Blog Post

Cryptocurrency and Déjà Vu

In my last post, I attempted to break down the complex architecture of cryptocurrency networks such as Bitcoin, and I described a few other mechanisms that would be possible within these networks, such as popular elections and title registration.  In the simplistic nature of my analysis, much of the social nuance that accompanies these systems was inevitably elided.  The exchange of cryptocurrencies--and the human and machine labor that facilitates this exchange--takes place in a liminal space between an immensely stratified and globally integrated neo-liberal marketplace, and a dominant ideological conception of the internet as a radically egalitarian space of technical and discursive possibility.  The extrication of these two reigning ideologies is purely utilitarian.  In actuality, the “unboundedness” of the internet both mirrors and magnifies the present “unboundedness” of capital.  Exploitation along social, racial, gendered, national, or economic hierarchies is actually benefitted by a conception of the internet as “without bodies,” as this allows for the disavowal of the very bodies, minds, and machines that serve as the framework for any social or economic interaction.  Think about how readily the neo-liberal rhetoric of “color-blindness” can be mapped on to discourse about the “level playing field,” sans bodies, that the internet provides.  I don’t mean to dismiss the incredible and truly groundbreaking projects that have surfaced in the internet era.  Wikipedia is among my favorite things in the world, and I don’t know how I would continue my learning without it.  I do, however, wish to challenge the political and economic results of the “internet without bodies.” By examining the most popular cryptocurrency markets, I hope to re-embed the internet in the marketplace and, therefore, in the material and social, human and machine interactions that define the late capitalist economy.  Cryptocurrency (and its infrastructure) provides a prescient example of the far grander problematic of digital labor, and it also illustrates the ease with which the “level playing field” of the internet is subsumed into shockingly familiar socioeconomic hierarchies.

 

During my cursory explanation of cryptocurrency mining, I mentioned that users of cryptocurrency networks can donate their computer’s excess processing power to “create cryptocurrency” and to regulate “block chains.”  Machines (personal computers in this case) are assigned to run a program that enters prime numbers (what’s known as “brute force entry”) into a constantly mutating algorithm.  The algorithm gets more difficult as more transactions occur in the cryptocurrency market and a machine either needs more time or more processing power in order to solve it.  Basically this involves the algorithm self-regulating by adding more shells of prime numbers to crack, and requiring more complex prime numbers to resolve each shell.  When fewer transactions are occurring, the algorithm is less difficult.  As soon as the algorithm is solved, a new unit of cryptocurrency is “minted.” This oscillation in difficulty results in a nearly constant supply of cryptocurrency entering into the exchange.  In theory.  At the dawn of the first hugely popular cryptocurrency market, Bitcoin, this self-regulating logic was seen as an elegant solution to conventional economic asymmetries and rampant market capture by the elite.  In tandem with the block chain system (which allows every member of the network to maintain and monitor it for themselves), cryptocurrency was hailed as an end to the vast excesses of the financial sector.  It was also a radically unique way to solve the “double spending problem,” as it placed the onus for regulation on the users of the currency themselves.  The people (users) would take the economy back into their own hands (in a fashion characterized as “disruptive”) and create a system of equal opportunity for anyone with a computer.  Barring the fact that the need for a sophisticated computer is already exclusionary, it seems that the harbingers of Bitcoin neglected two key factors in their analyses.  They didn’t take into account the fact that technological advancement (the key to their system) would eventually outstrip the system itself, and they forgot that there’s still a large group of massively wealthy and well-connected people who foam at the mouth at the mention of conjuring money “out of thin air.”  The ideological conception of the internet without bodies allowed all these “Bitcoin prophets” to neglect the actual physical and digital environment that Bitcoin would be born into.  Computers are not givens.  They are the result of exploitative practices environmentally and in terms of human labor, and they are produced and consumed in stratified global technology markets.  Computers also don’t have equal amounts of processing power, and users don’t have equal access to the internet or electricity.  Users are still required to purchase and operate computers, to pay the electricity bills for these machines, and to exchange currency for commodities on the “open” cryptocurrency market.  It turns out that there are a whole slew of physical problems that bridge the gap between the physical world and the digital one, as has been made evident by many of the theorists of the Internet Age.  

