Crypto-Current (057)

§5.7 —Nick Szabo begins his (2005) proposal for ‘Bit gold’[1] with the remark: “A long time ago I hit upon the idea of bit gold. The problem, in a nutshell, is that our money currently depends on trust in a third party for its value. …” Even monetized precious metals, he notes, have involved trusted third parties in their validation. Worse still “you can’t pay online with metal. Thus, it would be very nice if there were a protocol whereby unforgeably costly bits could be created online with minimal dependence on trusted third parties, and then securely stored, transferred, and assayed with similar minimal trust. Bit gold.” Bit gold in this respect is indistinguishable from Bitcoin.

§5.71 — There is something at work here that the psychoanalytically-inclined might gloss as a return of the repressed. Since the triumph of paper over metal has been the central public narrative of 20th Century monetary history, the effect is unsettling – even uncanny. The metallic model was supposed to have been left behind. More specifically, the populations of ‘sophisticated’ or macroeconomically-managed and thus at least partially post-capitalist societies were supposed to have been educated out of it, automatically. Nothing more distinctly signals economic primitivism among such peoples than metalized wealth. Explicit lessons had seemed unnecessary, therefore. A return of gold from the economic margins looked no more likely than a restoration of Germanic Paganism.[2]

§5.72 — Among the attractions of abstract metal, none exceeds its inherited, intrinsic, adamantine resistance to discretion. Formalized negatively, with maximum concision, Alchemy is impossible.[3] Gold has no greater virtue than this. It precludes magic, as silver repels werewolves.[4] The replication of this characteristic within a digital simulation is Bitcoin’s most basic achievement. It has realized homeopathic gold. Not a molecule of the original substance remains, yet the solution still delivers the cure. Fully-abstract gold has been modernity’s obscure goal from the beginning. ‘Invisible’ credit money was its defective preliminary draft. Bitcoin, it turns out, is the true Philosopher’s Stone.

§5.73 — Since Bitcoin has no central mint, it cannot generate revenue in a way strictly equivalent to seigniorage. It does, however, permit of a close analog. Early-stage miners of Bitcoin (or any related cryptocurrency) are able to accumulate substantial holdings with comparative ease, perhaps amounting to a significant proportion of the total (ultimate) stock. Similarly, early speculative investors can afford to take a commanding position in the currency during the early stages of introduction, when its price remains comparatively – and even, one might speculatively predict, absurdly – low. Of course, the introduction of speculative hazard into this analysis is already the pre-emption of a capitalistic justification. Once Bitcoin’s prospects begin to be taken seriously, these early intimations of moral-political discomfort translate into acute concerns about the profound inequality of bitcoin distribution,[5] pitched upwards into vociferous fervor in direct proportion to the extent that such spiky stock holdings could now actually mean something. Yet even for the super-rich – defined narrowly for these purposes as those with personal assets exceeding the value of the entire bitcoin supply at present prices – optimizing a financial position in the crypto-currency at this early stage in its history involves a complex game. Since any attempt to monopolize the entire stock of coins would suppress the value of BTC as a circulatory medium, it would be predictably self-defeating. The value of any currency has necessarily to be a more or less direct function of its social diffusion.[6] There can be little doubt that such calculations are in fact taking place, and their outcome – even, roughly, their ‘equilibrium’ – is among the crucial determinations of the bitcoin price. Currency monopolization – understood as ownership, rather than issuance, of the entire monetary stock – is an inherently paradoxical project.

§5.74 — It is easy to deride the notion of monetary ‘backing’ for its naivety (or in a more contemporary idiom ‘pwnedness’). The idea has become a popular icon of duped thought. Its application to Bitcoin has therefore to be considered among the very weakest of criticisms, notable more as a symptom than an argument. There is – of course – nothing at all ‘behind’ (or ‘backing’) Bitcoin beyond the implemented Bitcoin protocol itself. This is not a unique feature. It merely makes Bitcoin post-classical (‘modern’) money. It is not being unbacked that makes it modern. Nothing was ever ‘backed’ beside deposit receipts. It is the relevance of a question of backing that carries the marker of modernity. Modernity in money is ecological coexistence with residual promises to pay. Naivety and cynicism are co-produced by it. Since the abolition of the gold standard, monetary ‘backing’ has been solely political. It rests upon the credibility of an issuing authority, which in turn rests upon more fundamental public perceptions of the durability, competence, and constrained malignancy of a regime.

