Why we don't support Cryptocurrencies

Elliot Alderson

We don't believe markets are liberatory.

One of the core beliefs of the cryptocurrency utopians is that markets are liberatory, or in the more extreme case, that markets are literally freedom. Most see the state/government (typically these are considered exactly the same) as inherently oppressive and the market as the sole domain of freedom, only ever becoming oppressive as a direct result of state intervention. The rest of us, on the other hand, do not isolate the market from the state, do not consider the state as the sole source of oppression, and do not see the oppressive actions carried out by capitalists as being directly caused by state intervention.

More broadly, the market is an inherently hierarchical, privilege-based system. This is true when markets are democratically planned (there is still going to be a hierarchical distribution of income and thus of privilege and power), but especially when they are capitalized and use wage labor. Even if markets were able to liberate us from state oppression, markets are themselves oppressive, and we would eventually have to be liberated from the market. What makes this any better than the social democrat proposition of using the state to liberate us from markets?

We have a power problem, not a trust problem.

Banks, corporations, and states are fleecing the poor and marginalized. Further conflicts manufactured by the ruling class causes mistrust among the poor and marginalized. However, the problem isn't that we mistrust, because the mistrust of the rich by the poor is perfectly-placed and reasonable. The problem is that even if we know something is wrong, we don't actually have the power to do anything about it.

Like most libertarian understanding of political economy, it's only when you reduce things to the atomic, transactional level that any of this liberatory cryptocurrency stuff makes any sense. When we consider what is actually being verified by the blockchain, it's that payment was made and double-spending did not occur. In other words, it prevents any random person from creating money. But trust of the accuracy of an individual transaction is not the problem that most people have. Most people trust that money is not being magically created out of thin air with every transaction. Arbitrary money creation is not the problem we have with mistrust, powerlessness is.

Let's say someone calls your grandpa and tells him he owes them $1000 and needs to pay immediately or it will be sent to collections. This isn't just something I made up, this actually happened to my girlfriend's pops. The problem is not that grandpa can't trust that his transaction is happening, it's that he's a confused old man whose fears are being played on by someone. If they had gotten the money (they had trouble getting him to send them money in an untraceable way), we would be largely unable to track them down. Bitcoin would have made it easier, not harder, for people like this to get away without being tracked down, thanks to its anonymous wallet addressing and ability to control and program any number of wallets.

Okay, but not all of us are confused old people being targeted by petty fraudsters, so what? So what more major source of fraud is there? One that cryptocurrency is happy to enforce: That we owe something to the people that own wealth. Again, because of the reductionist, transaction-level analysis of right-leaning liberals and libertarians, we are supposed to believe that wealth is a reward for contribution, and therefore the distribution of wealth is just. However, as most leftists know, this ignores the historical and political facts of the distribution of ownership, which is rooted in imperialism, colonialism, and legalized robbery. Bitcoin would not change this fact, and to imagine that theft would be prevented simply because we would have a public ledger that clarifies ownership is the height of bureaucratic idealism.

Cryptocurrencies don't actually control inflation.

Bitcoin theorists do not understand the basics of inflation. They claim that Bitcoin's inflation will be controlled because it creates new coins at a relatively low, fixed rate. Essentially, they are basing this on the quantity theory of money, which explains increases in the general level of prices (inflation) as being directly related to the supply (and demand) for money. This is not an uncommon belief: it is widely believed that the role of central banks is to control inflation through the pace of lending and the setting of interest rates. There's just one problem with this theory: There is no mechanism whatsoever that explains how it can actually function. No one can determine from the growth in the money supply how much they should raise their prices; there are simply too many confounding factors that make this completely impossible.

Inflation therefore cannot be caused by "too much money chasing too few goods," as few, if any, of the people responsible for determining prices have any idea how much money is in circulation and how much value it's chasing relative to that amount. They have no idea how the change in available money will affect peoples' spending habits, let alone the spending habits of their particular customers. They also don't know who got the extra money, because it's not everyone equally. The only thing that we can correctly say about inflation, therefore, is that inflation is caused by price-setters raising prices. This isn't as interesting or neoclassical as the quantity theory, and it raises many questions that market utopians would rather not ask, such as: Why would someone raise their prices, and what, if not a change in supply/demand of money/goods or an increase in value, explains how much someone can raise their prices? The answer to these questions lies in the fact that the market is not an impartial, apolitical meritocracy, but in fact a political space where power struggles are extremely important.

Power still ends up in the hands of a few people.

Cryptocurrency utopians believe that the public ledger means no one can cheat. What it really means is no one can create money except the miners. Because bitcoin creation becomes more difficult over time, the power to create bitcoin becomes concentrated in the hands of those with the resources to run expensive, specialized mining equipment. The bitcoin itself will still be concentrated in the hands of capitalists. As of writing, 48% of bitcoin mining power actually resides in the hands of just two Chinese mining pools.

If everything goes the way that cryptocurrency utopians want it to, we'd still have wage labor, we'd still have private ownership and workplace dictatorships. The only thing that really changes for the poor is that they pay slightly lower transaction fees (assuming that we can still abundantly produce low-cost electricity, a shaky assumption when we are nearing the end of the fossil fuel age, for better or worse). Much like the libertarians' greatest opposition to the state is taxes and regulations, something that hardly affects poor people at all, their greatest opposition to the modern money system is likewise. It's not its obfuscation of rule and enslavement, its connection to the burning of fossil fuels, or its concentration in increasingly few hands that they take issue with, but that it grows too rapidly in quantity and costs too much to spend.

Smart Contracts can be really dumb

At the time of writing, a major hack of a Distributed Autonomous Organization (DAO) created by an Ethereum-based "smart contract" was unfolding. A smart contract is the next stage of evolution for the cryptocurrency: A business created as a computer program that behaves automatically based on users' interaction with it. The smart contract is immutable and behaves exactly as it is programmed. Cryptocurrency utopians see this as the best possible form of business agreement, as opposed to the convoluted, arbitrary, subjective legal system surrounding traditional contracts. It makes business possible without needing teams of lawyers to write contracts, and can turn a good idea into a self-sustaining money-making machine.

The hack, at its most basic, involved an attacker exploiting a bit of code that calls a user-provided function. Using this, the attacker was able to pass one in that recursively called the smart contract's function to withdraw funds, and used this method to drain $60 million from the business. While this is clearly not what was intended by the DAO's developers, it raises serious philosophical issues: In the "traditional" legal system, this would clearly be theft, and the investors would be protected. However, in the smart contract world, you get exactly what you code—in this case, the contract was coded to accept a user-defined function when withdrawing funds, and the user's fund recursively calls the withdrawal function. So, will they develop some kind of way to deal with obviously unintended consequences of the smart contracts, or stick to their ideological purity, and say "well, you fucked up, better luck next time?"

As post-scarcity anarchists, we are not averse to computers, nor would we ignore the liberatory potential of computing. Computers are indispensable for the elimination of toil, the progress of scientific understanding, remote communication, and the creation of effective systems of logistics. But programmers have long had a phrase that captures the essence of the logical soundness but practical uselessness of cryptocurrencies: Garbage in, garbage out. You can have perfect understanding of cryptographic, mathematical, and computational theory, but when you combine it with garbage political theory, you're going to end up with garbage tools. And while crypto-anarchists have come up with some great tools, such as Wikileaks, I2P, and Googlesharing (RIP), cryptocurrency does not really belong in that category.