Bitcoin's Real Revolution Isn't Hard Money, It's Economic Panarchy

The earth-shattering thing about bitcoin isn’t its fixed money supply. It’s not the carefully tuned algorithm that keeps its growth at a steady rate, or the inability of a political body to play with its value. What’s new and government-toppling about bitcoin is that it’s a framework for starting a new economy.

Gold and silver have coexisted with governments and nation-states for thousands of years. If the economic properties of bitcoin — its finite supply — were inherently state-smashing, we’d be living in a very different world before the computer were even invented. No, bitcoin’s revolution isn’t what the Bitcoin Foundation calls its “non-political economy.”

In fact, you could argue that “non-political economy” is an oxymoron. If we define “political” as only referring to the workings of a state, then sure, you can have a non-political economy. But in the colloquial way that people often talk about “politics” — the “internal politics” of a workplace or social club, for example — there’s no such thing as a non-political economy. Any kind of money — whether it’s gold, dollars, bitcoin, or licking things to claim them as your own — only has any value if everyone in the economy agrees that it does.

What about supply and demand?
You could say that this observation doesn’t challenge the neoclassical economic theory of money very much at all. For example, bitcoin has value because there’s a demand for it, plus it’s in short supply. This is like saying that general relativity is consistent with the Genesis story, because the Earth could have been created in six “relative” days. It’s not technically wrong, just not a very helpful way of looking at the world.

I like the way David Graeber puts it in Debt:

[Money] is not a “thing” at all. You can no more touch a dollar or a deutschmark than you can touch an hour or a cubic centimeter. Units of currency are merely abstract units of measurement…If money is just a yardstick, what then does it measure? The answer [is] simple: debt. A coin is, effectively, an IOU.

Brett Scott expands on this:

Perhaps we can tinker with the word ‘money’ itself. It’s a mass noun, like you’d use for some kind of tangible substance, and it makes money sound like a ‘thing-in-itself’. As a kind of mental discipline, I prefer to use a different word: COGAS. It stands for ‘claims on goods and services’, which is all money really is.

So money is just a way of measuring who owes what: you give me something or do something for me, and now I owe you something equally valuable in return. That’s a social relation. And if a big group of people get together to agree on how their social relations should work, it suddenly starts to look political. Even the decision to use bitcoin requires the initial political decision to not screw with its politics in the future.

But wait just a minute. You see what just happened? A group of people decided that instead of using a national currency, with properties they don’t like and can’t control, decided to instead use bitcoin. That’s your revolution.

Bitcoin’s real contribution to the world is its source code. The blockchain, the network protocol, the cryptographic verification — anyone can take this and build a currency with any economic properties their community needs. I’m not convinced that bitcoin’s Austrian School properties can sustain a global (or even local) economy, but you know what? That’s okay. If I ever feel the bitcoin economy has become too unequal, unbalanced, or stagnant, it’s now trivial for me to start my own damn currency.

A single bitcoin belongs is a measurement like a centimeter, but the bitcoin community is a social network. People use bitcoin because other people they trade with use bitcoin. If my town is running low on bitcoin but has a lot of resources to share internally, we can create our own local currency to free up bitcoin for importing and exporting. Or I could join an online network of artists who work on one another’s projects, and we’d create our own internal currency that plays by whatever rules we need it to.

There is no perfect monetary system for every situation. Bitcoin is not going to be the one world currency, and it doesn’t need to be. A lot of people compare Bitcoin to the Internet, but it’s more like CompuServe. It’s the first of many digital, non-state currencies to come, that will all interoperate with each other in ways we can’t even dream of yet.

More on currency diversity
Definitely read the whole Brett Scott article quoted above. It’s a great piece on the nature of money, and what inventing a bunch of different currencies could mean.


  1. Anonymous

    unless, of course, you do the same as the USA has done and others will follow, and that is to declare it legal tender and subject to all tax and banking rules and laws. you know the yanks, if there is a way of getting money out of someone/something, they will find it. if there is a way of letting those that bribe, cheat and campaign fund of not giving up money, they will find it. as always, they think they are the rulers of the world, that no country can exist without it and it’s currency is the best, safest and strongest in existence!

    1. Scary Devil Monastery

      The main issue here being that bitcoin transactions aren’t subjected to government oversight, regulation, or taxation except with the explicit approval of the users in question.

      Indeed, unless a global world government is suddenly invented with the ability to hardware hack every electronics device from the US to China, government never WILL have such ability either.

