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This is a free preview of a paid episode. To hear more, visit plus.flux.communityEpisode Summary“The personal is political” was one of the early rallying cries of the Second Wave feminist movement. Decades later, the universal adoption of the internet has led to a new culture around cryptocurrencies with an ethos that could be summarized via similar phrasing: “The personal financial is political.”After decades of languishing in rightful obscurity, extreme forms of anti-government libertarianism have seen a massive influx of converts by melding crank views about the Federal Reserve and fiat currency with a desire to get rich quick through buying and selling made-up digital tokens like Bitcoin, Ethereum, even joke ones like Dogecoin.Most people don’t understand how cryptocurrencies work as a technical matter. But they also don’t understand the politics behind cryptocurrencies either. That’s a serious problem because underneath all the hype is a radical anti-government ideology that seeks not just to overthrow government currency but even democracy itself.For this discussion, we’re featuring David Golombia, the author of the book, “The Politics of Bitcoin: Software as Right Wing Extremism.” He’s also a professor of English at Virginia Commonwealth University.The lightly edited video of our conversation is below. The transcript of the edited audio follows. Please note that you must be an active Flux subscriber to access the entirety of this discussion. Thank you so much for your support. Please subscribe today for as little as $3 per month.TranscriptMATTHEW SHEFFIELD: Welcome to Theory of Change, David.DAVID GOLUMBIA: Thanks very much for having me.SHEFFIELD: All right. Well, as I mentioned in the intro, I think a lot of people know cryptocurrencies exist. They know that Bitcoin exists. They don’t really understand how it works.So why don’t you, before we get started into more of the discussion here, just give us an overview of when did cryptocurrencies get started, and how do they work?GOLUMBIA: Sure. Well, the history here is kind of complicated for a lot of different reasons, which we might be able to get into.One of the most important historical strands for understanding them is the operations of a group of people who we should talk more about variously called the “cypherpunks” or the crypto anarchists, who since the late 1980s had seen a number of digital technologies as being tools with which they could attack what they call the state, but which I prefer to call democracy.And it’s pretty clear that to them, these two things are identical. What they hate is democracy, and they are doing whatever they can to destabilize democracy. One of the things that these people saw from the very beginning was– in their own view, which is a conspiracy theory type view– that because in their view the state controls money, and we can talk about what that means exactly, but they thought, oh, well, we should have our own form of money that the state won’t be able to control.And since the early 1990s, these cypherpunks have been trying to develop alternative currencies that would sit outside of the quote unquote state financial system.What they mean by that is always very unclear, especially as we get into practice. But during the 1990s and early 2000s, they iterated several versions of a currency that could somehow sit outside the regular financial system. And Bitcoin was probably, it was probably the 20 or 25th version they came up with in practice.Several of the earlier versions were taken down by law enforcement because one of the ideal functions of cryptocurrency is to purchase services and products that are illegal otherwise.SHEFFIELD: So the idea though of crypto, what the crypto in cryptocurrency, what does that mean?GOLUMBIA: Well, it’s funny. It comes out of the fact that these cypherpunks, the thing they are obsessed with is encryption. And encryption technology brought– I mean, encryption isn’t even a technology, it’s just a method, it’s the thing that spies use to communicate with each other. It’s any form of obscuring a message using some kind of regular technique that then the person who is supposed to get the message can und decipher, can decipher for themselves, right?So any kind of code into which something can be encoded and then later can be decoded as a form of encryption, the cypherpunks realized early on that.Machine encryption, machine enabled encryption could potentially make messages very difficult for somebody to intercept and decode on their own. Because in the real world of encryption, there are three parties. Right? There is the person who writes the message and encodes it, and the person who is supposed to receive the message and has the authorized.The proper tools for decoding. And then there are the people who are watching in the middle, the third party, who might be able to use a variety of other techniques in order to see the transaction or the message that they aren’t supposed to see. That’s famously what Alan Turing became well known for, is that he developed a computational tool, a bomb, that helped to decode encrypted German messages during World War II.The cypherpunks are really paranoid, and so one of the things they think is that government is trying to watch everything we do, which is not