The Bitcoin Romantics

by Reihan Salam

Though Jerry Brito sees great potential in Bitcoin as a value transfer system, he’s profoundly skeptical that fixed-supply commodity money like Bitcoin can (or should) replace a relatively well-managed fiat currency like the U.S. dollar. He does, however, see it as a way to weaken the grip of authoritarian governments:

Because it is decentralized and relies on no third parties, Bitcoin has the ability to bypass capital controls. If you can convert your wealth into Bitcoin, you can get it out of your government’s reach. That is revolutionary. You can then keep that wealth in bitcoins, or convert it to dollars or euros or whatever else you want. This is Bitcoin’s true contribution to “monetary justice.”

Yes, fiat currencies are susceptible to abuse, and while I personally don’t see inflation as the most pressing issue confronting Americans today (especially not from a justice perspective), I can understand that others might. Yet as much as we might want it to be, Bitcoin is not going to be a solution to inflation. Let’s focus our energies instead on pursuing Bitcoin’s strengths: it can make the world better by fostering financial inclusion and by helping the oppressed escape control and censorship. On this, I hope, we can all agree.

And in a similar vein, Eli Dourado addresses the network externalities of cryptoanarchy:

If Bitcoin ever becomes widely adopted, it will change power relations not only between the state and the conscientiously libertarian. No, it will reduce the effectiveness of financial prohibitions between any two parties, regardless of their political views. Whereas exit only secures freedom for the one who is leaving, a cryptocurrency that is successful in the long run will impose a measure of freedom even on those who don’t want it.

There is a word for a change that imposes a radically new political reality on everybody, whether they want it or not. That word is not exit; it is revolution. Revolutionary freedom-advancing technologies have succeeded before. Containerization increased the elasticity of the supply of capital, and packet-switching moved telecom innovation from the core of the network to the edge. The (liberal) changes wrought by these technologies have taken decades to unfold, and the world is still reeling from them. Not everyone is happy about the changes, but they stick with the technologies anyway, because they are both economic and entrenched.

Cryptocurrency is potentially in this class of technologies. If Bitcoin is going to provide any long-run freedom for anyone, it will have to succeed on these terms, not on the basis of cryptoanarchist zeal alone. There is no exit here, nothing has been won, but seeds of revolution have been planted.

While Brito focuses on the ways that Bitcoin can help limit abuses of power, particularly in authoritarian countries like Argentina and Venezuela, Dourado argues that widespread adoption of Bitcoin could lead to a structural shift that would limit the regulatory reach of even fairly liberal market democracies.

Just as Henry Farrell and Martha Finnemore have argued that the Snowden revelations represent “the end of hypocrisy,” as new technologies undermine the extent to which the United States can conceal the workings of the surveillance state, Bitcoin could, in theory, represent “the end of crony capitalism” as an alternative financial services economy emerges. Of course, the dynamics Farrell and Finnemore describe are firmly entrenched while those identified by Brito and Dourado are still in their infancy.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.