Bitcoin is Venice: Difference between revisions
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{{a|book review|{{image| | {{a|book review|{{image|Bitcoin is venice|jpg|}}}}==Cryptopia== | ||
{{Drop|T|his is a}} massive, magnificent, learned, contrarian work. Few practitioners in modern financial services would not benefit from reading it, just for the challenge it presents. | {{Drop|T|his is a}} massive, magnificent, learned, contrarian work. Few practitioners in modern financial services would not benefit from reading it, just for the challenge it presents. | ||
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For anyone who wants to hold forth on [[cryptocurrency]], for or against — and in financial services, that seems to be most people — this is an as good a foundational text as you could ask for. It does not pretend to be neutral: this is advocacy: the case ''for'' Bitcoin, put optimistically, and without barely a sideways glance at its many critics. | For anyone who wants to hold forth on [[cryptocurrency]], for or against — and in financial services, that seems to be most people — this is an as good a foundational text as you could ask for. It does not pretend to be neutral: this is advocacy: the case ''for'' Bitcoin, put optimistically, and without barely a sideways glance at its many critics. | ||
There is therefore no discussion of | There is therefore no discussion of Bitcoin’s relationship with terrorist financing, vice or money laundering nor the pervasive fraud in the cryptocurrency sector. | ||
As far as [[Bitcoin]] is an ultra-libertarian project, the authors might say it is people, not cryptocurrencies, who finance terrorism — but to take that position to its extreme, why have ''any'' laws (ultra-libertarians would, of course, agree). They might also say that fiat currencies have hardly been much better, and that is certainly true. And nor are cryptocurrencies half as untraceable as would-be subversives would like. (As to this see Andy Greenberg’s excellent {{br|Tracers in the Dark}}.) | As far as [[Bitcoin]] is an ultra-libertarian project, the authors might say it is people, not cryptocurrencies, who finance terrorism — but to take that position to its extreme, why have ''any'' laws (ultra-libertarians would, of course, agree). They might also say that fiat currencies have hardly been much better, and that is certainly true. And nor are cryptocurrencies half as untraceable as would-be subversives would like. (As to this see Andy Greenberg’s excellent {{br|Tracers in the Dark}}.) | ||
But for less ideological types, these are weak objections. To mount no better defence while claiming, explicitly, that | But for less ideological types, these are weak objections. To mount no better defence while claiming, explicitly, that “Bitcoin fixes everything”, seems an oversight. | ||
''Everything''? Well, according to the authors, | ''Everything''? Well, according to the authors, Bitcoin does the following: | ||
* Resists and disincentivises violence. | * Resists and disincentivises violence. | ||
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* Obviates regulatory incompetence. | * Obviates regulatory incompetence. | ||
This is wishful, to say the least, but the authors seem to realise this, and offers up | This is wishful, to say the least, but the authors seem to realise this, and offers up “Bitcoin fixes this” as a rhetorical flourish, somewhere between punctuation, irony and gallows humour. | ||
==== Financial services as a paradigm, and critiques from without ==== | ==== Financial services as a paradigm, and critiques from without ==== | ||
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===On debt and assets=== | ===On debt and assets=== | ||
{{Quote|“Since | {{Quote|“Since Bitcoin is a digital bearer asset and not a debt instrument — ”}} | ||
{{Drop|F|arrington believes that}} [[Bitcoin]] is an asset, not “just” a [[currency]]. As it has independent existence, it is not “tethered to” or dependent on a bank or a central bank for its existence. It need not, therefore, “degenerate” the way fiat currencies must thanks to — cough — central bank monetary policies and investment bank grift. | {{Drop|F|arrington believes that}} [[Bitcoin]] is an asset, not “just” a [[currency]]. As it has independent existence, it is not “tethered to” or dependent on a bank or a central bank for its existence. It need not, therefore, “degenerate” the way fiat currencies must thanks to — cough — central bank monetary policies and investment bank grift. | ||
Whereas fiat currency implies [[indebtedness]], [[Bitcoin]] does not. It is pure abstract, tokenised ''capital''. It is the ''inverse'' of fiat currency: to ''actual'' capital what a [[non-fungible token]] is to art — only ''generalised''. Whereas an [[NFT]] is a token for a ''specific'' cultural artefact, [[Bitcoin]] is a token for ''generalised'' “capital” in the abstract sense of value — a shared community resource, before being transmogrified into any particular form. Bitcoin is ''anticurrency''. | Whereas fiat currency implies [[indebtedness]], [[Bitcoin]] does not. It is pure abstract, tokenised ''capital''. It is the ''inverse'' of fiat currency: to ''actual'' capital what a [[non-fungible token]] is to art — only ''generalised''. Whereas an [[NFT]] is a token for a ''specific'' cultural artefact, [[Bitcoin]] is a token for ''generalised'' “capital” in the abstract sense of value — a shared community resource, before being transmogrified into any particular form. Bitcoin is ''anticurrency''. | ||