untrue, taken in on its face. And so they were kind of, and still are, convinced that if they could encrypt every message with very strong encryption, they could prevent government from seeing what they’re doing.So part of their goal was to have a financial tool that was heavily encrypted, and that couldn’t be viewed by government. Now, the truth is that Bitcoin, we didn’t really get to Bitcoin, but Bitcoin doesn’t really use encryption in that particular way. It does use some of the techniques involved in the kinds of encryption that they use.One of the places this is most visible is that each user who uses Bitcoin has what is called a wallet. And a wallet is really just a software file. And the software file has an address or a label that you can point at. And if you see one of these addresses or labels, it’s a long string of meaningless characters and alphabetic, numeric, and even special characters, the same kind we use nowadays for strong passwords.And the technique to come up with those addresses uses some of these encryption techniques. But in fact, As I’m sure right. These libertarian-fueled ideologies are always deeply incoherent. And so Bitcoin, maybe I should just explain a minute, like how Bitcoin itself works. What they thought was this great solution.SHEFFIELD: So for crypto, it can mean both the idea of encoding messages, but it also can be used in the idea of hiding identity. Sure. And so in this case, that’s probably more what we’re talking about here, is that, so in other words, when you have, when you hold a cryptocurrency, it’s not linked, generally speaking, not linked to your identity. People don’t know who it is that actually they’re transacting with necessarily, unless they find out through some other means.GOLUMBIA: That’s right. The Bitcoin network is just made up of these wallet addresses which don’t– you can’t actually encode decode them. They don’t mean anything. They’re just arbitrary strings of characters.SHEFFIELD: They’re random. Yeah.GOLUMBIA: They’re random. You can however, use other methods to figure out who is using those wallets and then whether or not they are, it becomes actually quite possible to figure out who is translated.SHEFFIELD: Sure.GOLUMBIA: With the Bitcoin network. Which is one of the sort of ironies, because it certainly was the case that they wanted to make a network that was impenetrable to law enforcement and financial oversight. But in fact, they made something that is incredibly easy to view and that in fact, whose entire history, all the transactions on the blockchain are public.SHEFFIELD: Yeah. So you mentioned blockchain, so let’s discuss that one.GOLUMBIA: So let’s just talk about blockchain. What the thing that Satoshi Nakamoto, which is a pseudonym that was used by one or more people around 2008 to write a paper about proposing this network that used several different software techniques that people had already understood for a long time.And what he came up with was the idea that you would distribute a piece of software that anybody could download onto their computer. And when you run this software, what it does is it does two things really. One is that it takes in all the transactions on this network and it puts them on your computer.And then as new transactions are made on the network, it does some complicated math to validate those transactions. And every computer that downloads the software and runs it is participating in. Essentially the same kind of thing that a bank or a broker or any other financial entity has to do, which is to validate the transactions rather than having one entity or a limited number of entities doing that validation.In the case of Bitcoin and the blockchain technology that Satoshi came up with the innovative idea is that this is done by everyone. Everyone who chooses to participate in this network is also simultaneously participating in the validation of transactions on this network that is sometimes referred to as a distributed ledger, where a ledger is like the thing that any organization has to use to keep track of its finances and distributed means it’s on lots of different computers. That and that–SHEFFIELD: Yeah. And just to clarify for people, the ledger meaning all Bitcoin transactions from the beginning of the release.GOLUMBIA: From the beginning.SHEFFIELD: Yeah. So the entirety of it all is all out there. And in order to participate in these transaction validations, which they kind of erroneously or misleadingly term “mining,” you have to have a computer now at this point that has to be immensely powerful. And uses this process, uses a huge amount of energy, such that it’s actually becoming a serious problem in many localities who feel they don’t have the electrical power to enable large numbers of computers to participate in it.GOLUMBIA: Or they may have incentivized power to be provided to people with low incomes. And then the Bitcoin people may come in and try to take advantage of this and buy cheap power that was not intended for rapacious capitalists, but was intended for very poor people. But to go back to something you just said, that is really fascinating is that when the Bitcoin white paper came out, what excited people so much was that everybody could download this software onto their computer.And in fact, what I didn’t say is that the process of validating the