[P2P-F] Fwd: [NetworkedLabour] Fwd: <nettime> Geert Lovink & Patrice Riemens: The Bitcoin Experience, Part One

[P2P Foundation mailing list]

excellent critical essay

---------- Forwarded message ----------
From: Orsan <orsan1234 at gmail.com>
Date: Fri, Jan 30, 2015 at 5:39 PM
Subject: [NetworkedLabour] Fwd: <nettime> Geert Lovink & Patrice Riemens:
The Bitcoin Experience, Part One
To: "<networkedlabour at lists.contrast.org>" <
networkedlabour at lists.contrast.org>



*Resent-From:* nettime at kein.org
*From:* "Patrice Riemens" <patrice at xs4all.nl>
*Date:* 30 januari 2015 08:34:05 CET
*Resent-To:* Nettime <nettime-l at kein.org>
*To:* nettime-l at kein.org
*Subject:* *<nettime> Geert Lovink & Patrice Riemens: The Bitcoin
Experience, Part One*


Geert Lovink & Patrice Riemens

The Bitcoin Experience - Part One


We admit: we are fazed and befuddled by the Bitcoin phenomenon. And we
are getting more so as we progress - or think to progress - in getting
to grips with it. It has meanwhile become clear that Bitcoin, probably
to the chagrin of its believers, has become much more than, well,
Bitcoin. That is why we have decided, both to split our essay (essay is
the right word indeed, an attempt) in two parts - and to take it, to use
the charitable word, as a 'work in progress', even though the gestation
period of even this first part has been inordinately long. We have also
taken the open Source injunction to 'release early' to heart - was it
only because writing appears to stay stuck in the incubation stage. This
first part, which was our original plan, is about Bitcoin we know as
Bitcoin. What the Dutch so nicely call 'progressive understanding' has
compelled us to look at the inevitable: Bitcoin after Bitcoin. So the
Part Two will look at the probable inescapability of digital
crypto-currencies 'liberated' from the fiat and the sovereign - and its
consequences. If we ever manage amidst our befuddlement.  Hopefully you
will bear with us - after all you are not obliged to read, less so to
believe, as the 'Bitcoiners' do. But if you plod on, let us pray first:

OUR BANKER WHO ART IN CYBERSPACE
SATOSHI BE THY NAME
THY BITCOIN COME
DOLLAR BILLS BE GONE
IN OUR POCKETS, AS IT IS ONLINE
GIVE US THIS DAY OUR CONFIRMED TRANSACTIONS
AND FORGIVE US OUR DOUBLE SPENDING
AS WE ALSO HAVE FORGIVEN TRENDON SHAVERS
AND LEAD US NOT FROM THE BLOCKCHAIN
BUT DELIVER US THE MINED BLOCKS
FOR EVER AND EVER
AMEN

(from the Bitcoin Magazine, November 2013 issue)


Bitcoin is not the response to an effective demand, but to an emotional
desire. The internet crypto currency expresses a longing for liberation
through the mediation of technology. It grows out of a post-apocalyptic
will to start all over again, in between financial crises of epic
proportions, to put an end to the never-ending recession. This time, so
do believers in Bitcoin maintain, the economy will be lead by our tribe
of techno-libertarians, and not by the vile, corrupted banksters and
politicians in their employ. Amidst the rubble of the collapsing global
capitalism, there is nothing left to demand — who would listen anyway?
What is your blueprint for the next monetary system? After all, Bitcoin
architecture is not a given. Let’s be frank: everything is up for grabs,
including the premises of the Bitcoin project itself, which is what we
intend to do here.

The historical concurrence between Bitcoin and Occupy is no coincidence.
The enthusiasm for Bitcoin amongst geeks and IT entrepreneurs stems from
the popular disillusionment with the financial system, matched with an
equally strong belief in the Internet ideology of nodism and anonymity.
In line with the 'anarcho-geek' character of Bitcoin,[1] its 'rugged
individualists' community exudes a deep distrust, even hatred of all
'big' institutions, foremost governments (as exemplified by the US
government), but also of big business and large financial institutions.
All stand accused, and to a large extent for good reasons, to squeeze
the 'little guy' out of a living by all possible means.

Geeks and assorted believers in information technology assume that the
only solution to overturn this unfair system is to truly implement the
distributed, decentralized, 'original' values of the Internet. They
reject the Internet of monopolies such as Google, Amazon and Facebook to
embrace a romanticized version of it. They call, not for the Internet of
the military, the telecommunication giants and their centralized
logistics, but for a peer-to-peer assemblage of users who arrange their
own monetary rewards. E-commerce was in their eyes was its failed,
compromised fore-runner since it did not question the nature of the
currencies being used.

