International Journal of

Community Currency Research

VOLUME 17 (2013) SECTION A 8-18
BITCOIN: THE POLITICAL VIRTUAL OF AN
INTANGIBLE MATERIAL CURRENCY
M. A. Jansen*
Faculty of Humanities, Utrecht University
!"#$%!&$
This papei conceins the open souice softwaie pioject Bitcoin, which is often uesciibeu as vii-
tual cash. The papei investigates what 'viitual' signifies when applieu to 'cash' anu in tuin what
'viitual cash' says about Bitcoin. Bitcoin is the latest ciyptogiaphic effoit to cieate uigital cash-
like tokens, wheie Bitcoin's uesignei Nakamoto aigues that useis now no longei have to tiust a
thiiu paity, tiauitionally the bank. Paiauoxically, foi Bitcoin it is key that noues in the netwoik
agiee on the status of the shaieu block chain uatabase. Tiust iemains to be establisheu, albeit in
a uiffeient mannei. Powei is not uestioyeu, but tiansfeiieu fiom banks to Bitcoin's piotocol.
The papei concluues that 'viitual' iefeis to Bitcoin's mouel of how cash appeais to function in
eveiyuay exchange, allowing usei piivacy. Bitcoin uoes not mouel anothei aspect of cash, its
function as a cieuential iefeiiing to uebt. Bitcoin uiscontinues the concept of uebt.
* Email: infomaikajansen.nl
$' )*+, +-*. /0+*)1,2 }ansen, N. (2u1S) 'Bitcoin: The Political 'viitual' of an Intangible Nateiial Cuiiency'
!"#$%"&#'("&) +(,%"&) (- .(//,"'#0 .,%%$"10 2$3$&%14 17 (A) 8-18 <www.ijcci.net> ISSN 1S2S-9S47
34 56$%789&$576
In 2uu8 the woilu witnesseu the intiouuction of Bitcoin, an
open souice softwaie pioject using peei-to-peei (p2p) anu
ciyptogiaphic softwaie technology. While Bitcoin oiigi-
nates outsiue the tiauitional banking system, the softwaie
is positioneu as a uistiibuteu global payments system
(Nakamoto, 2uu8). Aiounu the same time in 2uu8, a ciisis
stiuck the contempoiaiy banking system in the 0SA,
quickly giowing into a global ciisis. Nany banks weie
'baileu out' by goveinments aiounu the woilu in oiuei to
iestoie tiust anu pievent allegeuly catastiophic cascauing
failuies elsewheie in the banking system in case these
banks in the categoiy 'too big to fail' woulu ueclaie bank-
iuptcies. Cuiiently, seveial Euiopean countiies such as
uieece, Spain, Poitugal anu Italy aie in a uebt ciisis, having
uifficulties getting goveinment finances in oiuei. These
uevelopments leu the well-known sociologist Nanual Cas-
tells to establish the 5-#$%/&#4 6%(7$1#8 a ieseaich piogiam
of intellectuals who ".shaie the iuea that this ciisis is not
just a financial anu economic ciisis, but also a social ciisis,
which is biinging about a funuamental tiansfoimation of
societies at laige." (Afteimath Pioject, 2u12). Alieauy in
2uu1, foimei cential bankei Beinaiu Lietaei wiote in his
book 94$ :,#,%$ (- ;("$0 that "We aie now engageu in a
stiuctuial shift of the woilu system. the most impoitant of
oui economic infoimation systems, oui money system, has
been ignoieu as a key leveiage point foi inuucing the nec-
essaiy anu uesiiable changes." (2uu1 p. 22).
Bitcoin aiiives in a time of financial uniest when money
anu banking have become the subject of uebate. Among the
aiguments put foiwaiu in favoi of Bitcoin is that, unlike the
cential banking system, theie is no cential authoiity, in-
steau ".managing tiansactions anu issuing money aie cai-
iieu out collectively by the netwoik." (Bitcoin.oig, 2u12).