If this is what | If this is what Bitcoin has achieved, it is indeed something wondrous. Alchemical, almost. This is “capital” as a [[Platonic form|platonic essence]]: a Midichlorian life force. You know, like the ''Force''. | ||
Of course, we have [[financial instrument]]s representing abstract capital already: [[share]]s. They reflect the ''net'' capital of a given undertaking, and take only after all the organisation’s debt is accounted for, so perhaps that is not what Farrington has in mind. Perhaps it is too contingent on the grubby, fiat realities of everyday business. Perhaps it is not abstract enough. | Of course, we have [[financial instrument]]s representing abstract capital already: [[share]]s. They reflect the ''net'' capital of a given undertaking, and take only after all the organisation’s debt is accounted for, so perhaps that is not what Farrington has in mind. Perhaps it is too contingent on the grubby, fiat realities of everyday business. Perhaps it is not abstract enough. | ||
====Anticurrency==== | ====Anticurrency==== | ||
{{drop|T|his conceptualisation of}} | {{drop|T|his conceptualisation of}} Bitcoin as ''capital'' is certainly quite a different thing to a [[fiat currency]]. Fiat currency implies [[indebtedness]]. It needs the agency of banks to create and discharge that indebtedness. It ''centralises'' everything, and makes everyone dependent on the centre: the [[power structure]] that is [[fractional reserve banking]]. It ''compels'' “trust”, whether you want it or not. | ||
''Compelled'' trust, as [[David Graeber]] might say, is ''violent extortion''. | ''Compelled'' trust, as [[David Graeber]] might say, is ''violent extortion''. | ||
By contrast, the [[ | By contrast, the [[Bitcoin]] ethos is, of course, not to ''trust'' trust — not ''compelled'' trust, anyway — and to decentralise and disintermediate where possible to remove any need for even ''voluntary trust''. This was the problem a [[Permissionless blockchain|permissionless]] [[decentralised ledger]] was devised to solve: how to construct a financial system does not rely on trust in a central permissioning authority, or the need for trust between participants. That is its basic use-case. | ||
Bitcoin maximalists might not trust their government, but in western economies, for the time being, the majority of tax-paying citizens do — at least with a government there is notionally someone to complain to. | Bitcoin maximalists might not trust their government, but in western economies, for the time being, the majority of tax-paying citizens do — at least with a government there is notionally someone to complain to. | ||
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{{Drop|A|nd trust in}} each other is a feature of a community, not a bug, and not something that can or should be solved by [[technology]]. It is ''the'' feature, in fact, on which the whole edifice of civilisation is based. Farrington would have done well to read a bit more Graeber here. | {{Drop|A|nd trust in}} each other is a feature of a community, not a bug, and not something that can or should be solved by [[technology]]. It is ''the'' feature, in fact, on which the whole edifice of civilisation is based. Farrington would have done well to read a bit more Graeber here. | ||
Currency has its antecedents not in [[barter]] between strangers, as is commonly supposed, but in ''[[credit]]'' amongst friends: currency would not work between hostile strangers because it is a personal promise of deferred satisfaction, and the a hostile stranger does not trust in promises or pieces of paper or bits of metal as abstract symbols.<ref>This is a controversial view, and certain economists dismiss it. Notably George Selgin, to whom Farrington defers. Prior remarks about paradigms are germane here: economists claim this as their territory, though anthropologists should have just as much to say about it. In any case, Selgin’s rebuttal is peremptory — essentially, “[[Adam Smith]] said currency originated from barter, that’s good enough for me, and the fact that there’s no anthropological evidence for it doesn't prove anything, and in fact may be evidence of [[survivorship bias]].” Or [[confirmation bias]], perhaps. Graeber’s account has something else going for it: it seems intuitively right, in a way that Smith’s view does not. There is a longer discussion | Currency has its antecedents not in [[barter]] between strangers, as is commonly supposed, but in ''[[credit]]'' amongst friends: currency would not work between hostile strangers because it is a personal promise of deferred satisfaction, and the a hostile stranger does not trust in promises or pieces of paper or bits of metal as abstract symbols.