      That’s the beauty of a cryptographic currency.

      1. Googla

        “That’s the beauty of a cryptographic currency.”
        You could just as well have written thats the beauty of egoistiical greed!

        1. gurrfield

          And you would claim that monopolism of state bank money printing presses and privately owned banks being bailed out from debt is any less egoistic..?

          Everyone will act egoistically no matter the system. That’s human nature and won’t change.

          But in a non-monopolistic system, at least you can’t gain by restricting other people’s freedom and saboutaging competition…

        2. Scary Devil Monastery

          “You could just as well have written thats the beauty of egoistiical greed!”

          You mean to say that anyone who dares believe the contents of his own wallet are his to do with as he wishes is greedy and egotistical?

          I guess you are entitled to any opinion you wish, even if said opinion means you look at anyone who doesn’t subscribe to fanatical collectivism as a dangerous deviant.

        3. Googla

          Scary you prove my point that Bitcoin draws a lot of egoistical individuals to it just like a strong magnet.
          The content of your wallet might be in your wallet and it is partly yours but it is also the result of an collective effort which require that you put some of that content back inte the system.
          Individuals who tries to fool the system just for their own winning are of course dangerous in the long run.
          Bitcoin might have some good uses which will benefit mankind but hiding income from tax is not one of those good uses.

        4. Scary Devil Monastery

          “The content of your wallet might be in your wallet and it is partly yours but it is also the result of an collective effort which require that you put some of that content back inte the system.”

          Only in a paradigm where the entire term of “ownership” has been abolished.

          By any other view the content of your wallet is no other persons than your own.

          I’m curious, do you also view a person’s body as being “collective property”? A bedchamber? A house?

          The clothes on your back?

          All of these rely on quite a lot of society in order to exist and yet you must be the first person I have ever heard utter an argument which in essence means the fiver you earned is not even yours. The same brainless argument would mean then neither is your shirt.

          Any other nonsense you’d care to propagate while at it? And while pondering that kindly express to us all in what way bitcoin would differ from, say, actual cash?

        5. Google

          No scary bitcoin isn’t even close to being cash. Cash is more usable and far more trusted. And of course the fiver you have earned is partly yours but its worth is based on a collective effort something you seem to have a hard time to understand but don’t worry that is common among most egoistical greedy people.

        6. Zirgs

          BItcoins are completely worthless without miners and internet.
          And they are only useful for speculations – buy bitcoins when they are cheap – sell them when they are expensive.
          And you need to sell them and change to more useful actual cash.

          And as I said – bitcoin network is moving in a completely wrong direction – It is rapidly becoming a lot less decentralized because of ASICs.

          I occasionally hear bullshit – bitcoins will become more useful and stabilze blahblahblah….
          Why would they stabilize if the only sensible way to use them is speculations.
          I do not see any advantage as a merchant to use bitcoins instead of euros or dollars…

  2. Nick

    Nice article Rick. But I think there is something to understand about “The Battle for Power on the Internet” A must read for everyone:

    1. Caleb Lanik

      I’m going to be slightly pendantic and point out that this article is by Mr. Green.

  3. Zirgs

    it’s now trivial for me to start my own damn currency.
    No it’s not – I do not trust you and will not accept your currency.

    I also do not trust bitcoin, because it is volatile, getting them is messy and it is mainly used for speculation and illegal activities.

    1. gurrfield

      “No it’s not – I do not trust you and will not accept your currency.”

      Well I don’t trust fiat money and banks and more and more people start doubting them by the day.

      “and it is mainly used for speculation and illegal activities.”

      That’s just because it hasn’t gotten any widespread everyday use yet. They would of course stabilize and get more legitimacy, the more “legitimate” actors start accepting them.

      1. Zirgs

        It is marketed as a get rich quick scheme – people like Falkvinge are saying that it will cost 1000 usd/btc after a year or so.

        Euro might not be ideal, but is orders of magnitude safer than bitcoins.

        1. gurrfield

          In the beginning anything is risky. New companies, new currencies, new products, new technologies… What will be a hit and what will be a flop..? Who knows?

          At least with Bit Coins there is no monopoly of printing the money and no middle men who can saboutage transactions for you because you want to buy something they consider pervy or otherwise “immoral” or “unserious”, as apparently is the case with banks and credit card companies.

        2. Googla

          Bitcoin is a kind of monopoly. And the creators of it has more shares in it than bankowners have” shares” in regular money.
          Also by making bitcoin really hard and expensive to “print” it is a somewhat idiotic conatruction which wastes enourmous amounts of energy.