Inteiestingly, Bitcoin softwaie is often positioneu as 'vii-
tual' cash, similai to the tangible 'haiu' cuiiency most peo-
ple caiiy aiounu in theii pockets in eveiyuay life (Wallace,
2u11; Cohen, 2u11). Since the 199us, ciyptogiapheis have
enueavoieu to engineei systems that guaiantee financial
piivacy by making something similai to cash function ovei
the Inteinet. None of these initiatives such as BigiCash
pioveu successful in the longei iun, howevei so fai Bitcoin
is an exception. Bitcoin enjoys incieasing inteiest aftei the
pioject was publicizeu on well-known technology blogs
such as <)&34=(#. Bitcoin also appeaieu on the iauai of the
Ameiican Feueial Buieau of Investigation (FBI) that ueui-
cateu an intelligence iepoit to the pioject (FBI, 2u12). In
auuition, attention foi Bitcoin was fuelleu by WikiLeaks
when the oiganization staiteu accepting Bitcoins as uona-
tions, following the 'banking blockaue' that was helu by
some as a pieceuent-setting type of censoiship (Poulsen,
2u1u)
vaiious authois have exploieu what money might be like in
the Inteinet spheie. Beinaiu Lietaei in his book 94$ :,#,%$
(- ;("$0 aigues that "Noney is mouem society's cential
infoimation system", hinting at the compatibility of money
anu the Inteinet (2uu1, p. 22). Piofessoi of economics Rob-
eit uuttmann in his book C0>$%1&34? 94$ .(/'"@ A%& (-
A)$1#%("'1 ;("$0 stateu that ".once money becomes soft-
waie, the monetaiy piocess can be oiganizeu in entiiely
new anu vaiieu ways. (uuttmann, 2uuS p. 11). Following
eailiei effoits such as BigiCash, Bitcoin is an implementa-
tion of the vision of money as softwaie. It is a new meuium
that is piesenteu as being similai to cash, 'viitual' anu using
ciyptogiaphy to uispose of the bank as tiusteu cential
authoiity. When a meuium is uesciibeu as 'new', the fielu of
new meuia stuuies ciitically asks how new such a meuium
is anu if it is, in what ways. In othei woius, what changes
anu what stays the same. 0ltimately, I ask why the pio-
giammei of Bitcoin anu seveial jouinalists anu othei ciitics
choose to uesciibe Bitcoin as 'viitual' cash. Theiefoie, I will
examine the use of the teim 'viitual' in ielation to Bitcoin,
which will involve an analysis of the politicalness of soft-
waie as well as political aspects of Bitcoin. The iesult of
this analysis aie insights into the similaiities but also the
uiscontinuities between contempoiaiy money anu Bitcoin.
1
The ieauei might note that it is not conventional to ap-
pioach money as a meuium. Bowevei, alieauy in 1964
Naishall NcLuhan, famous foi stating that 'the meuium is
the message' anu coining the teim 'global village', in his
book B"=$%3#&"='"@ ;$='& incluueu a biief stuuy of money
as meuium, which incluueu its histoiy anu vaiious tians-
foimations ovei time, such as cieuit, commouity anu cui-
iency. In 2u12, meuia theoiist Bouglas N. Rushkoff in his
PhB thesis ;("(C()0 ;("$03 followeu NcLuhan's piactice
of meuia ecology in his analysis of coipoiatism anu cential-
izeu cuiiency. Neuia ecology is ".the stuuy of complex
communication systems as enviionments." (Nystiom,
197S). Biffeient fiom cuiient tienus in economic analyses,
in this thesis I will appioach money as a meuium. In the
fiist chaptei I will pioviue a uesciiption of Bitcoin as a
phenomenon that uses new meuia technologies. This ie-
view will incluue an analysis of statements maue by Naka-
moto in the Bitcoin white-papei. Besiues the technicalities
of Bitcoin, aiguments maue in this white-papei also pio-
viue insight in the political natuie of Bitcoin.
:4 56$%789&$576 $7 "5$&756
In 2uu8, the mysteiious entity 'Satoshi Nakamoto' posteu a
ieseaich papei about a uesign foi a new cuiiency calleu
Bitcoin. Bitcoin is an expeiimental open souice softwaie
pioject, which facilitates the exchange of Bitcoins (BTC).
