ALeftViewOfBlockChains

Quora Answer : Do socialists support or oppose cryptocurrencies?

Jul 12, 2019

Both.

I mean, I'm a socialist and I see some very interesting and useful things you can do with cryptocurrencies.

For a start, one thing that most people don't realize is that the state effectively gives private banks the right to "print money" via what is sometimes called "Fractional Reserve Banking".

Now some presentations of FRB are over simplistic. And can be dismissed as naive. But there is a core of truth. (See Positive Money) It is the case that some (probably a lot) of new money comes into being not because "the government" prints it, but because of private loans made and decided by banks. And that basically gives those private lenders the ability to conjure money out of thin air, but still collect interest on the loan. Which obviously is a nice little bonus of free money that the state allows the finance sector to keep.

Not only that, but it creates as much inflation as "teh government" is usually accused of creating. The 2008 crash was the result of a housing bubble popping. But where did all the money come from to inflate that housing bubble? Largely private banks creating it in the form of mortgages.

Cryptocurrency mining is a more transparent and, potentially, "fair" way to create money. Of course, today, it's hugely wasteful of energy (and that's an environmental problem that can't be overlooked) and only rich mining operations can afford to do it.

But we can still imagine a cryptocurrency without those problems.

Something like Holochain might even be able to create technically viable combination of blockchain based trustless system with a LETS (Local Exchange Trading Scheme)-like ledger where the creation of money is democratically available to anyone who needs it, rather than handed to a few special rich banks, or only to rich miners capable of buying huge amounts of equipment and energy, or even to the already rich who can use their "proof of stake" to create more money for themselves.

Ultimately socialists and anyone else who presumes to criticise capitalism needs to get up to speed with understanding blockchains and crypto, to understand both the dangers and the opportunities they present. Because blockchains and crypto are going to be massive in the near future. Massively disruptive and massively important to the new financial world order.

The great thing for socialists, is that there is a huge amount of engineering of the world financial system, its rules, mechanisms etc, right now. Having that engineering played out publicly in front of us, reveals just how wrong it is to think that money is somehow "natural" or a monolithic, inevitable pattern or result of economic natural laws.

Quite the opposite, in the crypto space right now, we're seeing 50, 100, maybe thousands of rival ideas about what money should be, how exactly it should work. All being constructed, tested, put into competition with each other. Nothing demonstrates more clearly that money and the laws of finance are artificial human inventions; whose structure and rules are under our control. It is not a neutral property of the universe that somehow we are merely "discovering", and which must never be questioned or "messed about" with. Instead money is basically an information / co-ordination protocol, a set of proposals for standards, shaped by political power.

At the same time, there are many aspects of crypto that are disturbing. If not absolutely terrifying.

Crypto promises the right-Libertarians the possibility of a completely "autonomous capitalism". One which no longer relies on any government to back up its property rights with records and courts and law. Because smart contracts will accurately track ownership without need for government. And without needing the state in its book-keeping capacity, capitalism slips further out of the state's (and democracy's) control.

Of course, capitalism will always need muscle, someone to enforce property with the threat of violence. And usually the state fulfils that role too, claiming the unique authority to use violence in defence of property. But once you take the land-registry etc. away from the government, and diminish its bookkeeping role, then the difference between government and any violent warlord / gangland leader becomes harder to sustain.

Another, and possibly more real risk is that the existing financial system and mega-corporations will simply "embrace and extend" blockchains.

I am freaked by Facebook's Project Libra. Though I've been expecting it. And fortunately governments of both the left and right are, sensibly, suspicious of it. Even Trump is getting it right in his hostility to Libra.

Why is Libra so problematic? Well, I have some good experience here. I closed my Facebook account in 2013 and boycott everything from this company (FB, Instagram, Whatsapp and Messenger). No corporation should have as much knowledge and power over so many people as Facebook has accrued to itself. And I won't give my data to it.

