Virtual Currencies and the State
G. Vidan, Decentralization: The Rise of a Hazardous Spec

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June 12, 2020

Gili Vidan, Harvard University

In 2017, Americans wanted to know “what is Bitcoin?” In a report to the US Congress, the Joint Economic Committee dubbed 2017 as “The Year of Cryptocurrencies,” citing a surge in Google searches for the terms “Bitcoin,” “blockchain,” and “Ethereum.” And internet users weren’t just googling the near-decade old creation. Individuals and companies around the globe were purchasing cryptocurrencies and experimenting with blockchains, resulting in record-high prices for individual coins and an influx of investments in anything blockchain. Governments, too, engaged in crypto enthusiasm for the blockchain as a technology that the state should adopt.

The same Joint Economic Report focused on the potential of cryptocurrencies and other applications of blockchain technologies to respond to a variety of digital threats to the economy, offering the prospect of a future secured by protected private property and contract integrity. The bipartisan Congressional Blockchain Caucus also formed in “The Year of Cryptocurrencies,” as 17 lawmakers coalesced around “using math and cryptography” to produce a “record of authenticity that is verifiable by a user community increasing transparency and reducing fraud.” More recently, members of the caucus urged Treasury Secretary Mnuchin to utilize blockchain technology “to support the necessary functions of government” in disbursing payments authorized by the CARES Act.

Recent attempts by regulators to control virtual currencies and the withdrawal of several key members from the Facebook-backed Libra Association have led some to forecast a moment of reckoning. The initial embrace of virtual currencies as silver-bullet responses to the challenges of a digital economy might follow in the footsteps of the broader “tech-lash” and disenchantment with the promises of Silicon Valley.

Yet this reckoning is not outright rejection. It is worth reflecting on the ways certain key features and promises of early blockchain discourse successfully captured the imagination of policymakers, technologists, and citizens alike. So much so that such touted features of the technology have now become new standards for the efficacy of the state’s apparatus writ large. Lev Menand outlined the significance of distinguishing between the different kinds of virtual currencies, which often don’t even share similar technological basis, let alone governance structures and regulatory frameworks. In this essay, however, I wish to focus on the family resemblance that connects what Menand defined as “utopian currencies” and the broader discourse around blockchain technologies and the ongoing digitization of the payment system through focusing on the pursuit of decentralization.

The early conversation about virtual currencies centered around their relationship to the state’s backing of money, as the trusted authority that issues currency. But, as political economist Michael Beggs argued, states not only make money, they are also themselves remade through the challenges encountered by trying to manage money itself.[i] In the case of virtual currencies, salient, often promissory, features of non- and even anti-statist innovations emerged as new demands on the state and a measure of its capacity to govern.

The call to decentralize existing market and government institutions is invoked as a multifaceted critique of the failures of large bureaucracies. It captures a geographical metaphor promising greater access, a political critique of concentrated unchecked power, and a technological specification for the secure management of information networks. In the context of blockchain technologies, decentralization appears as a novel, mathematically-enforced way out of the bind of modern political economies: an uneasy reliance on the delegation of power to state institutions for necessary coordination and enforcement. It is both a political and a technical virtue. Its prominence in critiques of the state’s management of money often precedes other calls for reform, by positioning decentralization as both a measure of the technological know-how and the democratic justness of the state.

Critics of the state’s control over money have long appealed to the challenges posed by novel technology. For example, in the 1980s, when the rise of desktop-publishing electronics such as color printers and scanners posed the threat of casual counterfeiting of banknotes at home or the office, then-congressman Ron Paul argued that the acceleration of new electronic technologies meant the state should get out of the money-making business entirely. [ii] Paul’s view was motivated by more than a longstanding libertarian position against state involvement in the payment system. The very potential for new technologies to upend the security features of state-issued money provided a definitive argument against state involvement in the entire enterprise—the state would just never be up to the technological task. The state, in this view, was always lagging behind the onward march of technology and inherently inept in responding to it. At a time when consumer electronic marketing claimed to empower individuals with a set of new tools, money as a technological object became a new prism through which the state’s investment in public infrastructure could be negotiated and assessed.