Bitcoin bypasses the (cential) banks by builuing upon peei-
to-peei (p2p), known fiom file-shaiing netwoiks such as
BitToiient. Bitcoin complements iathei than ieplaces the
conventional banking system that piouuces anu manages
fiat cuiiencies such as the euio anu uollai. It is impoitant
to note that the iuea of complementaiy cuiiencies is all but
new. In 19S4 such a system calleu D!2 ED'%#314&-#3%'"@F
was founueu in Switzeilanu. Inteiestingly, WIR was
INTERNATIONAL JOURNAL OF COMMUNITY CURRENCY RESEARCH 2013 VOLUME 17 (A) 8-18 JANSEN
9
1
Foi an extenueu analysis please iefei to the Nasteis Bisseitation on which this papei uiaws. Available fiom:
http:igitui-aichive.libiaiy.uu.nlstuuent-theses2u12-u9u6-2uu9SS00inuex.html
founueu almost 9u yeais ago as a iesult of a cieuit ciunch
anu global financial instability, invoking a sense of ueja vu
looking at the contempoiaiy financial context of Bitcoin.
Complementaiy cuiiencies such as WIR anu Ithaca Bouis
aie local effoits anu often have the goal of keeping local
money local (Ithaca Bouis.oig, 2u12). In contiast, in a way
similai to the file-shaiing softwaie BitToiient, Bitcoin en-
joys global scalability, enabling instant payments to any-
one, anytime, anywheie in the woilu (Bitcoin.oig, 2u12). As
long as one has an Inteinet connection, compatible haiu-
waie anu the open-souice softwaie, one can paiticipate
anu pioceeu without asking anyone's peimission.
Bitcoin is uesigneu to go without the centializeu monetaiy
policy ciafteu by bankeis anu insteau use ciyptogiaphy to
contiol money cieation anu tiansfei by means of uistiibu-
tion. In othei woius, managing the money supply as well as
tiansactions aie caiiieu out collectively by the netwoik
following a piotocol. 0n the P2P Founuation wiki Naka-
moto is quoteu saying about Bitcoin that "It's completely
uecentializeu, with no cential seivei oi tiusteu paities,
because eveiything is baseu on ciypto pioof insteau of
tiust." (2u12). The following statements by Nakamoto aie
an attempt at explaining the %&'3(" =G$#%$ of Bitcoin while at
the same time exposing the political natuie of Bitcoin.
Nakamoto aigues that:
The ioot pioblem with conventional cui-
iency is all the tiust that's iequiieu to make
it woik. 94$ 1$"#%&) >&"H /,3# >$ #%,3#$= "(#
#( =$>&3$ #4$ 1,%%$"108 >,# #4$ 4'3#(%0 (- I'&#
1,%%$"1'$3 '3 -,)) (- >%$&14$3 (- #4&# #%,3#J
Banks must be tiusteu to holu oui money
anu tiansfei it electionically, >,# #4$0 )$"= '#
(,# '" K&L$3 (- 1%$='# >,>>)$3 K'#4 >&%$)0 &
-%&1#'(" '" %$3$%L$J (2u12, emphasis auueu)
Nakamoto continues his aigument foi Bitcoin by mention-
ing the neeu foi financial piivacy, when (s)he states that
"We have to #%,3# #4$/ K'#4 (,% C%'L&10, tiust them not to
let iuentity thieves uiain oui accounts. 94$'% /&33'L$ (L$%M
4$&= 1(3#3 /&H$ /'1%(C&0/$"#3 '/C(33'>)$." (p2pfounua-
tion, 2u12 emphasis auueu). In the whitepapei that uetails
the uesign of Bitcoin, N'#1('"? 5 6$$%M#(M6$$% A)$1#%("'1 .&34
<03#$/, Nakamoto fuithei explains the ielevance of Bitcoin
as follows:
Commeice on the Inteinet has come to iely
almost exclusively on I'"&"1'&) '"3#'#,#'("3
3$%L'"@ &3 #%,3#$= #4'%= C&%#'$3 to piocess
electionic payments. While the system
woiks well enough foi most tiansactions, it
still suffeis fiom the inheient weaknesses of
the tiust baseu mouel. . 94$ 1(3# (- /$='&M
#'(" '"1%$&3$3 #%&"3&1#'(" 1(3#38 )'/'#'"@ #4$
/'"'/,/ C%&1#'1&) #%&"3&1#'(" 3'O$ &"= 1,#M
#'"@ (-- #4$ C(33'>')'#0 -(% 3/&)) 1&3,&) #%&"3M
&1#'("3, anu theie is a bioauei cost in the
)(33 (- &>')'#0 #( /&H$ "("M%$L$%3'>)$ C&0M
/$"#3 -(% "("%$L$%3'>)$ 3$%L'1$3. With the
possibility of ieveisal, the neeu foi tiust