But I already see how hard it is to live without FB. How much communication, how much co-ordination only takes place on its social graph. Many people have sleepwalked into allowing Facebook to be their only method of communicating with friends, following the news, managing work contacts and commercial communication. People don't answer their phones, read their emails, can't surf the web, track their appointments or share a photo with you except via one of the platforms FB owns. Today, without FB, it's increasingly difficult to know what my friends are thinking and saying and doing. It's increasingly difficult to schedule meetings with colleagues or appointments with doctors and dentists etc. Small businesses are paralysed with uncertainty when you tell them you can't send them an address by Whatsapp or Messenger.

That dominance has grown up in 15 years. In another 10 - 15, it may well be almost as impossible to make or receive a payment (online or off) without a Libra account.

As I understand it (and I admit I haven't looked into the technical details yet), Libra is an ordinary online digital money sending app (like PayPal) which only uses blockchain for eventual conciliation, ie. keeping everyone in sync. But not for immediate payments. Libra will outperform true P2P blockchain systems because FB or members of their consortium will effectively trust you when you try to make a payment. (Much as Visa etc. currently do)

So it can be fast, rather than waiting for transactions to be accepted into the blockchain as in the case of BitCoin etc. The blockchain itself, managed by a few rich and powerful consortium members, will get updated later.

It will be easy for FB to trust you ... because it will be FB which provides your wallet software (built into your Whatsapp / Messenger client). FB will give you your wallet's address, tied to your FB account. They'll already know everything about you and your credit-worthiness.

Even if I try to continue to boycott FB, by using a third party wallet, it's almost certain that FB will be able to follow all my transactions and will have me mapped as a financial actor in their network. And it may well be that without FB expediting my payments, my own transactions will be second class citizens, slower and less convenient than everyone else's as I have to wait for a smaller and slower "miner" to incorporate my transactions into the blockchain.

OK, that was long, but it was necessary to make the point. We are on the verge of handing over the coin of the realm, the fundamental control of money, to a single large, mega-corporation which already has 2 billion of the world's 7 billion inhabitants, locked-in.

Even if Facebook's Libra fails. The usual dynamics of capitalism are such that after the Cambrian explosion of a hundred creative and experimental startups, the market will consolidate into an oligopoly of two to four major suppliers. The crypto / blockchain "revolution" which is happening right in front of us (while we were distracted by Brexit and Donald Trump's antics and a pointless and bloody war between the West and Iran) is that two to four mega-corporations are going to take control of money away from the Fed and Bank of England and Central Bank of Brazil etc. and put it under control of a couple of tiny departments in a handful of gigantic private corporations, sitting in a very few consortiums.

And that shift is likely to be permanent.

If you are a socialist you should already recognise the enormity of this. You already thought finance was out of control? You ain't seen nothing yet, as the accelerationists like to say.

And if you are a socialist, you should be thinking of your response. What do socialists do about this? How should we react? What should we be pursuing as the alternative?

China has already launched its rival : Beijing Begins Imagining A WeChat China Cryptocurrency Basically exercising the state's power through its control of Tencent etc.

But is any other nation state in a similar position to create a rival to Libra?

Not really. It's hard to overstate how big a deal it will be that every Whatsapp / Messenger user will already get a wallet and ID on the Libra blockchain automatically. No other company has the power to put crypto (and its particular flavour of crypto) into so many people's hands, so fast, and without their having to choose it. Not Apple. Not Amazon. Not Microsoft. And remember PayPal and Visa in the Libra consortium.

So yeah, from a socialist perspective. I think crypto is an opportunity to do something interesting with money, and a good opportunity to get people to reflect on what it is, how it works and how it could be made to serve us.

But the window of that opportunity is closing fast. And I am very much against Libra, and the Libra model of cryptocurrencies, one in which blockchain is just another service provided by a few mega-corps who effectively own the chain, sell shares in it to partners, and keep ordinary people locked in to it via their existing ubiquitous apps, and so take over "money" as we know it.