Bitcoin is driven by the eagerness of a specific, 'tech' elite to
achieve social escape velocity so as to bail out from the murky
complexity of the world. It should be seen as the umpteenth avatar of
the privileged classes wanting to pull out of the grudge of everyday
reality and its messy social sphere. Bitcoin is part and parcel of the
'Masters of the Universe' narrative, this time in its 'Geek'
declination, but given its appeal, it cannot be considered as some
subaltern, folkloric movement. The Bitcoin ideology reflects a profound,
and widely shared, distrust in existing organizational formats and
practices.

Bitcoin is based on ‘distributed trust’ instead of ‘contract trust’.
Governments and banks, among other 'real world' institution, function on
basis of contract trust, enshrined and enforced by way of charters,
constitutions, laws and regulations etc.  Instead Bitcoin believers want
a technology-implemented, disseminated form of trust, shared and borne
by all the individuals involved, not unlike the broadcast - one-to-many
- vs. narrowcast - one-to-one, many-to-many - polarity that propelled
the Internet revolution of the 1990s. This approach forms the core of
Bitcoin’s utopian impulse.

As Evgeny Morozov puts it: Bitcoin proposes an 'algo' solution for a
political problem. It is based on the conviction that “all politics
sucks” and always will, and that technical solutions are always
'cleaner' and 'better' than social ones: “replace the messy social with
beauty of pure mathematics”, as the parole goes.[2] Bitcoin believers
hold for evident that what really matters is mastering the technology,
and that those who master the technology will rule - by right. Hence
their approach, and consequently, they themselves, should be in command
- instead of, e.g. politicians. However, Morozov’s superior Realtheorie
might very well turn out into a dead-end street. In terms of strategy it
unfortunately boils down to a collection of truisms amounting to a 'been
there, done that' brand of indifference and cynicism. Morozov’s argument
is a perfect way to close down the conversation. Stated without much of
an understanding of alternative practices, his calls to ‘return to
politics’ proves problematic because it glosses over the moral
bankruptcy of Western democratic procedures. Robust technology critique
may please ‘old media’ like liberal newspapers and established
publishing houses whose business models are crumbling under the
onslaught of the digital, the rise of social media and the emergence of
intermediate powerhouses such as Google and Amazon.

But Bitcoin holds the promise to do better than that. Does it?

The sheer size of the speculative finance complex constitutes the
macro-economic background against which Bitcoin has emerged. For quite
some time now, monetary and fiscal balances have grown completely out of
control, both in terms of quantity, as in terms of the velocity with
which they circulate - the former being also a consequence of the
latter. In many eyes, the relationship between the financial sphere and
the 'real economy' has been lost, to be replaced by a situation where
the sheer size of speculative finance dwarfs the actual needs of the
everyday, 'brick-and-mortar', products and services-based economy.

However, one of the major difficulties with Bitcoin is that it does not
scale either, but then in the reverse direction. By any count the
maximum size of the potential circulation of bitcoins is dwarfed,
several times over, not only by the size of the current financial
speculative, balances, which form a recognized problem, but also by the
amounts needed to run the 'real economy' itself. The self-imposed,
constitutive limitation on the total number of bitcoins in existence
(just short of 21 million when all have been mined', i.e. created), and
the fact that the unit of account can only be shifted nine decimal
places, reduces the usability of Bitcoin to that of a very local
currency, not a planetary one. This is but one, yet a very practical
issue with Bitcoin as an alternative to our present global monetary
dispensation.

The scarcity of Bitcoin is designed - 'it is not a bug but a feature'.
It is not due to a technical limitation, to be resolved in due time by
more powerful computers. This is probably predicated by the
retro-futurist desire amongst geeks to return to the dependable quality
of gold. The idea being to retain the timeless neutrality of gold
without its material disadvantages, abolished by the magic of the
digital. Bitcoin presents itself as destined to become the virtual gold.

But on the other hand, Bitcoin believers want to re-create a
friction-less, costs-free payment system between individuals. Thus,
Bitcoin can be seen as the revenge of the so-called small guy against
the molochs of finance who have crushed daily monetary
wheeling-and-dealing under monopolistic intermediation fees and
regulations that favour large players. However, this peer-to-peer model
is difficult to reconcile with the glorification of gold, which
basically denotes a hoarding attitude, besides Bitcoin believers’
ingrained fear of inflation.

