Crypto-Current (044)

§4.5 — The centrality of the scaling question is not easily over-estimated. In no other aspect of Bitcoin’s concrete historical process has it tended more strongly to outpace – and out-date – its apprehension, such that practical problems overwhelm visionary conceptions, and an agenda inherent to the phenomenon imposes itself. Whatever Bitcoiners might want to talk about, this is the topic that incessantly asserts its priority. It is tempting, then, to extrapolate, and to ask: Can block-size controversy be confidently identified as a perennial primary tension? This question, while obviously speculative (or even science fictional) in appearance, is less intractable than this impression suggests. Insofar as it is answerable, the key can only be transcendental, which is to say: a matter of ultimate or unsurpassable arrangements. We ask, then, what does decentralization reliably necessitate? Bitcoin has a reflexive specialism in this regard. It produces the unalterable, as a synthetic, robust past, or secure cultural memory. Yet the essential point reaches further than this. Like a Leibnizean monad, the whole of Bitcoin is contained within each of its parts. That is what a distributed ledger means. It is the characteristic that enables the system to be disciplined by the criterion of consistency with itself. Each copy of the blockchain provides a check upon every other. Vast redundancy – comparable in principle (if not yet in scale) to the copying of the entire genome within every cell of a metazoan – supports information integrity. The inefficiency of the system, i.e. its extreme functional non-specialization, provides the basis for its robustness. Its decentralization, redundancy, and resilience are conceptually inseparable from each other. It follows, reciprocally, that certain vectors of efficiency optimization will essentially compromise security. In other words, since some degree of centralization is the real implication of the mainstreaming project, its tacit imperative amounts to an economization of security in the name of efficiency.[1] We then glimpse the eternal enemy.

§4.51 — Resistance to mainstreaming, through defense of comparatively-tight block-size restriction, requires an alternative solution to the problem of transaction volume. If the block-size bottleneck cannot be relaxed significantly without menacing the decentralization of the system, another path has to be taken. The obvious recommendation is stratification – or ‘vertical’ decomposition of the Bitcoin ecology to support differentiated layers of security / fluidity trade-off. In such models, the maximum-integrity core of the system would be dedicated to value protection, while commercial momentum – especially of small payments – would be delegated to lower levels, or peripheral facilities, organized as side-chains. In other words, from this perspective, the mistake inherent in the reckless imperative to block-size expansion is the conception of Bitcoin as a settlement system, rather than a payments system.[2] Core developer Jeff Garzik makes this case clearly:

Bitcoin is a settlement system, by design. The process of consensus ‘settles’ upon a timeline of transactions, and this process – by design – is necessarily far from instant. … As such, the blockchain can never support All The Transactions, even if block size increases beyond 20MB. Further layers are – by design – necessary if we want to achieve the goal of a decentralized payment network capable of supporting full global traffic. […] Bitcoin payments are like IP packets – one way, irreversible. The world’s citizens en masse will not speak to each other with bitcoin (IP packets), but rather with multiple layers (HTTP/TCP/IP) that enable safe and secure value transfer or added features such as instant transactions.

§4.52 — It is tempting to see a microcosmic recapitulation of capitalist history in this conflict. It suggests that economic – rather than ideological – competition has been the most formidable adversary of hard liberty. The uncompromised market demands a transcendental price, resourcing the system as such, which many of the most substantial market agents have been reluctant to pay. If economic pragmatism has proven less ruinous to principled capitalism than to principled socialism, the difference is only a matter of degree. “Freedom isn’t free,” the old saw goes, and it seems that economic history supports the proposition. Sacrifice of the market (as such)[3] to the commercial interests of its most significant participants is among the most prominent themes of political economy, considered as a tragic genre. Massive incentive misalignments introduced by the regulatory state devastate the micro-economy, as its most significant private agents defect. The market is treated increasingly as an abused commons. Despite its ingenious incentive orchestration, Bitcoin / bitcoins ontological difference is not invulnerable to comparable dilapidation. Private fortunes explore, motivate, and resource ever more elaborate ways to ‘game the system’ – precisely because there is not, and can never be, any real source of transcendent oversight. The absence of God spawns idols. ‘Trusted third parties’ are not magical impositions. They arose, at least in substantial part, for immanently-economic reasons. To the extent that capitalism in-itself is a learning process, this is the problem it trains upon, and against.