spieaus. . These costs anu payment uncei-
tainties can be avoiueu in peison by using
physical cuiiency, but "( /$14&"'3/ $P'3#3
#( /&H$ C&0/$"#3 (L$% & 1(//,"'1&#'("3
14&""$) K'#4(,# & #%,3#$= C&%#0. (2uu8 p. 1
emphasis auueu):
If theie is one iecuiiing theme piesent in Nakamoto's
statements it is the lack of tiust. Noie specifically, tiust is
lacking with iespect to the contempoiaiy institutions that
manage the financial system - banks. Nakamoto makes the
coie motivations foi the uevelopment of Bitcoin veiy cleai,
these being the mistiust of so-calleu 'big biothei' institu-
tions that uo not pioviue financial piivacy. In the coue of
the genesis block, the fiist block of Bitcoin tiansaction in-
foimation, Nakamoto incluueu the text "The Times uS}an
2uu9 Chancelloi on biink of seconu bailout foi banks", in-
tenueu as pioof that the block was cieateu on oi aftei
}anuaiy Siu, 2uu9, as well as a hint at the instability causeu
by the contempoiaiy fiactional-ieseive banking piactice
(uenesis block, 2u12). 0thei motivations incluue possible
censoiship by uisallowing oiganizations to paiticipate in
the system, such as the wiuely publicizeu Wikileaks' Bank-
ing Blockaue. The website Bitcoinme.com puts the aigu-
ments in favoi of Bitcoin in the following woius:
- Financial piivacy. Boes youi bankei ieally neeu to
know what you buy online.
- Youi account cannot be fiozen. No one can fieeze
youi account anu keep youi money.
- No big biothei. Thiiu paities can't pievent oi con-
tiol youi tiansactions. Tiansfei money easily
thiough the inteinet, without having to tiust miu-
ulemen; no cential bank, noi cential authoiity.
- No censoiship of who you'ie alloweu to senu money
to. No moie blocking who you can make payments
oi uonations to... just because someone uoesn't
agiee. (2u12)
Nakamoto concluues that "What is neeueu is an electionic
payment system baseu on ciyptogiaphic pioof insteau of
tiust, allowing any two willing paities to tiansact uiiectly
with each othei without the neeu foi a tiusteu thiiu paity."
(2uu8, p. 1). Bitcoin is put foiwaiu as the answei to the
appaient issues iuentifieu above; Bitcoin aiguably iemoves
the tiusteu thiiu paity anu allows useis to tiansact uiiectly
with each othei.
Nakamoto states that Bitcoin has no centializeu authoiity,
unlike the cential bank-manageu contempoiaiy cuiiencies
such as the euio. This haiuly comes as a suipiise following
that one of the piimaiy goals behinu the uevelopment of
Bitcoin was the by-pass of Siu paity financial institutions
that cieate anu manage money. Bowevei, this entails that
the Bitcoin system has to cieate money via a uiffeient
INTERNATIONAL JOURNAL OF COMMUNITY CURRENCY RESEARCH 2013 VOLUME 17 (A) 8-18 JANSEN
10
mechanism. This methou is impoitant to unueistanu, given
that its technical iationale is infoimeu by Nakamoto's eco-
nomic philosophy anu ueteimines the pie-uistiibution of
Bitcoins. Although a uetaileu technical analysis of Bitcoin is
beyonu the scope of this text, to be able to examine Naka-
moto's statement I will next pioviue a basic technical in-
tiouuction to Bitcoin, in oiuei to familiaiize the ieauei
with the Bitcoin piotocol
2


Bitcoin cieation is accomplisheu thiough the piotocol of
the Bitcoin softwaie, wheie all useis that iun the softwaie
aie iequiieu to obey a mutually agieeu-upon set of iules. In
othei woius, the softwaie has a uistiibuteu natuie but heie
the cential mechanism is the shaieu piotocol. via this
piocess Bitcoins aie 'veiifieu', populaily iefeiieu to as Bit-
coin 'mining'. The softwaie seaiches foi a solution to a
mathematical pioblem whose uifficulty is piecisely known.
