“The root problem with conventional currencies is all the trust that’s required to make it work.” — Satoshi Nakamoto, writing in an online forum (2009).
“The State will of course try to slow or halt the spread of this technology, citing national security concerns, use of the technology by drug dealers and tax evaders, and fears of societal disintegration. Many of these concerns will be valid; crypto anarchy will allow national secrets to be trade freely and will allow illicit and stolen materials to be traded. An anonymous computerized market will even make possible abhorrent markets for assassinations and extortion. Various criminal and foreign elements will be active users of CryptoNet. But this will not halt the spread of crypto anarchy.” — Timothy May, The Crypto-Anarchist Manifesto (1992).
“All currencies involve some measure of consensual hallucination, but Bitcoin … involves more than most.” — The Economist (2013)
Every transaction is about trust. As people in supermarkets swipe glossy plastic debit cards to buy groceries, we assume the machine will extract the right amount from our bank accounts. We believe the bank won’t run out of money. We exchange things for paper and electronic promises, trusting they are of equal value. And when we exchange goods, services, or products for currency, we often assume this currency’s value is relatively stable — that we will be able to spend it later without a problem. When using currency, we must trust that other people will continue to believe it has worth.
These moments of trust are stacked on a foundational belief in a central financial authority, something that regulates the value of our currency. Bitcoin, the nascent digital currency, seeks to change this belief that trust in a centralized, state-sanctioned regulator. The creator expressly sought to make a currency impervious to questions of faith in the system.
But Bitcoin is about trust, even as it was originally intended to be the only currency that doesn’t require it. In fact, the premise of the currency is rooted in the notion that the state or a hierarchal organization is not necessary to govern the behavior of a group.
Bitcoin is designed as peer-to-peer, which removes the need for mediating central financial institutions. When you trade a Bitcoin for something, it goes straight from your online wallet to another person’s or group’s online wallet, with a mathematical system in place to prevent double spending. It is intended to be used just like other currencies — as a medium of exchange. It is still too new to be very liquid as an asset, but that’s changing — a swelling number of businesses accept Bitcoin. Though the price remains wildly volatile, sometimes swinging hundreds of dollars in a month, Bitcoin’s liquidity continues to grow as more merchants and organizations accept it as a form of payment. Many believe it has the potential to become a full-fledged alternative to state-backed currencies.
Although Bitcoin is designed to be used like other money, it is fundamentally a different type of currency than anything that came before it, untethered to a central issuer and anchored in a radically trusting way to cryptography and mathematics. Though its creators endeavored to sever the tie between money and the state, their creation still requires a faith in the collective.
Bitcoin was developed by a mysterious creator or group of creators called Satoshi Nakamoto, who (or which) outlined how to use it in an academic paper in 2009. “Satoshi Nakamoto” is likely a pseudonym, and the creator(s) of Bitcoin remain essentially anonymous.
In the paper on Bitcoin, Nakamoto describes Bitcoin as a currency that doesn’t require trust, a currency so rooted in cryptographic proof it doesn’t rely on the good intent of a governing institution. It’s supposed to be a tool to avoid a central authority acting in bad faith, an elegant solution to our saggy, bloated, abuse-riddled global financial system. Bitcoin trusts a decentralized network to organize the currency, instead of a centralized state. It assumes a currency ruled by a computer protocol is as workable as a currency controlled by a centralized authority. For Bitcoin to work in the long-term, it requires an enormous amount of trust, and respect of that trust, from the parties using Bitcoin.
Though it’s now a magnet for venture capitalists, Bitcoin began as an experiment nurtured by people interested in establishing an alternative economic and political system divorced from the current global capitalist ecosystem. Bitcoin’s rise in popularity corresponds to a growing skepticism about the future of state-controlled currencies. As incidents like the failure of the banking system in Cyprus make the weaknesses in the current global banking system more apparent, the need for a viable alternative has grown more apparent, leaving room for a once-niche idea to gain mainstream recognition.
Many of Bitcoin’s enthusiastic supporters characterize the use of the crypto-currency as a political act, because it offers a radical alternate to state-supported currencies, the currencies people are indoctrinated to consider specially legitimate. Cody Wilson, who told Vice he wants to develop an ethics of Bitcoin, is one such supporter. Wilson is a crypto-anarchist who values Bitcoin for its potential to allow anonymous transactions that cannot be traced by the government. Wilson is developing a digital wallet system called DarkWallet to facilitate this anonymity, since the current iteration of Bitcoin isn’t as anonymous as many crypto-anarchist and libertarian supporters would like.