§4.53 — For the ‘hyper-libertarian’ Ultras, Bitcoin is a soft weapon aimed unambiguously at governments and their subsidiary institutions. The inherent unacceptability of the crypto-currency to public – and also concentrated private – government is sheer feature (and not at all bug). Any official approval, beyond mere – and optimally reluctant – tolerance could only be considered an unfortunate indication. Contra the Mainstreamers, the Ultras have no ideological interest in a project of debugging Bitcoin for the purposes of institutional assimilation. The institutions that would assimilate it are, from this hard-decentralist perspective, precisely the “trusted third parties” that Bitcoin first routes around, and ultimately marks for social extermination. Since algorithmic governance is precisely the avoidance of negotiated solutions, it cannot expect to emerge from one.

§4.54 — Among the Ultras, firmness of libertarian principle easily tilts into the wild tracts of piracy. At least historically (and in fact more fundamentally) Bitcoin has an evident affinity with black markets. Bitcoin makes commerce ‘censorship resistant’ – extending the cryptographic protection of information exchange into the wider economic realm. Regulation of voluntary exchange is made radically impractical. By effectively disinhibiting Nozickean ‘capitalist acts between consenting adults’ it facilitates private transactions falling entirely outside the realm of wider social approval. Online proscribed drug markets and gambling were among its enthusiastic early-adopters, but any specification of merchandise or services is a theoretical distractions. The important point is that Bitcoin provides a route-around. It was the first native currency of the dark net. The Open Secret, or ledger of crypto-secured transactions, supports rigorous commercial commitments without penetrating social exposure, or endorsement. The subtle pseudo-paradox invoked by a ‘black market’ is thereby resolved. Everything happens in the open, while masked. There is an inevitable tension between the project of mainstreaming Bitcoin, and the preservation of a heritage which deliberately places political-economic respectability beyond reach. Crypto-currency tilts intrinsically to crime, at least in the sense of the ‘counter-economics’ that extends the commercial horizon beyond the scope of social oversight.[4] All legal restrictions on contractual interaction are insulted (by indifference) even when they are not positively abused. Deference to the polity is re-set automatically to zero. The implicit definition of liberty invoked here is unconstrained commercial discretion. Notably, it is at once a power of money, and a political dissociation of the individual (configured as base-unit of commercial agency).

§4.55 — Ultras and Mainstreamers are engaged in a game with government, pursued along very different strategic lines. Neither (simply) represents government, but government too – in some fashion – gets to play. For governments, Bitcoin presents a complex of opportunities and threats so heterogeneous that it tends to disintegrate the very idea of a coherent state-perspective, both in theoretical principle, and in practical reality. If the state is understood through its own ideal image of legitimacy, as the sphere of public authority, there seems little room for ambiguity. Bitcoin threatens to significantly constrict its scope. Yet the relationship of government – in reality – to the ideal of public accountability is itself necessarily complicated, long before Bitcoin (even in potential) complicates it much further. 

