Friday, October 15

Cryptocurrencies’ dream of escaping the global financial system is unraveling | Quinn Slobodian

SSince a mysterious figure named Satoshi Nakamoto first created bitcoin after the 2008 financial crisis, cryptocurrencies have multiplied. There are now thousands of coins in circulation, with names that sound like discarded intergalactic missions: Libra, Ethereum, Stellar, Auroracoin. Although they differ in brand, almost all cryptocurrencies share a common fantasy: removing the money supply from the hands of politicians and bypassing the financial institutions that govern the movement of cash on Earth. But recently it has become obvious that cryptocurrencies cannot escape any of these things.

In fact, the libertarian dream shared by its early proponents seems to be dying at the very moment that cryptocurrencies have made their way into the mainstream. The “stablecoins” are pegged to the value of national currencies, while the US Federal Reserve. developing your own digital currency. Elsewhere, the Bank for International Settlements recently lent his support to central bank digital currencies for the first time. These developments change the original purpose of stateless money. Even the recognition of bitcoin by El Salvador as legal tender is being criticized by true believers for forcing consumers to accept cryptocurrency, thereby undermining the principle of choice.

Despite Crypto’s futuristic branding, its intellectual origin story is more mundane. The idea of ​​a stateless money supply first emerged in the debates over a common European currency. While the 1992 Maastricht treaty paved the way for the introduction of the euro in 1999, this was not the only monetary model on the table at the time. A lesser-known idea, proposed by German economist Herbert Giersch in 1975, envisioned a parallel currency called Europe that would circulate alongside national currencies and compete with them rather than replace them. they. Along with other economists from the neoliberal Mont Pelerin society, Giersch thought that what he called “currency competition” in the title of a 1978 book would gradually drive people away from their liras, francs, and drachmas.

Giersch’s student Roland Vaubel, who would help found the Alternative für Deutschland (AfD) party nearly four decades later, was drafted by the European Commission to explore the idea. Meanwhile, in 1976, Friedrich Hayek, who was in regular contact with Giersch and Vaubel, published two pamphlets with the right-wing Institute for Economic Affairs. Hayek’s essays, one on “choice of currency,” the other on “the denationalization of money”- they became touchstones for those who wanted to make money for stateless people a reality.

But once it became clear that the euro had beaten Europe, libertarians began looking elsewhere for places to experiment. In the second half of the 1990s, the Internet seemed to offer a space that was beyond national sovereignty and earthly territory. In 1996, Internet activist John Perry Barlow proclaimed that The “legal concepts of property, expression, identity, movement and context” do not apply online. Some libertarians went further than Barlow and pragmatically observed that old property laws could be more secure than ever in cyberspace, where users could escape the reach of governments and national taxes. In 1998, the Mont Pelerin Society Hayek Prize runner-up predicted that the Internet would “undermine governments’ monopolistic money supply and allow people to choose between different private providers of money.”

This view of money without states was captured in a 1997 libertarian manifesto written by investment adviser James Dale Davidson and the former Times. editor William Rees-Mogg (father of Conservative MP Jacob Rees-Mogg). Disguised as an airport paperback, The sovereign individual: how to survive and prosper during the collapse of the welfare state predicted that the Internet would “denationalize” money. People could forgo government-approved legal tender and instead use immaterial “cyber money,” which the authors envisioned as “encrypted sequences of prime numbers of several hundred digits.” Cybercash, they argued, “will bring Hayek’s logic to life.”

His book became popular with a little-known venture capitalist in the San Francisco Bay Area. Young Peter Thiel was enthusiastic about Davidson and Rees-Mogg’s vision of a nationless digital currency, and in 1999 he launched PayPal, bringing his prophecy closer to reality. Thiel’s company was just the beginning of what would later become a proliferation of different digital currencies. But in recent months, a less bright future has come into focus for cryptocurrencies. The first flaw in the bitcoin model used by most cryptocurrencies is, ironically, a consequence of its own success. Solving the equations to acquire new bitcoins (known as “mining”) requires large volumes of computer hardware that often overheats and consumes a lot of power. Estimates place the annual energy use of bitcoin mining between that of Sweden and Malaysia.

And as these “mines” multiply, their operations begin to expand and even overwhelm national power grids. Iran forbidden bitcoin mining last month after it caused blackouts and possibly the closure of a nuclear reactor. Several provinces in China, one of the world’s largest bitcoin producers, also banned mining, leading to reports of miners relocating their hardware to more traditional underground mining sites in Canada, South Dakota and Texas.

Chinese repressions are extension to crypto holdings as well, causing the value of bitcoin to fall. South Korea recently attorney Tens of millions of dollars in crypto assets from its wealthy citizens in a crackdown on tax evasion, precisely what techno-libertarians hoped “digital cash” would make impossible. And earlier this month, the US Department of Justice. Announced had managed to track down and recover most of the ransom paid in bitcoin to the Colonial Pipeline hackers. The traceless coin leaves a trace after all.

Chained to Earth by cables and wires, cryptocurrencies are more likely to continue to live as an extension of the national state than as a means of escaping from it. Like the goldbugs before them, crypto fans may have to acclimate that their workhorse is at best a new volatile asset class for hedging rather than a coin. truly alternative global (although even here, opinions differ). Most travelers to the cryptocurrency craze since its initial peak in late 2017 seem to be drawn not by the prospect of bringing Hayek’s vision to life, but by a willingness to take risks for speculative rewards. In fact, the future of cryptocurrencies now seems less like a techno-utopian dream or libertarian fantasy, and more like a subordination to what it was designed to overthrow: the nation-state’s monopoly on the money supply.

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