The conversation around virtual currencies and technology such as the blockchain has not only echoed these concerns over the state’s ability to regulate the digital economy but has also set a new yardstick against which good governance is measured. Christine Desan has described money as a constitutional project.[iii] This view argues that the design of money and its management are constitutive of the structure of the political economy—they make the market. Money is constitutional because it is not merely an instrument facilitating individual exchanges but fundamentally arbitrating who wins and who loses from the payment system and who gets to participate in it, forming the boundaries of what Lana Swartz has called “transactional communities.”[iv] Following this work on the material and political infrastructure of money, I argue that such analysis should be read alongside work on science and technology’s own constitutional position in today’s political order. Such work pays special attention to claims of expertise, competency, and legitimacy in the distribution of political power. Tracking claims that the state’s money problems are either the result of an inability to keep up with new technology or solvable through the adoption of new technology reveals how attributes of technical utility and desirable political outcomes are constructed in tandem.

This has been the case with the rise of “decentralization” as a necessary feature of the digital economy. Many virtual currencies do not rely on cryptographic authentication or decentralized architectures. Yet the union of supposed cryptographic certainty and decentralized record keeping has animated visions for both the adoption of blockchain technologies to fix the state’s woes as well as the claims that blockchain could supplant it altogether.[v] As Lana Swartz noted, these visions often reflected a nostalgic yearning for the early days of the internet and its promise to empower individuals and diminish the salience of state power. Even the recent reckoning with the darker sides of the digital age breathed new life into the hope for a truly decentralized web as a solution for its various failures.

Historians of US politics have recently considered the politics of decentralization as characterizing a retreat from the governmental provision of services and divestment from social welfare projects. While some describe this tendency as a longstanding feature of American governance through public and private associations, others argue that decentralization captures a more specific policy agenda of late 20th-century US, which was malleable enough to emerge as a non-partisan mode of governance, advancing deregulation and privatization.[vi]

But there is also a parallel history of decentralization as a technical specification of communication systems. In 1964, Paul Baran, an electrical engineer who had recently joined the RAND Corporation, published a memorandum describing how different architectures of the US telecommunication network could potentially withstand aerial bombing. [vii] The diagrams provided three possible schematic networks: centralized, decentralized, and distributed (see p. 16 of this PDF). In this tripartite scheme, decentralization emerged as an architectural principle that provided network resilience in the face of an external attack and individual autonomy in the face of internal attempts to subvert the network. It is this focus on the “by design” promises of decentralized architectures that spurred blockchain advocates to associate its adoption with increased transparency and verifiability of record keeping. Features of trust and verification required for maintaining the payment system, enthusiasts claim, could have far wider applications.[viii]

The Baran diagrams have since circulated broadly as self-explanatory manifestos for the decentralized digital age. Their Cold War military planning origins are often forgotten in favor of a view of the interconnected nodes as a more democratic topography of power and a more secure technological design of communication.

That history is not the only thing that these diagrams tend to obfuscate. Vitalik Buterin, a co-founder of the cryptocurrency Ethereum, went so far as to describe them as “completely unhelpful” in understanding what should be decentralized in the design of a blockchain application. The flatness of the diagrams does not capture the layered material and political arrangements that comprise today’s network society. Buterin, therefore, calls for a more elaborate mapping of decentralization, one that distinguishes infrastructure from political power. But the slippery nature of decentralization cannot simply be solved with the introduction of more precise taxonomies. Decentralization enjoys the position of a technical and political virtue because it successfully paves over the messy work of negotiating conflicting interests and articulating just outcomes. Two genealogies of decentralization—the political economy and the technical architecture—converged over the past five decades to form a powerful vocabulary for describing how digital networks could both resist centralized control from the state and also supplant it as a new political mode of self-governing. This convergence allowed decentralization to find its way into the visions of crypto-utopians and congressional representatives alike. In the process, it appears as a panacea for the inefficiencies of state bureaucracy and the uncertainty of political action.