        3. gurrfield

          “Bitcoin is a kind of monopoly.”

          No it’s not. Because anyone can “print” them and no-one can saboutage / stop the transactions.

          It does not necessarily waste energy, because the computations can be made in parts of the worlds which need heating. As “high tech radiators”.

          It is a shame that we still in 2013 have electricity directly converted to heat with no other benefits in between. Why not have that energy do something useful before just being dissipated as heat?

          Crypto currencies also focuses spending on computer hardware industries, which have made quite some new advances and inventions possible during the last 30-40 years.

        4. Googla

          Gurrfield all currencies are monopolies! Bitcoin is more of a private monopoly than most other currencies. And of course not everone can print bitcoin.
          Bitcoin can be sabotaged by several “forces” and probably is sabotaged right as we speak.

          Bitcoin does waste a lot of energy in fact it wastes so much that mining bitcoin is getting ridicously expensive for everyone except those that uses others computers and energy to mine.

        5. gurrfield

          “Gurrfield all currencies are monopolies!”

          No, all currencies are not in monopoly of printing new money and / or transactions of existing money.

          “Bitcoin is more of a private monopoly than most other currencies.”

          Where are your arguments? I can’t seem to find any.

          “And of course not everone can print bitcoin.”

          Again, where are your arguments? I have printed bitcoins and made transactions with them and gotten services in return.

          “Bitcoin can be sabotaged by several “forces” and probably is sabotaged right as we speak.”

          Well, any currency can be saboutaged.. The question is not if bitcoin is perfect, just wether it’s better than what we have today or not…

          “Bitcoin does waste a lot of energy in fact it wastes so much that mining bitcoin is getting ridicously expensive for everyone except those that uses others computers and energy to mine.”

          Again… lots of energy is being wasted in heating around the globe as we speak. We can easily replace that with computational power with “water cooling” transporting water to radiators. And the investments made in hardware will pay off in future applications of science and technology. Just look at how entertainment boosted GPUs (massively parallell computing) which are currently being employed in many branches of science and tech applications.

          Most improvements in our lives will be related to advances in computational power. Simulations in physics for new materials, simulations in biology for new and improved medicines, artificial intelligence, robotics. Just about anything you could think of benefits from investments in electronics and hardware…

        6. Zirgs

          ASICs do nothing to advance science and technology, because thery are useful for one specialized task only.

        7. Miles

          “people like Falkvinge are saying that it will cost 1000 usd/btc after a year or so.”

          Ironically, that benchmark was reached 20 days after your comment.

  4. Datavetaren

    Some people claim that Bitcoin may not be the final currency, that something better will take over. I can’t see that happen unless that “something else” is _vastly_ better than Bitcoin. The value of Bitcoin is its network, and that cannot be duplicated very easily. We have a couple of ten thousend miners invested in expensive tailored hardware that supports the network. Once Bitcoin is up and running and everybody can send money to anyone, it will be hard for an alternative crypto currency to pull over that network. Note that Bitcoin is not a static protocol; it can change and as long as 51% of the miners agree. Examples of such changes could be anything, such as:

    1) Switch to 128-bit integers and thus add more space for fractions to make Bitcoins further divisable.

    2) Revoke some cash, e.g. the cash confiscated by the FBI of the Silk Road raid. We could just have a set of Bitcoin addresses that would be banned by the network. If 51% of the minors thinks this is a good idea, then why not.

    And there are many more examples like that (we could even increase the money supply, but only if 51% of the miners think it’s a good idea).

    So in essence, if anything that is a good idea and 51% of the miners agree, it will be added and implemented. As simple as that. How much more democracy can you get with a money infrastructure?

    Then there’s this talk about the Austrian school and that it may not be applicable to real economy. That’s just B.S. Economists seem to be blinded by their text books and just can’t think outside the box.

    WHY shouldn’t it be possible to have a infintely divisable fixed money supply to work as a value transfer in an economy?

    People shout words such as “but an healthy economy needs inflation” blah blah. NO it doesn’t. I see inflation as a bad thing. If inflation can be completely eliminated (which Bitcoin ensures), then we achieve price stability (assuming here that Bitcoin has taken over the entire world). And NO, people don’t spend money because inflation exists, that’s another garbage propaganda statement by national economists.

