The Messy Political Story of Bitcoin

(Bloomberg Businessweek) -- The cryptocurrency price plunge isn’t only an economic story—it’s political, too. It marks the general public’s resistance to the ideological techno-utopia promised by Bitcoin evangelists. The decentralization they promise remains a niche, even elite, pursuit.

Bitcoin wasn’t just the invention of mysterious author Satoshi Nakamoto. It relied on decades of advances in cryptography, especially those made by the “cypherpunks” of the 1980s and ’90s, a movement that saw technology and privacy as the key to creating safe spaces free from government control. Bitcoin vividly showed how computer code could enforce rules instead.

A lot of the elements that are central to Bitcoin—such as anonymity and the algorithms that dictate how to validate transactions—date to the cypherpunks. This side of Bitcoin was never really supposed to have mass appeal. Prescient writings by Timothy May, a leading cypherpunk in the 1990s and early 2000s, imagined two popular uses for anonymous digital cash: the hoarding of virtual money far from the eyes of regulators and tax inspectors, and the gambling of it in online casinos. “How will ordinary taxpayers react to reports that digital money transactions are escaping taxation?” May asked in a 2001 essay. “There may be a backlash against some uses.”

Techno-utopia is also messy. Code is better at enforcing rules than setting them. An arcane feud over whether to expand the size of transaction blocks in 2017 created an entirely new version of Bitcoin, called Bitcoin Cash. That in turn went through a second nasty split earlier this year. None of that is encouraging for anyone who needs a currency to reliably pay for groceries and rent.

Talk of Bitcoin as a tool to liberate residents of countries with authoritarian leaders or unstable currencies ignores the obvious control these same leaders have over internet infrastructure. And the idea that crypto makes wealth open to all looks less tenable as the bubble bursts. Regulators are still uncovering frauds; 56 percent of crypto startups fail within four months of selling coins, says a Boston College study; and newcomers have lost money while some early insiders are estimated to be billionaires. Assault people’s pocketbooks at your peril. —Lionel Laurent is a columnist for Bloomberg Opinion.

To contact the editor responsible for this story: Pat Regnier at pregnier3@bloomberg.net

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