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The world’s stock exchanges currently have an offer that many ‘digital natives’ don’t want to turn down: “Trade on the official crypto exchange,” the advertisement reads.
In the spring of 2021, bitcoin made headlines because its value “exceeded the magic limit of $50,000” per unit (Rs 38.37 lakh). But how did the criticism of a few hackers of the so-called “fiat money” – the money that we use every day – turn into a piece of code rarely used for purchases but has become popular as an object of investment?
Let’s begin in 2008, when Satoshi Nakamoto – a pseudonym either of an individual or a group – created bitcoin. According to Nakamato, the impetus for his action was a criticism of modern money, or the so-called fiat money. ‘Fiat’ is Latin and means, approximately, “it is done”.
Nakamoto’s diagnosis of the problem with fiat money, in their words: “The core problem of conventional currencies is the degree of trust that is necessary for them to function.” According to the critics of fiat money, this trust is being abused – by central banks that devalue it, by banks that speculate with their investors’ deposits and, last but not least, financial institutions that charge fees for remittances.
This is all quite remarkable in itself. That money defines a whole society in which exactly the production of this abstract wealth is the highest purpose – in which therefore cars, cucumbers and tables are not manufactured because someone wants to drive, eat or use them but that someone wants to use them only to get at the money. That one invests money and so through capital has a veritable command over workers. That this command then sets up a production process that turns money into more money, in that the workers accumulate this abstract wealth and at the same time are separated from it. Nakamoto may not know it but it is the subject of their criticism. But in general, Nakamoto is not interested in what money is.
Instead, what they are concerned with is the question of how all of this can work better. For example, they see fiat money as a poor way to implement the ‘useful’ functions of money. In their words: “What is needed [instead] is an electronic payment system based on cryptographic proof instead of trust, allowing two willing parties to transact directly with each other without the need for a trusted third party.”
So Nakamoto et al created bitcoin to perform these functions better, with no devaluation, no costs, no payment uncertainties. This seems like a worthwhile endeavour to them precisely because they know that everything depends on money in this society.
However, there remains a contradiction: to create something that is supposed to make the capitalist economy function better, by declaring the very substance around which everything revolves – money – to be a rather minor matter that can be replaced with something else just like that.
Let’s take a closer look at this contradiction. In form, bitcoin, like money, seems to be an act of definition. Nakamato: “We define an electronic [coin] as a chain of digital signatures.”
Why not – considering we know that fiat money was also originally worthless pieces of paper that the state said could be used as a means of payment?
But what Nakamoto et al unfortunately miss is the content of the state’s definition. With a monopoly on the use of force, the state obliges its citizens to ownership and enforces with its laws the fact that printed bills are to be accepted by all citizens as a means of access to all private wealth – and is therefore wealth itself. Through state sovereignty, money is set as the measure and means of abstract wealth.
Of course, bitcoin does not have this content at all, which is why it is not money, but a piece of code that has been designed in such a way that it can be transferred back and forth, particularly anonymously and securely, as data and is otherwise quite self-referential in every respect. Whoever has a Bitcoin has nothing but this itself, a piece of information technology that one can put into one’s virtual safe and from there transfer it again to other addresses – if they have an interest in this bit of data.
The critics of paper money have noted this in their very own way, and they immediately found a solution. According to Nakamoto: “The essential point is that once an exchange between money [like US dollars or Indian rupees] and bitcoins can take place, commodity producers have a means to value bitcoin as a possible medium of exchange” (emphasis added).
This is, on the face of it, an admission that bitcoin has neither value nor is it money. The inventors of bitcoin simply took the position that there has to be a relation between their product and real money, so that, thanks to the price of bitcoin in dollars, one could turn the equation around such that all goods that could be expressed in dollars could be expressed in bitcoins as well. Using the same logic, one could also declare cars, cucumbers and tables to be money – because via the price of these goods, one could conversely also express every other good in a certain quantity of cucumbers. But by this point, the “bitcoin economists” had already overlooked other different contradictions.
At the beginning of bitcoin’s history, in May 2010, a fellow named Laszlo Hanyecz ordered two Papa Johns pizzas and, as an experiment, paid for them with 10,000 bitcoins. The actual cost of the pizzas was $41, so through his transaction, a relationship was forged: that 10,000 bitcoins were worth $41. Of course, this didn’t change the fact that bitcoin is inherently worthless, but some internet-savvy businessmen soon started to sell goods in exchange for bitcoins on this basis.
Bitcoin’s value determination as a result of these transactions reflects nothing other than the price that is paid in the end, because there is no value at all that finds its expression here in the bitcoins themselves. So bitcoin could have eked out an existence as a gimmick for enthusiasts of digital currency, nothing more. But then, bitcoins were discovered by those considered an authority in our society on creation of value from nothing.
The stock exchange
The stock exchange confirms in its own way that bitcoins are completely worthless. Experts of fictitious capital particularly appreciate this characteristic of it, that it is completely indefinite. So they take the very absence of any value and use it to speculate on the “promise of payment” of a digital currency.
Such windy deals are, of course, part of the core competence of finance capital: bitcoin is listed as an article of trade and therefore the virtual money becomes a speculative investment. The digital coin is given a rate, which still does not make it money, but conversely equips bitcoin with a price, securitised by the stock exchange.
Because the price of bitcoin does not depend on anything other than speculation, and since it does not represent anything other than speculation, it is in its own way in good hands in the stock exchange. It has become an object of value whose value depends on nothing other than speculation on its increase in value.
No one involved with the stock exchange finds this maddening. Instead, those who initially just had a few beers from friends paid for by bitcoins and who have now become millionaires through the speculation of finance capital are considered ‘visionaries’. And the stock exchange advertises that anyone can now participate in this nonsense, quite simply via an app.
This is a steep evolution. What started off as a criticism of the functionality of money, what went over to the construction of a form of value that is not money and what at the end is being traded as if on the stock exchange (exactly because it is otherwise worthless) is today bitcoin.
In the logic of capitalism, another false criticism of money has allowed it to be integrated in the established circuits of finance and has been turned into a business. In this best of all worlds, even great nonsense is of value as long as it allows someone, somewhere to make more money out of money.
If you’re interested in delving deeper into criticisms of bitcoin, read this excellent article. This article was first published by Kontext: Wochenzeitung in German. It has been published on The Wire with permission, after being translated with www.DeepL.com/Translator and then further edited by The Wire for clarity.
Peter Schadt is a secretary in Germany’s DGB trade union. His doctoral thesis, entitled ‘The Digitalization of the German Car Industry’, has been published in German by PapyRossa.