    Once Bitcoin has taken over the entire world we’ll finally have a money infrastructure that is solid and cannot be manipulated. This means that politicians are forced to make sound economic decisions. They’ll not be able to spend money they don’t have and especially they’ll not be able to print new money to finance things like war and push the cost on other stakeholders.

    Bitcoin is the fairest currency ever created. Yes, early adopters are rewarded (like anything else, e.g. the gold rushes in 1800s), but I don’t see this as a big problem. Eventually all that hoarded cash will be circulated in the economy.

    Bitcoin is the greatest invention since Internet. And before that the written language as Rick sometimes mentions in his talks 🙂

    1. Googla

      “Some people claim that Bitcoin may not be the final currency,”
      Yep and they are right! Bitcoin isn’t even a currency but more of a speculation tool.

      “Once Bitcoin has taken over the entire world we’ll finally have a money infrastructure that is solid and cannot be manipulated. This means that politicians are forced to make sound economic decisions. They’ll not be able to spend money they don’t have and especially they’ll not be able to print new money to finance things like war and push the cost on other stakeholders.”

      Wow you really are absurdly naive.

      “Bitcoin is the greatest invention since Internet”
      No you must be thinking about Cronuts!

    2. Zacqary Adam Green

      Yes. And also no. Maybe.

      I find it incredibly hard to believe that getting 51% of miners to agree on monetary policy will be a sustainable way of managing the bitcoin economy. I am completely willing to be proven wrong about this.

      I also find the focus on politicians spending money “they don’t have” to be a pretty reductionist view of what’s actually going on. Hard money isn’t going to eliminate debt. Debt as a social relation predates the invention of money (and barter, for that matter; I agree with you that we should disregard economics textbooks, especially the part about the barter myth), and even with a world running on bitcoin, people will continue to promise each other to pay a certain amount of bitcoin in the future. Unless there’s an unprecedented cultural shift towards no human ever trusting anyone else, ever again, debt is still going to happen. Maybe bitcoin will be an effective system of preventing irresponsible debt arrangements. I’m skeptical. But we’ll see.

      Overall, I think you’re missing the part I said at the beginning about how gold and silver have been around for thousands of years, and haven’t brought about the kind of responsible economics predicted for bitcoin. Bitcoin is just gold that you can instantly trade over the Internet, and is a little harder to steal. Politicians found a way to be politicians with gold; they’ll find a way with bitcoin.

      Or maybe they won’t, and I’ll be proven wrong. But whichever one of us is right, the technology to deal with it is already there. If you’re right, we have bitcoin. If I’m right, we can fork it.

      1. Zirgs

        51% of miners do not control the network.
        Miners that have 51% of computing power do – that’s a big difference.

  5. Thomas

    “Bitcoin’s real contribution to the world is its source code.”
    This is also the inhereted risk with Bitcoins, the source code. Since all pieces of code are subject to errors, this it of course a risk with Bitcoin. A risk that does not exist with real world currencies.
    And there are findings of fundamental errors in the source code. Since the value of bitcoin currently is only decided by speculation, these errors are perhaps not important. But they could be – driving the value of Bitcoins down to 0.

    1. gurrfield

      “A risk that does not exist with real world currencies.”

      I would say it’s the other way around. Real world currencies are “closed source” and manipulated centrally and subject to human errors in many ways. Errors due miscalculations, egoism in state and in banks and many other factors. Most bit coin softwares are open source.

      “But they could be – driving the value of Bitcoins down to 0.”

      What is “value” Thomas?

      1. Thomas

        Of course traditional currencies have other issues! Just look at the Euro.
        But Bitcoin also has another risk, with SW and system bugs. Like the one that a team from Cornell University just published. A group of miner’s can apparently “hijack” parts of the blockchain and control it.

        What is value?? Is that a real question or some philosophical discussion?
        Value is purchasing power, how much real stuff you can buy for a bitcoin. Since the value of Bitcoin is based only on speculation, it can be anywhere between 0 and 1000, 1 000 000 or 10 000 000 of any currency.

        1. gurrfield

          IT security can affect both traditional currencies as well as bitcoins, so I don’t see how bitcoin is worse than “traditional” currencies in that aspect.

          You can probably read about credit card skimming and online phishing for credit card information at least every month or so.

          We have serious problems if IT security of the worlds softwares and hardwares has become so thoroughly compromised as Snowden claims the NSA has made it. Then both “traditional electronic transactions” as well as crypto currencies are in trouble.

          What’s the reason for people to work hard and get results in their work if some entity (cough.. NSA, FRA etc.) can just spy on your results for you and claim them as their own or sell it on to their partners..? There is absolutely no reason to work hard and do your best in such an environment.