§5.741 — The phased process of demetallization might appear to tell a story of cumulative monetary degeneration. Yet it would be a mistake to interpret this process as a dissolution of secure foundations. There is no type of money – however metallic – that can lay claim to an absolutely inherent value, extricable from a speculative assessment of its acceptability.[7] The desirability of a monetary medium cannot finally be grounded in its substantial properties, but only in the dynamic assessment of these properties, occurring within a market context. Its value is solely ‘based’ upon the system of scarcity it creates, insofar as this is latched onto by network effects. In consequence, money is essentially prone to ontological crisis – when it is discovered to be nothing in itself. Bitcoin accelerates the advance of monetary theory into cybernetic fundamentalism. It’s turtles – or, more precisely, feedback dynamics – all the way down. By philosophical analogy, the metallist theory of money corresponds to a pre-critical epoch, and the fiat era to an idealist efflorescence of elaborate, exhaustively constuctionist anti-realism. Cryptocurrency initiates a double-sided (transcendental realist) correction. Monetary value finds no ground outside the circuit, but the circuit is ontologically autonomous.

§5.742 — Currency[8] is money apprehended as a means of payment, flowing through transactions as a circulatory medium. Its principal virtue – liquidity – is a measure of how readily it is accepted in exchange for goods and services. ‘Acceptability’ is thus roughly synonymous with commercial value. Yet, when the acceptability of any currency is analyzed, it is found to depend primarily – if not exactly ‘originally’ – upon how widely it is accepted. However tempting it may be to dismiss such a nakedly circular definition as an absurdity, the formulation is deliberate, and informative. The acceptability of money is irreducibly self-referential. Money is acceptable in any particular case only because it is acceptable in general, while generality is a cumulative product of particularity, and nothing besides. The nonlinearity is essential, rather than accidental, and cannot be resolved into anything more fundamental. This is evidently a problem of the ‘chicken-and-egg’ type, characteristic of positive feedback dynamics. Thus, as previously noted (perhaps obsessively), the virtuous circle of liquidity translates, without remainder, into a display of network effects. The utility of a network, to each individual user, grows superlinearly with the number of users. With currency, as with all systems that generate positive returns to scale, ‘nothing succeeds like success’, and there is ultimately nothing to success besides. There is no basis of value to be excavated beyond or beneath its own self-reinforcement. The supreme, self-grounding virtue of acceptability is thus practically revealed. Conceptually, acceptability is integrative, since the functions of money as a store of value and as a unit of account can be gathered under it (distinguished only formally, rather than substantially). We enter the cybernetic abyss, without transcendent ground. The succinct account of this dynamic provided by Koen Swinkels cannot easily be improved upon:

Ultimately the only thing that matters in people’s decision to use bitcoins as a medium of exchange is their expectation that enough other people will accept it as payment in the future. That alone is enough basis for people to buy bitcoins now and to invest in the bitcoin infrastructure now. […] The circularity involved in the argument is unmistakable but unavoidable and, according to the bitcoin enthusiasts, unproblematic. That’s just the thing about a good that is used as money or is expected to be used as money in the future: people value the good because they think that enough other people will value it. The circularity is just the network effect in action.[9]

§5.75 — Since Bitcoin advocacy is indissociable from claims about the quality of money, it is propelled into a collision with Gresham’s Law, as popularly – and quite adequately – summarized by the maxim bad money drives out good. Gresham-effects can be easily recognized in modern life. Given two cash notes, one pristine, the other crumpled, stained, and taped together, which would one expect the holder to be inclined to part with first? In an earlier monetary era, characterized by widespread coin-clipping – rather than germ-saturated paper – the economic significance of such decisions was more substantial. As exemplified by such examples, the most intuitively compelling application of Gresham’s Law is to physical cash. The classic archaic case concerns two coins of identical nominal value, but differentially clipped. The negative comparative appeal of the ‘short’ coin – which any holder wants as soon as possible to be rid of – accelerates its currency. A ‘pass-the-parcel’ dynamo is envisaged. Implicit within this model is the proposition that the disposal, rather than acceptance, of currency is the primary driver of its circulation. There is a crucial irony – which we will return to in its other guises – that the spontaneously-concerted attempt to shed bad money looks indistinguishable from an illustration of good money, especially when hoarding is conceived as an anti-social economic vice. Money is most stimulative when it is least wanted.[10] Yet this assumption requires a peculiar inversion. Since even minimal acceptability is non-mandatory under ordinary economic conditions, we can be confident that it is in fact the ‘good’ coin that propels the circulation of the ‘bad’ one, by sustaining the standard of value which the inferior instance parasitizes. The tacit calculation involved in every acceptance of a bad coin includes the question as to whether it still suffices to pass as a acceptable money.  