<ref>This is a controversial view, and certain economists dismiss it. Notably George Selgin, to whom Farrington defers. Prior remarks about paradigms are germane here: economists claim this as their territory, though anthropologists should have just as much to say about it. In any case, Selgin’s rebuttal is peremptory — essentially, “[[Adam Smith]] said currency originated from barter, that’s good enough for me, and the fact that there’s no anthropological evidence for it doesn't prove anything, and in fact may be evidence of [[survivorship bias]].” Or [[confirmation bias]], perhaps. Graeber’s account has something else going for it: it seems intuitively right, in a way that Smith’s view does not. There is a longer discussion in our [[Debt: The First 5,000 Years|review]] of Graeber’s book. Selgin’s main industry is attacking Graeber’s more ideological conclusions: | ||
{{quote| | |||
“By claiming that societies could thrive only by means of monetary exchange, Adam Smith is supposed to have given shape to an “economic discourse” according to which all things, including people, are bound to be valued in terms of money, thereby “enabling” slavery and imperialism and…well, the whole capitalist catastrophe.”}}Because the conclusion does not follow from the premise, it does not stop the premise itself being fair. </ref> | |||
This is a matter almost of literary, and not financial, theory. Of shared meaning | This is a matter almost of literary, and not financial, theory. Of ''shared meaning'': I hand over my muskets for your blankets as their respective meanings to each of us is obvious, and does not depend on the other’s. Indeed, it depends on a relative ''divergence'' in meaning: you must value muskets more than blankets, and I must value blankets more than muskets, or we have no deal. | ||
Given how fundamental this dissonance is to any market it is extraordinary how much hostility its necessary premise — there is no objective truth — generates. | Given how fundamental this dissonance is to any market it is extraordinary how much hostility its necessary premise — there is no objective [[truth]] — generates. | ||
Now: we can each arrive at our own values of guns and blankets and that is a fine thing. But it is not fine for tokens of abstract tokens of value such as printed promises to pay. Those we must agree about. | |||
In other words, for currency to work, there must be consensus as to its value. That is axiomatic. Hence, it is of no use between hostile strangers. | In other words, for currency to work, there must be consensus as to its value. That is axiomatic. Hence, it is of no use between hostile strangers. | ||
===Bitcoin as metaphor=== | ===Bitcoin as metaphor=== | ||
{{Drop|[[Bitcoin|B]]|itcoin does ''not''}} fix this. It is axiomatic that | {{Drop|[[Bitcoin|B]]|itcoin does ''not''}} fix this. It is axiomatic that Bitcoin’s viability depends on community consensus in its value other than its intrinsic value. We must all believe something that is, literally, not true, and wilfully suspend of knowledge of what is true. This is how we use ''[[metaphor]]s'' — they are figurative ''tokens''. | ||
People must believe in Bitcoin as a ''token'' of value — in Farrington ’s view, of [[capital]] — whilst accepting it has absolutely no intrinsic value. | People must believe in Bitcoin as a ''token'' of value — in Farrington ’s view, of [[capital]] — whilst accepting it has absolutely no intrinsic value. | ||
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As mentioned, this is also true of fiat currency. But here the prevailing paradigm, which currency plays a fundamental part, makes a difference. Within the “[[degenerate fiat currency]]” [[power structure]], fiat currency operates as a lawful means of discharging debts denominated in that currency. It necessarily has that value. If this feels circular, that’s because it is: the power structure defines both question and answer. By transacting in a currency you are committing to the metaphor: you are giving something of intrinsic value away for something of metaphorical value. You have bound yourself to the mast. The leap of faith has been made and completed: the economy works on the strength of promises calibrated by reference to that metaphor. | As mentioned, this is also true of fiat currency. But here the prevailing paradigm, which currency plays a fundamental part, makes a difference. Within the “[[degenerate fiat currency]]” [[power structure]], fiat currency operates as a lawful means of discharging debts denominated in that currency. It necessarily has that value. If this feels circular, that’s because it is: the power structure defines both question and answer. By transacting in a currency you are committing to the metaphor: you are giving something of intrinsic value away for something of metaphorical value. You have bound yourself to the mast. The leap of faith has been made and completed: the economy works on the strength of promises calibrated by reference to that metaphor. | ||