Historian Leo Marx warned that the power of such technological concepts to appear to sidestep politics is hazardous. The term “technology” itself, he argued, transitioned in the early 20th century from describing a field of study and a skillset to existing as an autonomous proper noun. Imbuing the term “technology” with a magical agency is perilous because it “relieves the citizenry of onerous decision-making obligations and intensifies their gathering sense of political impotence.”[ix]

By becoming the new measure of a successful redesign of money-making, decentralization similarly runs the risk of taking the sting out of a call for more democratic money. Decentralization is a hazardous goal for the redesign project not because it has so many different meanings, but because it overtakes the richness of democratic imaginings of the political economy. Last year, at a senate hearing on digital currencies and the blockchain, legal scholar Mehrsa Baradaran argued that the case in favor of cryptocurrencies as means for increasing financial inclusion ignores the existing public institutions tasked with this mission, including the Federal Reserve. If the Fed is currently failing to achieve this mission, our political attention should focus on expanding its services rather than framing its very existence as the source of the problem. Baradaran’s reimagining does not begin with the technological specification of a decentralized system or stipulate that it must necessarily be a frictionless digital one. Instead, it proceeds from the vision of inclusion. Likewise,  Bill Maurer has suggested this may be a time to solve money’s problems with “more democracy rather than more technology.”

In rising to this call, we ought to be wary of fixing in place what “more democratic” may mean in technology’s image.

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[i] Michael Beggs, “Money and Its Ideas: Between Technocracy and Democracy,” in A Cultural History of Money in the Modern Age, eds. Taylor Nelms and David Pedersen (2019), 53-82.

[ii] US Congress, Committee on Banking, Finance, and Urban Affairs, The Currency Redesign Act: Hearings before the Subcommittee on Consumer Affairs and Coinage, 98th Congress, 2nd Session, 1984, 5-6.

[iii] Christine Desan, Making Money: Coin, Currency, and the Coming of Capitalism, (Oxford: Oxford University Press, 2014), 37-45.

[iv] Lana Swartz, New Money: How Payment Became Social Media, (Yale University Press, 2020).

[v] For a more detailed analysis of how the early days of Bitcoin espoused the promise of decentralization despite repeated occurrences of recentralization of both computational and governing power see: Gili Vidan and Vili Lehdonvirta, “Mine the Gap: Bitcoin and the Maintenance of Trustlessness,” New Media & Society, 21, no. 1 (January 2019): 42–59. doi: 10.1177/1461444818786220.

[vi] See: Amy C. Offner, Sorting Out the Mixed Economy: The Rise and Fall of Welfare and Developmental States in the Americas, (Princeton University Press, 2019); Brian Balogh, The Associational State: American Governance in the Twentieth Century, (Philadelphia: University of Pennsylvania Press, 2015); Daniel T. Rodgers, Age of Fracture, (Cambridge, Mass.: Belknap Press of Harvard University Press, 2011).

[vii] Peter Galison, “War against the Center,” Grey Room 1, no. 4 (2001): 6-33.

[viii] For recent examples arguing for the power of blockchain decentralization to remake large bureaucratic systems see: Kevin Werbach, The Blockchain and the New Architecture of Trust, (Cambridge, Mass.: MIT Press, 2018); Michael Casey and Paul Vigna, The Truth Machine: The Blockchain and the Future of Everything, (New York: St. Martin’s Press, 2018); Rachel Botsman, Who Can You Trust? How Technology Brought Us Together and Why It Might Drive Us Apart, (New York: Public Affairs, 2017).

[ix] Leo Marx, “Technology: The Emergence of a Hazardous Concept,” Technology and Culture 51, no. 3 (2010 [1997]): 561-77.

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