Over the last weeks, I have been diving into Left Wing critiques of Bitcoin, Ethereum, and other blockchain-based cryptocurrencies. I think this is crucial because Bitcoin, Ethereum, and other cryptocurrencies offer the only authentic challenge to the dominance of fiat currency we have seen in our lifetimes. Satoshi Nakamoto, pseudonymous founder of Bitcoin, explicitly designed it to break the hegemony of the Central Bank system and to establish a new global reserve currency. Bitcoin was released as a direct response to the 2008 financial crisis, when US and European governments bailed out the “too big to fail” financial institutions.
For the most part, the traditional Left passionately despises crypto and its latest innovations such as Nonfungible Tokens (NFTs) and Distributed Autononous Organizations (DAOs). Adbusters, for instance, calls NFTs an “investment pyramid scheme,” “a method of creating artificial scarcity,” and “an environmentally destructive juggernaut.” Daniel Denvir of The Dig podcast from Jacobin Magazine characterizes cryptocurrency as “a speculative asset symptomatic of everything wrong with neoliberal financialized capitalism as we charge headlong into climate catastrophe in the absence of a Communist horizon.”
As I will explore in what follows, I sympathize with the negative views about crypto held by a wide range of Leftist journalists and academics. Still, I believe the Left is making a huge mistake in dismissing this area. What the Left should be doing is engaging directly with it – intervening, experimenting, and iterating. I am not sure what the alternative is, as transforming the financial system through electoral politics or the existing nation-state seems extremely unlikely, if not impossible.
The fact is, as all Leftists would agree, the current financial system is broken. Our financial system – in which money is issued into existence as bank debt and publicly traded corporations maximize short-term profit – caused the current crises we confront as a species: The ecological emergency along with depraved extremes of social inequality. The 2008 financial crisis and its aftermath showed that the government can no longer restrain or regulate banks and other financial institutions. The US keeps increasing its bloated debt, borrowing vast sums of money that the Federal Reserve creates out of thin air, using it to pay for our $800 billion annual military budget, among other expenditures.
While challenging the fiat system with a vision of technologically mediated and theoretically depoliticized private money, Bitcoin and the other cryptocurrencies remain tools explicitly designed to perpetuate our current socioeconomic model in which atomized individuals compete against each other for resources, some of which are actually scarce and some of which are kept artificially scarce. The prospect that we might intentionally design and deploy some kind of blockchain-based substitute for the current monetary system to make a world that is more cooperative and regenerative may be very faint, but it cannot be dismissed out of hand.
While many areas of the economy seem to be stagnating, the blockchain world explodes with entrepreneurial zeal and rapidfire innovation. A few months ago, a group of crypto investors tried to buy a copy of the US Constitution going up for auction. They created Constitution DAO (DAO stands for Distributed Autonomous Organization) on the Blockchain and raised $40 million in a few days. Although they were outbid finally, the rapid creation of this DAO and the enormous fund they gathered indicate the rapidly growing power of this sector.
At this point, it seems clear that crypto isn’t going away. Crypto has ballooned to reach an extraordinary $2.2 trillion market cap. The major investment firms have taken positions in it. Vast sums go into building new digital infrastructure for “DeFi” (decentralized finance) and tokenized industries. Blockchain-based currencies and assets are melding with ongoing developments in Artificial Intelligence and the Metaverse. It is still early in the evolution of crypto-economics. Therefore, it is possible to influence its future development. We can begin by exploring and circulating ideas that might have an impact.
In future essays, I intend to explore how the Left might creatively intervene in this sector (I realize there are some initiatives already happening). Before getting there, I will review the major Leftist criticisms of the claims made by cryptocurrency enthusiasts. This will be spread over a few newsletters.
This Newsletter is a reader-supported publication. Please support my work and receive various special offers by becoming a paid subscriber.
What is Cryptocurrency?
Critics argue that cryptocurrency claims to be a new kind of money but it doesn’t function as a currency. Instead, cryptocurrencies are better understood as a new speculative asset class. The confusion about whether crypto is a new form of money or a speculative asset has allowed the industry to avoid government regulation and oversight, to a large degree.
According to Leftists, crypto continues the process of financialization – defined by speculation on phony assets and the privatization of public goods – that led to the 2008 meltdown. On a recent episode of The Dig, journalists Edward Ongweso Jr. and Jacob Silverman argue that the value of almost all cryptocurrency is illusory, mainly based on speculation, market manipulation, and money laundering. Obvious cons like regular “pump and dump” schemes orchestrated via Telegram groups (some of them with as many as three million members) seem less a bug of the crypto world than a feature.
Cryptocurrencies like Bitcoin, Ethereum, EOS, Cardano, and Tezos can’t be used to purchase normal goods and services. Crypto-tokens can be described as “counter-trade objects with money-like branding,” according to Brett Scott, author of The Heretic’s Guide to Global Finance. Investors can use them to trade for similar objects – NFTs or other cryptocurrencies – but otherwise have to convert them back to fiat to use them.