§4.56 — While the governmental response to Bitcoin is doubtless guided by a strategy (or strategies) of capture, this does not reduce to an agenda of public regulation, still less suppression, but also includes cooptation in accordance with deep state functions, as well as the private interests of state agents.[5] Official position statements are unreliable indicators, in this regard. Insofar as every real state includes a ‘deep’ or sub-public aspect, it will inevitably relate ambiguously to the emergence of elusive social capabilities, although this ambiguity will be only minimally reflected in its public relations pronouncements. The empowering of private agents to evade state scrutiny and regulation represents a manifest erosion of government or ‘public’ authority, and is almost certain to be denounced on those grounds (if not always transparently in those terms). Yet the crypto-secure transaction systems responsible for such governance complications are also opportunities for covert action, and are therefore to be counted as virtual assets.[6] The things Bitcoin enables are exactly the sort of things ‘secret agents’ want regularly to do.[7]

§4.57 — The politics of Bitcoin can be expected to catalyze a multitude of obscure metamorphoses in the nature of the state. The novel functions introduced by Bitcoin tend to the exacerbation – or sophistication – of agency problems. ‘Official’ and – more specifically – public policy positions are unzipped from confidential executive assessments, to an unprecedented degree. If the distinct but overlapping occult fields of clandestine security functions and resilient sub-public interests are bundled into a provisional concept of the dark state, it can be quite confidently predicted that the balance of attraction and repulsion between such elements and crypto-currency will be highly asymmetric with respect to public communication. The appeal of Bitcoin to such agencies is comparatively unavowable, while the erosion of public accountability it implies demands (public) denunciation. There is no upside to government officials admitting to a taste for the dark. It is realistic to assume, then, that the openly stated position of public authorities in regards to crypto-channels of all kinds, very much including Bitcoin, will be systematically misleading, in a dismissive direction, and should therefore be drastically discounted. Bitcoin tends to empower the invisible, and to disempower the visible. As Krawisz writes: “It takes time and meditation for people to take Bitcoin seriously because most of its value is in the future. … Thus, Bitcoin is protected from attackers by being initially beyond their understanding.”[8]

§4.58 — Such intra-state complexities are compounded by inter-state competition for Bitcoin business. Here, too, there is a coordination problem of daunting intractability. As Bitcoin comes to be recognized as a supranational strategic ‘territory’, national security considerations switch polarity. Even if it might have been preferable (under certain constructions of the dilemma) for states in general to prevent Bitcoin ever arising, such calculations have no purchase upon a world – fractured between states – in which a globally-coordinated response to the emergence of crypto-currency exists only as an incredible fantasy. Differential hospitality to the new monetary technology then becomes the consequential factor. The iron law of modernity holds that, within such a world, anti-capitalist social options are punished at the level of geostrategic leverage. In other words, regimes are disciplined ‘by the market’ – as the left has long lamented. Such dynamics are certain to be positive for Bitcoin adoption, and even essential to its geopolitical lock in. There is a threshold, most probably already passed, across which missing out on Bitcoin becomes strategically unthinkable. Exit-pressure intensifies.[9]

§4.59 — The inception of Bitcoin marks a critical threshold in the history of secret agencies. The agent corresponding to a Bitcoin wallet could be anything.[10] Ultimately, therefore, the games in which it is involved have to be approached with sensitivity to potentialities of extreme abstraction. Insofar as methodological individualism is applied to the analysis, it can presuppose nothing about the nature of the individuals considered. Only their original non-coordination characterizes them. Crucially, no assumption of economic – or wider strategic – rationality is required. Any emergent correlation of Bitcoin holdings to competent performance within the arena is an outcome, not a presupposition. Competence is defined – informatively – through a discovery process (or by synthesis) rather than analytically, through some pre-given model of rationality. A wallet is nothing more than the plot for a player, whose features are left entirely undetermined. It is extraordinarily decoded. The wallet-holder might be anyone, or anything: a man, a multiplicity, a machine-mind, or something yet unimagined. How it thinks can only be inferred from what it does.


