WHILE WE HAVE SO FAR DISCUSSED it as currency, its advocates frequently promote Bitcoin as a new form of money (see, e.g., Emery and Stewart 2015; Smart 2015). Money and currency are not identical. “Money,” as we use the word today and as economists define it in standard textbooks, serves three critical functions: medium of exchange, store of value, and unit of account (see, e.g., Abel, Bernanke, and Croushore 2008, 248–49).[1] Medium of exchange means that a token (which need not be physical; a token might be nothing more than an entry in an accounting ledger) can be used to buy or sell products and services; store of value means that the tokens can be saved, and (despite a certain level of inherent volatility) can be relied on to maintain their purchasing power. Unit of account, sometimes also called measure of value, refers to the fact that the market uses the token in determining the value of products, which is to say, their prices. It is worth noting that, in circular reasoning typical of ideological constructions, these textbook definitions of money are frequently rejected by Bitcoin advocates, even as they insist that Bitcoin is money. That is, though Bitcoin fails to meet the criteria we have long used to identify money, we are told that we must accept that Bitcoin is money (see, e.g., both “Myths”; and Smart 2015 for conspiratorial redefinitions of “money”).
Of these three classical functions, it is arguable that Bitcoin serves only as a medium of exchange. It is possible to buy and sell products using Bitcoin. Speaking very roughly, “medium of exchange” might well be thought of as the “currency function” of money. As many economists have pointed out, though, virtually anything can serve as a medium of exchange, and nonmonetary media of exchange proliferate in our world: from frequent flyer miles to credit card bonus point programs, from grocery store coupons to high-value goods like fine art, precious metals, and gems.[2] None of these alternative currencies poses any threat whatsoever to national sovereignty over money, let alone national sovereignty itself. Yet Bitcoin advocates frequently attempt to redefine money as if the term refers only to medium of exchange.
Whether Bitcoin serves the unit of account or measure of value function is much less clear. It is rare, though not unheard of, for markets to exist that price their goods only in Bitcoin, and rarer still for those prices to exist in relation to nothing other than Bitcoin: that is to say, even the infamous deep web drug marketplaces like Silk Road and its various offshoots clearly set the Bitcoin prices for their goods according to their value in official world currencies, despite having prices nominally listed in Bitcoin (i.e., those prices rise and fall with changes not just in Bitcoin’s valuation, but in the price of drugs in national currencies). Exactly because Bitcoin lacks any relationship to bodies that need the currency to exist in relationship to mechanisms of international exchange, or of state-internal matters like taxes, Bitcoin on its own floats free of any anchor to ordinary valuing processes. If Bitcoin-only economies were to develop, in which labor were priced in raw relation to Bitcoin regardless of Bitcoin’s exchange value with world currencies (i.e., labor is priced at 1 BTC an hour regardless of whether 1 BTC is worth US$10 or US$1,000), this situation might change, but this presents the same chicken-and-egg problem we see throughout Bitcoin propaganda: if states were to go away and if entire economies existed in Bitcoin, then it could become money; but it is simultaneously said to be Bitcoin that will cause states to wither away and that will produce those economies.
The third function, store of value, is Bitcoin’s fundamental and most interesting obstacle, and the place where conspiratorial economic thought becomes most clearly implicated in the structure and usage of the software itself. Part of why Bitcoin is so well-known is precisely because of its volatility: it was Bitcoin’s remarkable climb to over US$1,000 that brought it to general public attention. Despite the fact that this is seen by many Bitcoin promoters as a “positive” change in value, a change is a change regardless of direction. An instrument that grows to 400 percent of its original value (from US$200 to US$1,000) in under a year can and will lose 80 percent of its value in a similar time period. A person storing their savings or profits from business in Bitcoin has absolutely no reason to expect that that value will be maintained over even a short time frame, and in fact has every reason to expect that it will not.
Excerpt From
The Politics of Bitcoin: Software as Right-Wing Extremism
David Golumbia
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