The uifficulty is aujusteu in an automateu fashion, which
entails that the numbei of solutions that aie founu is con-
stant, appioximately 6 solutions pei houi (Bitcoin Basics,
2u12). When the softwaie on the computei finus a solution,
the piogiam uistiibutes the existence of this solution, the
'pioof of woik' combineu with othei infoimation, to all
othei noues in the netwoik. This package is calleu a 'block',
which contains Su new Bitcoins as well as tiansaction in-
Figure 1. Visualization of Bitcoins block chain. The main
chain (black) consists of the longest series of blocks from
the genesis block (green) to the current block. Orphan
blocks (grey) exist outside of the main chain.
Source: http://en.wikipedia.org/wiki/File:Blockchain.svg
foimation. The block is awaiueu to the usei that finus the
solution, i.e. this usei gets new Bitcoins. The awaiu of new
Bitcoins foi useis foims the incentive to paiticipate in this
piocess.
0vei time, this piocess geneiates a chain of blocks, which is
a public iecoiu of all tiansactions involving Bitcoins. The
block chain is how Bitcoin solves the 'uouble-spenuing
pioblem' that is pievalent in a uigital enviionment whei
uata aie easily copieu anu possibly 'spenu' again. Bitcoin's
blockchain acts as a cleaiinghouse, but one wheie all useis
paiticipate anu sign off on tiansactions, insteau of a single
paity acting as cential hub authoiity. Thus, all Bitcoin
tiansaction infoimation is public, incluuing tiansaction
value as well as the Bitcoin auuiesses involveu. Beie, newly
cieateu Bitcoins aie iegaiueu as a tiansaction without a
past tiansaction, i.e. without a souice. Nakamoto uiaws an
analogy between Bitcoin 'mining' anu golu mineis, wheie
(s)he aigues that golu mineis expenu iesouices to extiact
golu fiom a mine anu auu it into ciiculation, wheie with
Bitcoin the iesouices that aie expenueu aie CP0- anu uP0
cycles anu electiicity (2uu8 p. 4). Bistoiically, the softwaie
pioject >'# @()= can be seen as a ciyptogiaphic foieiunnei
of Bitcoin. In the aiticle N'#1('"? .%0C#(M&"&%14'3#3G 5"3K$%
#( .&34, bit golu's piogiammei Nick Szabo aigues in a way
similai to Nakamoto that "I was tiying to mimic as closely
as possible in cybeispace the secuiity anu tiust chaiactei-
istics of golu, anu chief among those is that it uoesn't ue-
penu on a tiusteu cential authoiity." (Peck, 2u12).
This public leugei that keeps tiack of all tiansactions be-
tween Bitcoin useis is uistiibuteu to, anu shaieu by, the
noues in the netwoik. Thiough the uistiibuteu leugei, the
block chain, all tiansactions in the Bitcoin economy aie
veiifieu thiough the netwoik anu publicly accounteu foi.
Following the cuiient coue of the Bitcoin piotocol, ap-
pioximately eveiy foui yeais the numbei of Bitcoins that
can be 'mineu' ieuuces by Su%. As a iesult, the maximum
amount of Bitcoins will nevei suipass 21 million. The in-
centive to put in the iequiieu effoit to veiify Bitcoins ui-
minishes ovei time with the uecieasing amount of Bitcoins
peimitteu by the piotocol. Beie the iuea is that useis who
pioviue the necessaiy computational powei to keep the
netwoik iunning can iecoup theii investment in haiuwaie
anu electiicity by collecting tiansaction fee. Although Bitco-
ins in piinciple can be senu without any tiansaction costs,
senueis of Bitcoins may opt to incluue a small tiansaction
fee that is awaiueu to the noue that veiifies the next block.
Paying this fee will pioviue the incentive to the minei to
incluue the tiansaction in a block moie quickly. Fuithei-
moie, theie is no iule that ensuies that tiansactions get
piocesseu; mineis aie in piinciple fiee to incluue some
tiansactions in a block while leaving otheis unattenueu.