transactions creates the possibility of a Bitcoin being issued to one of the computers that successfully validates the transaction. And that’s how Bitcoin is created by all these computers running. And every once in a while, a Bitcoin gets spit out to one of the ones that does the transactions correctly or successfully.And at the beginning, anybody could download the software and run it. I ran it for a little while. You could run it on any cheap computer, and not only could you run it, but in the early days, you could get a hundred Bitcoin by running the software on a cheap computer for a few weeks.Of course it wasn’t worth anything at the time. And it’s also important to say, I don’t think Satoshi Nakamoto thought about how these tokens would be valued in the real world. He just thought of issuing them. I can send out lots of tokens and or people will start to generate these tokens and they’ll accumulate a lot of them and they can use them to buy drugs and other things that are illegal.But he didn’t really think about the valuation of, again, this is sort of a typical libertarian, there’s a blind spot of something that maybe a non-libertarian would look at and say, wait. And another thing that the– to go to what you were just saying that that someone with a little more like sanity and background might say is, well wait a minute, something built into this blockchain technology, to the Bitcoin blockchain at least, is that it becomes more difficult over time to validate the transactions. Partly because in the early days there weren’t very many transactions, so anyone could download the whole software under their computer.But over time it’s become enormous. It’s actually become prohibitive to even download the whole thing, let alone to process it. And I, in addition, the blockchain network, the Bitcoin blockchain network makes these transactions more difficult in an automated way. And so in the beginning you had this rhetoric of—and they used the word right, we’re going to democratize finance.Everybody in the world can participate in this wonderful movement. Everybody can share in some kind of egalitarian way in the creation of this new financial system. Isn’t it wonderful? You know it, but what quickly happened as it happens in all these kind of deregulated, libertarian spaces, of course, is that people with the most money and power swoop in and they buy up all the resources and the.the fact that you had this algorithmic increase in the difficulty of the Bitcoin transactions meant that it very be, very quickly became impossible for an ordinary person to mine Bitcoin. It became something that only people with a huge amount of power and money could do, and that’s where it sits today.There are very few entities that actually mine Bitcoin. It’s unprofitable for the most part, unless you have access to very powerful computers. and very cheap power. And so in fact, it’s become a kind of arbitrage against the price of certain kinds of computing processors and the availability of cheap power all over the world.And you actually have seen the Bitcoin miners move from country to country looking for the cheapest power available, which they kind of convert. And that’s, and they, the server firms are now enormous, right? The move from running it on your desktop computer to needing enormous, huge warehouses full of very fast computers with tons of air conditioning needed so the processors don’t melt.And the energy waste of that is unbelievable. Yeah. All these things are doing is sitting there validating these transactions in an extremely redundant, repetitive really useless way. Occasionally spitting out a Bitcoin that somebody gets. Yeah.SHEFFIELD: Well, and the other thing about it, and of course, and we’re talking about Bitcoin here, but of course most of this applies to the other, the huge number of cryptocurrencies that are out there as well.GOLUMBIA: Yes.SHEFFIELD: And so, there are others of them out there, but I think the other key thing from a political standpoint, I guess as a technical matter, I think we’ve covered all the bases there, I think, unless you think there’s another part we need to talk about.But as a political matter, the original Satoshi Nakamoto paper about Bitcoin, it was an inherently political document. And the reason that, that he, or they said they were creating it, was that they believed that governments destroy value by not having a gold standard based currency.Now these are viewpoints that are, up until the emergence of cryptocurrency as a somewhat well-known thing, these were viewpoints that were limited to extremist cranks who worshiped Ron Paul, the crazy libertarian guy who ran for president a bunch of times and just got laughed out of his candidacy every time.GOLUMBIA: Yeah.SHEFFIELD: And these were controversies that were settled in the 1930s, and that Americans overwhelmingly said, yeah, you know what? We don’t want a gold backed currency because we see that harms us. It creates deflation in many cases.And the foundational claim of Bitcoin and a lot of other cryptocurrencies is that government backed currencies are manipulated by governments and that they fluctuate too widely in value and that they destroy the assets of people who have it, have their assets in those dollars, or francs, or e…
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