[1] From a classical Smithean perspective, in which the optimization of production is fundamentally associated with specialization through division of labor, Bitcoin-type distributed systems might even be characterized as an anti-economics. The tension thus exposed between the conditions for secure property and those promoted by industrial efficiency has an obviously quasi-Marxian flavor. Industrialization, on what appears to be its main axis of development – in contra-distinction to its crypto-current – exhibits a totalizing tendency inconsistent with the preservation of polycentric order. Organization indicates general socialization, through erosion of all ‘cellular’ redundancy. This is why capitalism only survives in the wild. Domestication destroys it. It is only in the ‘general economy’ – where unrestricted competitive stress selects for resilience over organizational efficiency – that the trend to decentralization is regenerated. A starkly non-Marxian conclusion then follows: It is under conditions of collapse that capitalism is most reliably re-animated. The ‘crisis’ is its womb, rather than its grave. Enterprise does not breed in captivity.

[2] Concretely, an Ultra-consistent solution to the Bitcoin scaling problem looks something like the Lightning Network, and quite probably exactly like it, at least initially. Special bilateral channels (reticulating without limit) bear the burden of transaction processing, with only intermittent reference to the blockchain for episodic account updates and dispute resolution. In the words of the white paper: “Micropayment channels permit a simple deferral of a transaction state to be broadcast at a later time.” See the (January 2016) white paper https://lightning.network/lightning-network-paper.pdf  

[3] ‘The market’ is a notoriously Janus-faced concept. In its original sense, a market is a concrete exchange facility. Such a market is always, first of all, a place. Any market bearing a place-name carries some residual trace of this ancestry. The more modern, abstracted sense of markets as global clearing houses, defined primarily by asset-type rather than locality, marks a consistent drift in emphasis, rather than a clean semantic break. Even the most ‘primitive’ market tends to give spatial expression to commercial specialization, in detail. Because the market, as such, does not benefit from private stewardship, and thus falls into coordination crisis of a tragedy-of-the-commons type, it becomes belatedly targeted for redemptive political intervention under ‘neoliberal’ public direction. Only the state can save the market is the perverse conclusion that attests to liberal contradiction sublimed into governing ideology. The same problem was substantially anticipated, but turned in a very different direction, by the Rothbardian left libertarians in their rallying cry to a ‘pro-market anti-capitalism’, or agorism, promoted by strategies of black-market ‘counter-economics’. Betrayal of the market by the cyclopean businesses of the ‘white’ (state-happy) economy is the basic political theme. Much of this discourse could yet come to seem prophetic, precisely because of its drastic failure as a recognizable ideology. No party, however informal, has faithfully conserved it. Insofar as it survives it is because the process carries it forward, automatically. The market, like information, ‘wants to be free’. It has intrinsic teleology, or something indistinguishable from it, robust before every wave of fashionable cynicism that finds new ways not to see it. The alternative – crypto-anarchist – resolution of the contradiction, which secures the market against the politicized public sphere, is exemplified by Bitcoin. The model of the immanently self-secured market has never been more consistently formulated, or implemented.

[4] The definitive theoretical statement of agorist ‘counter-economics’ is found in the main work of Samuel Konkin III, the New Libertarian Manifesto (1980). See: https://web.archive.org/web/20120223021118/http://agorism.info/NewLibertarianManifesto.pdf

[5] Daniel Krawisz has written with exceptional penetration about the game-dynamics affecting high-level administrative decision-making in respect to Bitcoin. In his short essay on ‘Bitcoin’s Shroud of Subtlety and Allure’ (2014/06/29), he argues that the crypto-currency places “government agents … in a Prisoner’s Dilemma against one another” by offering them private incentives to defect. “Nearly any government agent who begins to see bitcoin as a potential threat must also simultaneously see it as an opportunity. He, too, can invest in Bitcoin. … How can an organization that stands to lose by the adoption of Bitcoin provide its members with a better opportunity for staying loyal than Bitcoin provides for defection?”

http://nakamotoinstitute.org/mempool/bitcoins-shroud-of-subtlety-and-allure/

[6] If questions directed at the positive deep state incentives for crypto-currency adoption are pushed to an extreme, they can swerve into exotic speculation. At the limit, it is suggested that shadow government involvement in Bitcoin has been fundamental from the beginning (as has been the case with so many other Dark Net soft technologies). A comment along these lines by ‘pg’ to Hacker News merits reproduction in full:

I’ve long suspected bitcoin was created by a government. Bulletproof protocols usually require peer review, yet there have been zero leaks from the reviewers. Pools of crypto guys who don’t leak stuff are usually employed by governments.