          What value is… very related to what “money” is. Or what it is supposed to be. For as long as bitcoins are mainly used for speculation, yes it may be jumping up and down violently, but once people start using it in every-day transactions, then the value should probably stabilize.

          If that will happen (or when) is the risk of investing early in bit coins. Just as investing early in anything, a company, a new technology, whatever.

        2. Thomas

          Gurrfield, I would suggest that you do your homework on the potential fundamental issues with Bitcoin, sooner rather than later. Especially if you are speculating….
          This could be a good starting point:

          Why would NSA/FRA want to steal my money?? Please remove your tin foil hat, it seems to be to tight.

        3. gurrfield

          Thomas: Why would this “business insider” page understand this any better than I do?

          “Why would NSA/FRA want to steal my money??”

          Why would anyone steal your money? To get more money.. maybe?

        4. Thomas

          haha – no I am sure that you know best, Gurrfield.
          Who could know more???

  6. Zirgs

    There is nothing democratic about bitcoins.
    The more computational power (and money) you have, the more influence you have.
    Now that the ASICs appeared on the market – ordinary people can’t mine bitcoins at all – only few rich individuals with ASICs can.
    In the end there will not be a network of many independent nodes (because there is no point for ordinary GPU/CPU owner to mine and verify transactions).
    Only few rich ASIC owners will remain – and that will be even worse than any current fiat currency.

  7. Zirgs

    Utterly ironic failure.
    You tried to create a decentralised currency that no rich and powerful entity can control.
    And instead you created a currency that is controlled only by rich and powerful ASIC owners.
    Instead of known entities like ECB or FED – this currency is controlled by god knows what and god knows where – ordinary people have zero say in it’s development.
    Some of the ASICs might even be in the FED’s or NSA’s basements.

    1. gurrfield

      Well, bitcoins are not flawless. We should probably view them as a first try.

      NSA would not need make their own, they can probably backdoor their way to your wallet as of today… if they want to.

  8. Zirgs

    What’s better – 1000 independent nodes wih GPUs/CPUs evenly distributed worldwide – ~5 per country.
    Or one ASIC node in Iceland? (or one in NSA’s basement)
    Computational power is exactly the same, but which network is more democratic and resilient?
    Current network is more like the 2nd – the way this protocol is designed rewards more centralized computational power – and that’s exactly the opposite of what was originally intended – decentralized and distributed currency.
    If we want this currency to survive – protocol must be changed to make GPU/CPU mining profitable again – that will make network more decentralized and resilient.

    GPUs and CPUs are mass produced, cheap and available everywhere (and everybody already has them).
    ASICs are limited in supply, expensive and can be order only from few companies (specialized investment – only few people/companies have them).

    1. gurrfield

      There are many ways to create cryptocurrencies, and bitcoin is just the first try, certainly we will see other currencies being more difficult to get specialized ASIC for. Just as ASICs entered the market of bitcoin mining, that’s when bitcoin started to get mass media attention, that is a warning bell for what you claim. So in this regard I agree with you Zirgs. However if you look at litecoin for instance, CPU and GPU is still easier to use and more profitable than ASICS. And it is reasonable to assume that these cryptocurrencies are still just the first baby steps of internet currencies.

      1. Zirgs

        Litecoin is not profitable at all.
        1$ per day is not a profit – it is less than 0,5% of my daily income.

        1. gurrfield

          If you view crypto currencies as a short term investment, you are just not viewing it correctly…

          Bitcoins were worth nothing at the start and then a few dollar, then $10 now over $100 a coin.

  9. Zirgs

    gurrfield – I am talking about mining profitability. If mining stops – bitcoins will become worthless instantly.
    Of course I can just go and simply buy bitcoins/litecoins/whatevercoins to speculate.
    Currently profits from mining cannot even cover my energy costs and my computer is useless while mining.
    The less profitable mining is the less decentralized and diverse the network is – the more easier is to attack, sabotage or control it.
    If the only profitable way is to run a huge datacenter of ASICs – then we’re back where we started – with currency that is controlled by few large and powerful entities.

  10. Linda

    This article is outstanding! Thank you so much.

    I will be downloading the source code for Bitcoin as soon as I’ve finished posting this comment. For starters, I think I will be replacing the “proof of work” mechanism with something that generates real economic value besides just revving out GPU’s… like protein folding for cancer research maybe, who knows 🙂

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