Bitcoin has also emerged at the peak of the continuing US dollar
dominance despite the ongoing economic crisis. One of the many issues on
which the Bitcoin community of believers is strangely silent about is
the dual role of the US Dollar, the currency they, implicitly or
explicitly, take as their by-default reference. The US dollar, however,
being on one side an ordinary fiat currency, partakes in all the sins
lambasted by Bitcoiners, among others its inflationary tendency so much
feared by them. On the other side it is the 'imperial' currency of the
United States of America, welcomed and used by the entire world, and yet
subject to the sole decisions of the US Federal Reserve, usually taken
solely with the political-economic interests of the USA in mind. The US
Dollar is the all-powerful economic agent of the United States’
structural hegemony. It remains for the time being the only currency in
the world with such an 'exorbitant privilege'. The standing and position
of Bitcoin in such a dispensation are, to say the least, unclear.
Suffice to say that a true sovereign currency would never refer itself
to the US dollar (or Euro, Yen or Pound for that matter).

So far we have discussed the financial and economic weaknesses. There is
worse to come.

Ponzi Schemes and Messianic Religions

One of the main critiques addressed at Bitcoin is that it is shares its
design with a Ponzi scheme. Just as in the Ponzi scheme, the pyramid
set-up of Bitcoin turns early players into winners, at the expense of
gullible latecomers. This is not accidental but deliberate: Bitcoin is a
typically geek-meritocratic project. Bitcoin's believers' usual retort
is that people calling Bitcoin a pyramid neither understand what Bitcoin
really is, nor, for that matter, know what a Ponzi scheme looks like.
Yet Bitcoin exhibits so many resemblances to a classic Ponzi scheme that
the 'duck test' allegory easily comes to mind.[3]

At the same time Bitcoin also manifests all the signs of being a
religion. A religion with a core of true believers, absolutely convinced
both of the superiority of Bitcoin as a payment system, but also of its
unavoidable and speedy adoption worldwide, regardless of cultural and
political differences. Despite the limited options Bitcoin offers as a
financial instrument (basically only peer-to-peer transactions), Bitcoin
believers are convinced that it will actually take over the
monetary/financial system as a whole. Their argument, however, mostly
hinges on near-otherwordly certitude, the hallmark of a messianic
religion. Ominous is also the fact that Bitcoin believers hold their
currency to be so much more than a financial vehicle: a whole new,
brilliant 'way of life' (including t-shirts, ATMs, apps, gambling sites
and glossy magazines).


Open Contradictions

A possible way to reach for a better understanding of Bitcoin is to
apply a theory of open contradictions. What, for instance, represents a
payment system that turns out not to be primarily meant for payments?

"Bitcoin makes payments frictionless and free", and "hoarders give
Bitcoin value." The Bitcoin literature is replete with such conflicting
statements and associated theories — all brought forward with equal
enthusiasm. When bitcoins increase in value, the incentive to spend them
is simply absent, and only losers will spend or sell. Such
inconsistencies are ostensibly not a problem for the Bitcoin community:
with bitcoins everything should, and therefore is, possible. Yes, you
can have the cake and eat it (and own the bakery in the process). This
is especially glaring in Bitcoin's 'theory of value'. Whereas Bitcoin is
predicated to function optimally as a peer-to-peer medium of exchange,
and this preferably within a closed Bitcoin economic circuit, Bitcoiners
are encouraged to hoard their funds. After all, the scarcity of
bitcoins, whose supply is ultimately limited to 21 million units
(20.999.999,9769 to be precise), will automatically push up their value
over time.

This deflationary Bitcoin model not only gives the creeps to any
mainstream economist or politician, but it is also essentially adverse
to transactions — Bitcoin's advertised principal raison d'etre — since
every spending amounts to a distress sale. Bitcoin is here probably
victim of its origins, the culture of rugged individualism, coupled with
the anarcho-capitalist axioma that "greed is good". This, however, does
not make for sound economics, based on social exchange. The mining
principle, Bitcoin’s foundation myth and principal motor, points to a
dark past, not a common future — the necessary condition for a currency
meant to be used by billions of human being. You do not design a
currency for yourself. This forms a basic premise of economic exchange.
Slaves do not need Bitcoin. Life is subordinated to the economy. Code is
not only law but code is life.

If the original sin of fiat money is inflation, then the original sin of
Bitcoin is the hoarders vs. spenders contradiction. Out of this comes
our social and political critique of Bitcoin.

The modalities of Bitcoin — as put fervently forward by Bitcoin
believers themselves — could make it uniquely convenient as a
peer-to-peer payment system - but for all practical purposes,
exclusively so. Hence the emphasis on transactions between individual
persons, unhampered by despicable middle entities, such as banks, and
unhindered by even more despicable actors such as governments with their
bevy of regulations and ... taxes.

As conceptualized by its true believers, Bitcoin is the money of the
Multitudes. Yet, the problem is that Bitcoiners are not part of the
Multitudes — and most probably do not want to be associated with them.