 

In the world of cryptocurrency, worth can be measured in computations per second.  As should be expected in the world of tech, this type of valuation very quickly initiated a race to the bottom--a distributed network of computers that would mutually facilitate transactions rapidly d/evolved into a supercomputer arms race.   It was discovered during Bitcoin’s meteoric rise that graphics cards were actually better suited for handling the operations required to mine cryptocurrency.  Special machines that utilize application-specific integrated circuits, or ASICs, for mining were constructed by enthusiasts, then manufactured and sold by new companies that capitalized on public desire for mining apparatuses.  These machines were able to complete the cryptographic programs necessary to mine cryptocurrency much more rapidly than even the most advanced personal computers.  Soon, running a mining program on a personal computer resulted in a sum of money that couldn’t even cover the electricity needed to operate the machine itself.  If a user wished to make any money mining, they would need to make a substantial investment in a machine dedicated specifically to the task.  The egalitarian promise began to erode.  As the personal ASIC is now becoming obsolete, the bar continues to be raised.  

 

There are now massive, multi-million dollar computer farms in areas around the globe with a productive combination of cheap electricity and cold weather (read: free GPU cooling).  These mining operations soak up a massive portion of the total profits to be had from Bitcoin, and they are not in the business of wealth redistribution, to say the least.  Dave Carlson, an American mining farm operator, says that his array mints $8 million dollars (U.S) worth of Bitcoin each month.  His machines are responsible for between 7 and 10 percent of all new Bitcoin minted.  He is an excessive case, but by no means is he alone in this endeavor.  The scale of mining operations around the globe are honestly staggering.  Processing and protecting the $3 billion (U.S.) of Bitcoin in circulation in 2014 required $100 million (U.S.) for electricity bills alone.  “Together Bitcoin's miners amount to hundreds of times more computing power than the combined output of the world’s top 500 supercomputers” (via).  And there’s the added ecological cost for all the computer materials and fossil fuel usage that this “immaterial” network necessitates.  This is something absolutely unprecedented in the history of the internet.  It’s not all that unpredictable though, in economic terms.  It is estimated that at the end of 2013 (the first full year of exchange on the Bitcoin market) 0.71% of the holders of Bitcoin owned a staggering 55% of the total available currency.  That’s remarkably similar to income distribution in the United States (and, in fact, cryptocurrency is even less egalitarian).  

 

Should this come as a surprise?  I don’t think so.  When we view the internet as a “place,” separate from the physical world, with “self-regulating” principles and a “level playing field,” we have also just outlined the classical (neo)liberal understanding of the marketplace.  A dismissal of bodies, of difference, of various abilities and systemic biases, is exactly what allows for the rampant socio-economic exploitation that is so thoroughly inscribed in the current global state of affairs.  Appeals to the possibilities in capitalism for anyone who works hard enough and innovates effectively have simply been replaced by appeals to the “bodilessness” of the internet and the “inherent” equality of opportunity that the internet will usher in.  The extraction of labor power from humans and machines, the ability to derive profits from usury, and the progression towards increased inequality, have all bridged the so-called “digital divide.”  My question is really: why would Bitcoin be any different?  I think that the most interesting thing about cryptocurrencies like Bitcoin is that they make the intrinsic flaws in economic theory manifest to anyone who uses these systems.  These new networks give you a courtside seat to watch the cycle of speculation and bust, to witness the flow of money from the hands of the people to the coffers of a select group of already-wealthy oligarchs, and to feel them compete you right out of financial viability.  They do everything that was once obfuscated by mediators and third-party investors, right before your very eyes, in the ledgers that you now have access to.  Cryptocurrency markets are, in effect, the perfect “neo-liberal economy simulator.”  Except they aren’t a simulation at all.  


What about the other applications that I mentioned? Well, better democratic and demographic techniques like voting registration and social security numbers tend to come contemporaneously with an “increased burden of representation,” to paraphrase Tagg.   Demographics can give way to surveillance, surveillance to exclusion or incarceration, so on and so forth.  Maybe increasingly parsimonious systems like these would be good for the people who exist happily within them, but what about everyone else? I will explore the utopian and dystopian possibilities of “block chain futurism” in my next post.  Thanks for reading.

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