Crypto-anarchism is thought to have inspired Bitcoin, particularly a piece by Timothy May called “The Crypto-Anarchist Manifesto.” Crypto-anarchism is a version of anarchism that embraces cryptology software to wrest power from the state. Anonymity is a treasured tool used to evade the state. This school of thought serves as Bitcoin’s philosophical scaffolding.
Anonymity isn’t prized by crypto-anarchists because it helps illegal activities, but that’s certainly one of the side-effects. And Bitcoin, as a decentralized cryptographic currency, is anonymous enough to have served as the primary payment system for the Silk Road, the Internet’s former largest drug market on the dark web. The Silk Road was shut down by the FBI in 2013, but not before billions of dollars worth of Bitcoin were exchanged for drugs. The association with illicit activity gave Bitcoin notoriety, which helped fuel adoption, since it raised the currency’s profile — but it shouldn’t be conflated with Bitcoin’s ethics.
Bitcoin’s affiliation with illegal web ventures like the Silk Road should not color the currency a murky moral shade; like cash, it is harder to track and thus more easy to use when you want to stay off the grid, but that says more about the spender than what he’s spending. While Bitcoin’s conception was politically motivated, as a unit of currency — an individual, intangible bitcoin — is an empty vessel devoid of viscerality; its only meaning what we confer upon it. A bitcoin is just an idea. The worth and meaning of a bitcoin is whatever we assign it. And the philosophical underpinnings of Bitcoin’s community are not about keeping the currency anonymous specifically to commit crimes; it’s about avoiding surveillance.
However, the importance the community places on avoiding surveillance has a dangerous side. Bitcoin’s ideological underpinnings belong to crypto-anarchists like Wilson, but the currency’s operational scaffolding is increasingly the property of venture capitalists, speculators and people who just want to generate capital, never mind what kind of capital it is. This co-option is a sign of Bitcoin entering the mainstream, but purists are concerned it will water the currency down. Wilson told a crowd in London that the capitalist interest could essentially neuter Bitcoin as a political currency, which is true. As I said before, despite the politics of its creator and its early adopters, Bitcoin is not an inherently political unit, and the lack of central authority was an originating feature but may not end up as a defining one if the currency continues to be adopted by large institutions and the players in the global financial market.
Perhaps if Bitcoin was primarily adopted by people with inflexible, ideologically consistent guiding principles for how to use it, the currency could be considered “ethical.” Perhaps if the mysterious Satoshi Nakamoto had regulation powers, it could become the currency some people want it to be. But Bitcoin has no regulations. It’s the ideal currency for the world’s worst people.
Bitcoin’s separation from the state — the thing that makes it a politically and pragmatically superior form of currency in the eyes of crypto-anarchists — could be what makes it dangerous for ordinary people to use. Because it is deregulated, abuses of the system can occur without penalty. Thefts of life-savings can go unpunished. So that’s a problem and it will continue to be a problem, because a lack of regulation is built into the idea of Bitcoin. And while major Bitcoin heists have thus far been relegated to places on the dark web, where there is little sympathy for the de-moneyed, as it grows in mainstream use, the utter lack of a safety net could cause devastation.
Of course, Bitcoin is hardly the wide world’s lone currency with the potential to be abused. The global financial system is rife with abuses, and perpetrators of deeply unfair practices often (one might argue, usually) get away with it. So it’s not logical to condemn Bitcoin for its potential for abuses without acknowledging that even supposedly regulated financial systems have been thoroughly rigged. However, it’s equally illogical to ignore Bitcoin’s vulnerability, or that it’s vulnerability comes part and parcel with its borderline-naive ethics of trust.
Without condemning Bitcoin for its potential to be abused, it is both possible and necessary to point out that the currency will only work if the trust users place in their fellow members of this financial ecosystem is upheld, and the utter lack of incentive to uphold it is frightening. For Bitcoin to avoid falling prey to corporate, capitalist groups that want to figure out ways to game both the mining system and other Bitcoin users, there are no regulatory safeguards. The underlying ethics of the currency’s founders, alongside Bitcoin’s crypto-anarchist support system, insists that users can govern themselves better than the state — but this techno-utopian thinking requires a deep trust that, I fear, may be breached as the currency becomes enmeshed in the current economic system.
This nearly utopian vision of a perfect currency is almost surely going to be corrupted further, either by getting co-opted by the financial system it sought to disrupt, or by being cast aside. But the crusade of Bitcoin’s founder and crypto-anarchist backers has admirable intentions, and Bitcoin may serve as a template for a more perfect workable version of currency in the future.
Kate Knibbs is a writer and web culture journalist from the southwest side of Chicago. She probably spends too much time on the Internet.