[1] See:  

Among the comments, there is much of interest to be found. Sampled glancingly:  

“…you might want to check out It’s a decentralized, P2P, cryptocurrency based on a proof of work algorithm.”  

“Congrats on inventing BitCoin …”

“Thanks for laying the foundation for bitcoin Nick …”

“One day, people will look upon this post as the actual genesis moment of Bitcoin.”

[2] It would be tempting at this point to make a topic of progressive complacency, but in the present context it would be a digression too far. It need only be said that extravagant conclusions can easily be drawn from the realistic apprehension of ratchets. That there is no way back says much less about the resilience of the new order than is commonly supposed.

[3] Much could no doubt be made of the fact that Isaac Newton was both an alchemist and the Warden of the Royal Mint. It is surely unnecessary, nonetheless, to insist that we see here something other than a simple contradiction. The poacher-turned-gamekeeper phenomenon is surely an important part of the story. Having paid serious attention to the possibilities of magical money-creation, Newton was well-placed to understand how the enemies of hard money think.

[4] Thus gold is hated among magicians. The antagonism is explicit. In the Macro era, the gold market offers an audience reaction to financial conjuration. It measures negative applause. “Jim Grant … describes the price of gold as the reciprocal of the credibility of central banks …”


[5] In a (January 2014) article, Joe Weisenthal cites Citigroup currency analyst Steven Englander on the inequality of Bitcoin holdings. He attributes a Gini coefficient of 0.88 to its distribution. This significantly exceeds any wealth disparity ever measured within nation states. Despite this, Englander suggests the figure is probably an under-estimate.

[6] A fully-monopolized monetary stock would correspond to a multiplication by zero. In Libidinal Economy, Jean-François Lyotard applies exactly this formula to the classical mercantilist valorization of unbounded bullion accumulation, which is thus exposed as a political-economic death drive. Comprehensive possession of a commercial medium is self-extinguishing. A powerful trading position does not extrapolate to absolute concentration. In monetary matters, there can be no completion of advantage. This ‘paradox of wealth’ is further accentuated in the case of Bitcoin, since adoption in this case has to be coaxed, under conditions never less than difficult, and – at least potentially – openly hostile.

[7] To quote Michael Goldstein (@Bitstein, from a tweet 2015/01/13): “I rarely see skepticism of Bitcoin that is not more generally just skepticism of money.”

[8] A currency (from Middle English: curraunt, “in circulation”, from Latin: currens, -entis) is money circulating as a medium of exchange.

[9] See:

[10] Gresham’s Law identifies the attractiveness of a monetary medium as a source of commercial friction. Monetary quality, under the most straightforward construction of the argument, poses an intrinsic obstacle to spending. Money is thus already modeled, implicitly, as ideally repulsive. In this regard, Keynesian Macro appears as a higher Greshamism. Good and bad switch places. Or rather, the good money people would prefer to keep is denounced as an evil temptation to ‘cash preference’. It is the bad money, intrinsically motivating its own disposal, which now counts as ‘good’. A slave revolt in monetary theory has then taken place.

3 thoughts on “Crypto-Current (057)

  1. “Since even minimal acceptability is non-mandatory under ordinary economic conditions…”

    Maybe I’m reading this wrong, but isn’t this backwards? I feel like it should say something like, “even a nominal acceptability is mandatory”. Isn’t your point here that the inferior money is usable insofar as it can be passed off as a superior (and thus acceptable) money?

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