. Artificial scarcity refers to the strategies that prevent the sharing of technological and scientific progress because of excessively restrictive intellectual property rights. A sensible alternative is, of course, to recognize the limits of what we can use from the world of nature, of which we are an intrinsic part, and to allow for the sharing of all knowledge that can contribute to living within the limits of this ‘biocapacity.’
Capitalism forces ongoing competition for survival that could have been made obsolete by now. Exploitation of natural resources, emissions of greenhouse gases and other pollution are turned into externalities outside of its financial calculus. Capitalism engineers artificial scarcity – of intellectual property as well as basic necessities such as housing, food, and healthcare – to perpetuate itself.
The solution to this, the report argues, is what they call: “Commons-Based Peer Production.” Our future should revolve around “a new mode of production and exchange, where communities create shared value through open contributory systems, govern their common work through participatory practices, and create shared resources that can, in turn, be used in new iterations.” This new commons-based structure, the authors propose, can be mediated by blockchain-based distributed technologies, or further iterations of distributed ledgers, such as Holochain.
The report discusses a number of blockchain-based projects that can support the transition to a new social model based on commons-based peer production. These include Envienta, FabChain, DAOStack, Faircoin, Trustlines, Regen Network, and so on. Such tools “emphasize the elements of openness and cooperation, keeping locally-determined socio-ecological conditions in mind, involving mutualization, circulation and reuse of resources and outputs in integrated systems.” The new systems of “mutual coordination” must take place within the limits of defined planetary boundaries, requiring a “planning framework” based on how much of a given resource can be utilized without causing long-term harm.
Holochain
One technology they point to is Holochain. I have been struggling to understand Holochain for a few years now. The authors of the P2P report write that Holochain “reimagines distributed ledgers altogether based on principles derived from biomimicry.” Rather than seeking to build a mathematically perfect structure that eliminates the need for trust between humans, Holochain applies the concept of a “web of trust”: “If A trusts B and B trusts C, then trust can be assured among all the peers.” Holochain “uses mutual credit as its main mechanism for exchange of value,” and seeks to limit the decision-making clout of big investors. Holochain, as I understand it, is not a blockchain technology but a parallel system designed in such a way that it addresses the Libertarian biases inherent in most crypto projects, including Bitcoin and Ethereum.
Proof of Humanity / Democracy.Earth
Proof of Humanity seeks to address one of the core problems of the Internet – in fact, the essential flaw that led to the current catastrophe in which corporations like Google and Facebook control our personal data and sell it to advertisers as their product. The problem is that the founders of the Internet didn’t develop protocols around personal identity. The original pioneers were scientists and engineers who developed the basic Internet protocols for purposes of research and sharing information. Personal identity was not their focus.
When I started my company, Evolver, back in 2007, we wanted to address this problem of identity by implementing technologies that were being developed back then, such as the Identity Commons. The idea was to flip the logic of the Internet: Each user would have a secure holder for their identity and personal data. They would be able to choose what parts of their identity they wanted to share with any company or organization – instead of corporations building “walled silos” to data-mine their user base. But the financial incentives supporting the current extractive model were too powerful to allow for alternatives.
With Proof of Humanity, you undergo a verification process designed to prove you are a human being, not a Bot or AI. Once you have successfully passed the registration process, you start to receive a regular Universal Basic Income (UBI). I am not sure exactly how the funds for the UBI are generated, but apparently it amounts to several hundred dollars per month. This is already making a major difference in the lives of old people in Latin America who are signing up for it. If Proof of Humanity is scalable, it could help to bring about a more egalitarian restructuring of society.
Conclusion
Instead of rejecting blockchain-based tokenomics as a regressive social force and dismissing its utility for progressive or socialist goals, Leftists should actively experiment with this technology. While it is true that crypto has largely succeeded because it mobilizes people based on individual self-interest, the technical capacities that are being unleashed through cryptocurrency innovation could be implemented to bring about the commons-based peer-production model proposed by the P2P Foundation. I am not sure what other approach makes sense, if current governments cannot be fundamentally changed.
In George Monbiot’s recent essay, Surface Tension, he writes: “Human civilisation relies on current equilibrium states. But, all over the world, crucial systems appear to be approaching their tipping points. If one system crashes, it is likely to drag others down, triggering a cascade of chaos known as systemic environmental collapse.” He explores why we are unable, as a society, to address the ecological emergency. We retreat, instead, into distractions and various forms of escapism.
Monbiot proposes we need “limitarianism”: A movement to limit excesses of wealth as well as excesses of poverty. We also must strengthen the commons while reducing destructive economic activity: “While there is not enough ecological or even physical space on Earth for everyone to enjoy private luxury, there is enough to provide everyone with public luxury: magnificent parks, hospitals, swimming pools, art galleries, tennis courts and transport systems, playgrounds and community centers.”
Monbiot believes our only hope is mass disobedience. But a more sophisticated and perhaps more important form of disobedience involves building the new social infrastructure needed for the transition. This — rather than trading speculative assets — may be where blockchain-based systems for exchanging value become meaningful and even necessary for humanity’s future. At the same time, I am wary of the tendency of utopian ideals to function as covert propaganda for Capitalist schemes, as we have seen again and again in recent history. We saw it with the thwarted promises of Web2.0. However, this may be a point where the future is up for grabs, and we need more capable, well-intentioned people working on theoretical and practical implementation.
A “rug pull” is when the founder of a crypto-related enterprise disappears, usually taking all of the funds with them.
Crypto is part of a wider agenda - decentralisation.
What generally fails in most proposed social structures is actually not their political orientation, left or right, but rather the degree to which power is centralised.
Heavily centralised structures, like those traditionally found on the left, over time attract psychopaths. This is their failing not the politics.
Thank you Daniel for your thinking, insights and sharing with the world and change makers. It gives me a compass for what blockchains to support and be associated with. You are a gem! :)