Bitcoin And The State

I lost all of my money on Bitcoin, so I hope you enjoy copyright-free images.

Bitcoin, a decentralized digital currency, has been markedly unstable lately. After it hit a high of $266 on Thursday, it dropped down to $105 the same day. As of this writing, it's still trading for $100 on the largest Bitcoin exchange. Bitcoin's evaporation has inspired a lot of schadenfreude, and its volatility over the past few days has really illustrated the technocratic advantages of central banking. These issues have been covered extensively, but I think the political issues surrounding Bitcoin are more interesting. Specifically, I'm interested in whether Bitcoin is relevant to emancipation as a political project.

Bitcoin is an alternative to the the centralized currencies that are essential to modern capitalism. And it's a criticism of capitalism that makes people enthusiastic about Bitcoin in the first place, even though it's hard to pin down exactly what that criticism is. Since almost everyone is uncomfortable with modern capitalism in one way or another, Bitcoin attracts a motley collection of fans.

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A few years ago, a friend of mine posted an article on Facebook about a hilarious Tea Party themed summer camp in Tampa Bay. Every activity at the camp sounds surreal (sitting quietly in an "austere room" represents Europe?), but one activity stood out to me.

Children will win hard, wrapped candies to use as currency for a store, symbolizing the gold standard. On the second day, the "banker" will issue paper money instead. Over time, students will realize their paper money buys less and less, while the candies retain their value.

I hope those kids enjoy their crippling deflation when they eat the candy!

Florida man holds foolish ideas about money.

Seriously though, candy isn't a bad analogy for gold, and combined with a lesson about supply and demand, that activity wouldn't be a bad way to teach kids about currency. Candy is more concrete than gold, and it doesn't have the same baggage. In the same way, gold is a great analogy for Bitcoin, and it's more straight-forward to talk about an alternative currency when our minds aren't clouded by the novelty and technical elegance of Bitcoin.

Gold plays an important part in a certain right-wing viewpoint because of what it says about capitalism, specifically, that it is prior to the state, historically and politically. As a history of money, this is pretty dubious, and as it's pretty dubious politics too—although that is a more complicated argument.¹

Of course, no one would claim that Bitcoin is historically prior to the state, but Bitcoin's decentralized, anonymous character severs the umbilical cord from the state so that the unconstrained market can function as it does naturally. I don't find this to be particularly compelling.

Do we really want to separate market exchanges from the state just because Bitcoin is a interesting new alternative? That isn't what makes a society free, and it doesn't help solve any of the problems of modern capitalism, if anything it exacerbates them.²  Bitcoin's independence from the state isn't a feature, it's a bug.

That's not to say that politics motivates everyone who is interested in Bitcoin. Some people want a simple way to make make international exchanges, and some people just want to gamble on Bitcoin's future value. There's still a problem with using Bitcoin. Namely, when you use Bitcoin, you're free-riding on the rest of society's taxation and regulation in the rest of the economy.

There is still one plausible reason to support Bitcoin: it makes it easier for people to get illegal drugs, and you might think that's essential to freedom. But there's a difference between being free to use drugs and a more generalized freedom to engage in market exchanges outside of the purview of the state.

In conclusion: capitalism isn't natural and you should use drugs. Tell your kids.

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1 I subscribe to the view that the state helps solve collective action problems. By enforcing contracts, the state makes complex systems of trade possible. If you allow state coercion for the sake of a market economy, it's irrational to forbid the state from using coercion to solve collective action problems involving involving, for instance, health insurance. This is one of the arguments in the excellent book Filthy Lucre, by Joseph Heath.

2  By "it", I mean the view that markets are a natural phenomena, in the thick sense of the word "natural". This is different from thinking that market forces are a good tool in particular circumstances. It's also different from the thinking that market forces are the correct tool for every circumstance, for that matter.