The same might be true of Bitcoin, but only to the extent debts are denominated in | The same might be true of Bitcoin, but only to the extent debts are denominated in Bitcoin. Mostly, Bitcoin is traded not as a currency but as a commodity, for which the debt is denominated in fiat. | ||
===Agency as a sustaining life force=== | ===Agency as a sustaining life force=== | ||
{{Drop|T|hat a statement}} with no literal truth value can nonetheless hold a metaphorical one is by no means an impossible scenario: all literature depends on it. We do not struggle to reconcile our understanding of ''Oliver Twist'' with the fact that every word of it is, literally, false. | {{Drop|T|hat a statement}} with no literal truth value can nonetheless hold a metaphorical one is by no means an impossible scenario: all literature depends on it. We do not struggle to reconcile our understanding of ''Oliver Twist'' with the fact that every word of it is, literally, false. | ||
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Not every [[metaphor]] fails. The dollar has not. [[Bitcoin]], too, has proven resilient so far, and has acquired its own momentum as it as acquired first miners, and then brokers, trading venues, intermediaries, [[futures]] exchanges, [[exchange-traded fund]]s and their authorised participants, clearers and market makers. It even has its own ISDA definitions booklet. All of these [[stakeholder]]s stand to prosper as long as ''someone else'' believes the metaphor. | Not every [[metaphor]] fails. The dollar has not. [[Bitcoin]], too, has proven resilient so far, and has acquired its own momentum as it as acquired first miners, and then brokers, trading venues, intermediaries, [[futures]] exchanges, [[exchange-traded fund]]s and their authorised participants, clearers and market makers. It even has its own ISDA definitions booklet. All of these [[stakeholder]]s stand to prosper as long as ''someone else'' believes the metaphor. | ||
This is another importance of intermediation: these intermediaries all take their skim, or earn a crust of the intellectual activity of ''attending to | This is another importance of intermediation: these intermediaries all take their skim, or earn a crust of the intellectual activity of ''attending to Bitcoin'', just as they once attended to [[Enron]], or tranched [[synthetic credit derivative]]s, or whatever hysteria happens to have a hold of quotidian minds for the time being, and preserving that income compels them to support the metaphorical narrative. | ||
But for [[Bitcoin]], this is yet another irony in a phenomenon apparently constructed out of them: the very institutions that vouchsafe this metaphor’s continued viability — a set of incentivised trusted intermediaries — are exactly the institutions it is explicitly designed to undermine. The whole point of [[Bitcoin]] is to jettison the need for trusted intermediaries. That is the program. | But for [[Bitcoin]], this is yet another irony in a phenomenon apparently constructed out of them: the very institutions that vouchsafe this metaphor’s continued viability — a set of incentivised trusted intermediaries — are exactly the institutions it is explicitly designed to undermine. The whole point of [[Bitcoin]] is to jettison the need for trusted intermediaries. That is the program. | ||
==== Bitcoin as a token capital ==== | ==== Bitcoin as a token capital ==== | ||
{{Drop|[[ | {{Drop|[[Bitcoin|B]]|itcoin is ''capital''}}, then, not ''currency'', at least not as we are used to thinking about it. [[Bitcoin]] is more like ''gold''. | ||
Its scarcity is more or less fixed, and it gets progressively harder to extract more of it from the earth. In this way the “mining” [[metaphor]] is correct. It holds its value wherever it is. It does not depend for viability or validity upon the “implied violence” of central banks, nor the indebtedness of investment banks nor the custody and connectivity of other [[Rent-seeking|rent-extracting]] intermediaries. You can take it, sort of, off the grid. | Its scarcity is more or less fixed, and it gets progressively harder to extract more of it from the earth. In this way the “mining” [[metaphor]] is correct. It holds its value wherever it is. It does not depend for viability or validity upon the “implied violence” of central banks, nor the indebtedness of investment banks nor the custody and connectivity of other [[Rent-seeking|rent-extracting]] intermediaries. You can take it, sort of, off the grid. | ||
This view, that | This view, that Bitcoin is a sort of [[non-fungible token]] for platonic capital is, I think, fundamental to getting a purchase on where Bitcoin maximalists are coming from. If we think about Bitcoin as on-chain gold rather than on-chain cash, we have a closer starting point, though as Farrington argues, a dematerialised electronic communication can do a bunch of really useful things that a lump of metal cannot. | ||
[confusion of the token with the real thing. Ontological looseness of NFTs.] | [confusion of the token with the real thing. Ontological looseness of NFTs.] | ||