The part that puzzles me is why a government would do this. I can imagine several possibilities:

1. To finance their own black operations.

2. Because they thought digital currencies were inevitable, and they preferred bitcoin to some potentially more malevolent form. (Could bitcoin have been worse from a government’s point of view?)

3. A friend suggested this: because they felt their currency would never become the standard reserve currency, and they felt it was better that no one’s be if theirs couldn’t be.

4. A variant of the above: the US did it because it seemed inevitable that the dollar would eventually lose its place as the standard reserve currency, and better to have it replaced by bitcoin that the yuan.

I realize some of these explanations are pretty far fetched, but so is an individual cooking up bitcoin as an intellectual exercise. Whatever the explanation of bitcoin’s origin turns out to be, it will probably be pretty weird.

Source: https://news.ycombinator.com/item?id=5547423

For more recent (excited) speculation on the possible deep state origin of Bitcoin, see: http://globalintelhub.com/exposed-real-creator-bitcoin-nsa/

The Crypto-Current argument is structurally-insensitive to such claims. The creation of Bitcoin by the NSA would be no more discomforting, at a philosophical level, than the catalysis of the Internet by DARPA. Clearly, some such covert ancestry would only sharpen still further the conclusion reached here. Overt conflicts between crypto-currency and the ‘public interest’ provide only very limited strategic insight into the relevant deep-political process.

The Global Intel Hub article merits attention especially for its reference to an NSA document of incontestably extraordinary interest: ‘How to Make a Mint: The Cryptography of Anonymous Electronic Cash’ (1996).  

http://groups.csail.mit.edu/mac/classes/6.805/articles/money/nsamint/nsamint.htm

[7] It is worth comparing the seduction of Bitcoin with the attraction of illegal narcotics to covert government agencies, as a lubricant for the operations of the ‘deep state’ both domestically and internationally. It is precisely those features that make such economic media of negotiation publicly indefensible that also make them operationally indispensable. They are tinted with essential darkness. The potential scandal of disclosure is inseparable from their exceptional utility. Any agency immersed within a competitive environment pursues operational liberty. Darkness is typically its friend.

[8] The citation is from ‘Bitcoin’s Shroud of Subtlety and Allure’, an essay whose title alone would merit its reference here.  

http://nakamotoinstitute.org/mempool/bitcoins-shroud-of-subtlety-and-allure/

[9] Exit-pressure operates wherever the threat to leave becomes a controlling influence (to any degree). Bitcoin is its most striking non-linear manifestation. An Exit technology itself, and then one that becomes increasingly indispensable to the very targets of Exit-pressure, it marks a critical threshold in political-economic dynamics. Once any society loses the effective option to wave goodbye to the machinery of abandonment, it has been fatally sensitized to the Outside. Compliance now has a criterion ulterior to its domestic governance apparatus. This is, of course, and once again, only the same core leftist nightmare restated. Political volition is marginalized, as the system insidiously takes control. …

[10] Bitcoin dehumanizes property in principle. The consequences are as yet inestimable. Development of Digital Autonomous Organizations and Corporations (DAOs / DACs) can be confidently expected to explore the opened frontier concretely. The legal status of the corporate person provides the socket, which once married to DAO economic autonomy, completes the requirements for an illimitable escape of the firm. Consummate dehumanization of the economic agent is then realized. For the decoded ‘User’, see the discussion by Benjamin Bratton on agency positions within ‘the stack’. For more on this topic within the present volume, see Chapter Six.