In Old Utopias, New Tax Havens: The Politics of Bitcoin in Historical Perspective, academic Stephen Eich writes:
Cryptocurrencies are highly unlikely to replace fiat currencies any time soon, but they will deepen the global proliferation of tax havens, regulatory arbitrage, and shadow banking. Rather than revolutionizing the global monetary infrastructure for the better, cryptocurrencies have instead emerged as highly risky, speculative financial games. High transaction costs and long processing times have meanwhile rendered Bitcoin virtually impractible as a payment system. Instead of a new form of money, most cryptocurrencies now function as decentralized gambling machines masquerading as a technological breakthrough. Cryptocurrencies’ insistence on their status as currencies looks from this perspective less like a noble ambition than a self-serving attempt to starve off securities regulation, money-laundering rules, and the taxation of capital gains.
After twelve years, critics note, the main utility of crypto remains gambling, speculating on the unregulated, hyper-volatile crypto market, and now the creation of new unregulated assets like NFTs. Since there are no actual fundamentals underlying the value of something like Bitcoin, crypto is, critics argue, inherently a pyramid scheme.
A Libertarian Wet Dream
Leftist critics note that cryptocurrencies embody Right Wing and Libertarian ideals. The philosophy behind Bitcoin, Ethereum, and other crypto instruments is largely derived from the economists Friedrich Hayek, an advocate for free markets, and the anarcho-capitalist Murray Rothbard. This includes the idea that money, itself, should not be issued by nation-states, but should be privatized. Hayek, who won a Nobel Prize in 1974, envisioned banks having a crucial role in money-creation, but with blockchain, there is no longer a need for middlemen like banking institutions.
At the same time, crypto Libertarians believe we should return to something like the gold standard, where the amount of currency in circulation is strictly limited. They argue that this will make it impossible for governments to use debt to pay for elaborate military adventures. It will put hard limits on what governments can do, thereby reducing the role of governments to a minimum. Because Bitcoin is designed so that only 21 million Bitcoins will ever be minted, Bitcoin can serve as the new gold and the new global reserve currency. Alex Gladstein of the Human Rights Foundation makes this argument in this recent interview with Glenn Greenwald and his essay, The End of Super Imperalism. The polar opposite perspective is offered by Steven Eich in this interview, this podcast, and the essay quoted above. I hope to go through Gladstein’s thesis more carefully in a future essay.
The logic of crypto pushes us further toward privatization and an entirely market-based society where economic relationships have displaced all other forms of connection or social and cultural capital. Crypto inherently seems to extend the Neoliberal logic of financialization. A book promoted by Ethereum founder Vitalik Buterin is Radical Markets: Uprooting Capitalism and Democracy for a Just Society by Eric Posner, an economist from MIT. Radical Markets proposes a vision of the future where everything — your home, your possessions — is continually on auction to the highest bidder. This is the opposite of my preferred future, where people would have the capacity to escape or opt out of market economics if they so choose (as Marx put it, “freedom from trade” rather than “freedom to trade”). I also don’t see how movements in this direction help us address the ecological emergency, currently threatening us with civilizational collapse and near-term extinction.
The Dystopian Danger of Smart Contracts
Crypto-enthusiasts identify lack of trust as one of the major problems in our society. For instance, we need to be able to trust that Central Banks operate to serve the public good instead of furthering the interest of a financial elite. We need to be able to trust our news and information sources to be as unbiased as possible. The argument for blockchain is that the crisis of social trust can only be addressed through switching over to the use of blockchain-based smart contracts, where our obligations to each other are mathematically defined and controlled.
One important aspect of legal contracts is they allow for a certain degree of human fuzziness and pliability. As an example, if you lose your job and you can’t pay your rent for a month, you can go to your landlord and potentially work out a deal. Smart contracts on the blockchain make these kinds of relationships and exchanges mathematically proven, hence immutable and inescapable. The concern for critics is that this could lead, accidentally or intentionally, to even more horrific social outcomes. With smart contracts it is easy to imagine a future where, one minute after you can’t pay your rent, a drone or Robocop appears in your bedroom and forces you to leave instantly.
Left Wing theorist Evgeny Morozov (author of To Save Everything, Click Here) has launched a new project called The Crypto-Syllabus, bringing together many critical approaches to the crypto world. In this philosophically complex interview from the site, Legal scholar Katrin Becker envisions:
Various dystopian future scenarios that could be sketched without much imaginative effort if one thinks of the possibilities that a combination of blockchain technology and the Internet of Things brings about – especially in view of the use cases that already exist, such as the scanning of the iris for payment; the programming of a drone via smart contract, which can, once its trajectory is launched, no longer be stopped; or the linking of opening doors, car engines, or weapons to an identity assessment procedure running via the blockchain. … The main risk lies in the possibility that someone manages to make use of this technology and its powerful control and steering mechanisms for other purposes than the common good – and that the traditional constitutional and democratic institutions will no longer have effective means to counter such an incident, given that, with the growing mistrust towards them, which is deepened by technologies like the blockchain, they are increasingly losing their validity and legitimacy.