I have stateu eailiei that Nakamoto is ciitical of all the tiust
iequiieu by the cuiient banking system, wheie he pio-
poses that Bitcoin uoes not iequiie so much tiust. Naka-
moto aigues that a mechanism is neeueu ".to make pay-
INTERNATIONAL JOURNAL OF COMMUNITY CURRENCY RESEARCH 2013 VOLUME 17 (A) 8-18 JANSEN
11
2
Foi a moie elaboiate technical analysis I iefei the ieauei to Nakamoto's whitepapei N'#1('"? 5 6$$%M#(M6$$% A)$1#%("'1 .&34 <03#$/ (2uu8).
ments ovei a communications channel without a tiusteu
thiiu paity." (Nakamoto, 2uu8 p. 1). uiven Nakamoto's
uesiie to iemove tiust in an inteimeuiaiy paity, foi Bitcoin
a paiauoxal key issue is whethei tiust can be establisheu
among the noues in the netwoik. Nakamoto asseits "The
system is secuie as long as honest noues collectively con-
tiol moie CP0 powei than any coopeiating gioup of at-
tackei noues." (2uu8, p. 1). Foi the Bitcoin system to woik
it is absolutely ciitical that the noues in the netwoik peisis-
tently agiee on the state of the uatabase, the block chain,
which pioviues valiuation. Contiol is piesent anu powei is
establisheu following the political iule that "Pioof-of-woik
is essentially one-CP0-one-vote." (Nakamoto, 2uu8 p. S).
The lattei iule has impoitant implications foi the netwoik
politics of Bitcoin, given that the PCs of useis paiticipating
in the netwoik togethei keep the netwoik 'honest', wheie
those who contiol moie CP0uP0's commanu moie powei.
The mathematical uifficulty of Bitcoin veiification incieases
as moie noues paiticipate in the piocess, thus ovei time
the veiification piocess became a too heavy loau foi a sin-
gle CP0 oi uP0. Theiefoie, theie aie now seivei paiks
ueuicateu to the cieation of Bitcoins, populaily iefeiieu to
as Bitcoin mining 'faims' oi 'supeinoues'. Theiefoie, in
contiast with Nakamoto's aigument that Bitcoin is com-
pletely uecentializeu, victoi uiishchenko ciiticizes Bit-
coin's p2p mechanism foi not being uecentializeu, but
iathei like a 'ieplicateu centei' system;
"Bitcoin is only "peei-to-peei" in the sense
of the Biitish Peeiage system. Bitcoin
"commoneis" must appeal to theii "loius"
who have sufficient means to juuge on valiu-
ity of tiansactions anu to seal those tiansac-
tions as valiu, likely foi a fee." (uiishchenko,
2u11).
INTERNATIONAL JOURNAL OF COMMUNITY CURRENCY RESEARCH 2013 VOLUME 17 (A) 8-18 JANSEN
12
Figure 2. Total Bitcoins over time. Source: http://zh.wikipedia.org/wiki/File:Total_bitcoins_over_time.png
Nakamoto's claim that Bitcoin is completely uecentializeu
is oveiiateu; a utopian statement veiy much similai to the
myth that the Inteinet completely uisposes of inteimeuiai-
ies, weie it often also cieates new ones.
S
Fuitheimoie, I
noteu eailiei that mineis choose which tiansactions to
piocess. Although it appeais that most mineis aie 'nice' in
the sense that they also incluue tiansactions that uo not
yielu tiansaction fees, this also suggests that not all noues
in the p2p netwoik aie equal but iathei that some aie
moie equal than otheis. Inteiestingly, what emeiges in
Bitcoin piactice is something not completely unlike the
contempoiaiy financial system.
Bitcoin emeigeu fiom a lack of tiust in existing institutions,
but in ieplacing them Bitcoin shows that it is not possible
to somehow uispose of tiust, powei anu contiol. Bitcoin
thiough its piotocol functions uiffeient fiom contempoiaiy
inteimeuiaiies, howevei it uoes not fulfill Nakamoto's
piomise that with Bitcoin theie no longei is a tiusteu thiiu
paity, because the piotocol iemains the inteimeuiating
mechanism thiough which useis inteiact. Tiust uoes not
uisappeai but it shifts fiom the foimei inteimeuiaiy to the
next, fiom bank to Bitcoin's piotocol. While a uollai bill
states 'In uou We Tiust', Bitcoin useis put theii tiust in the
piotocol anu its team of contiibuting uevelopeis able to
change its coue. This amongst otheis entails that useis
accept anu 'buy into' the aibitiaiy limit of 21 million Bitco-
ins, the one-CP0-one-vote iule anu the iesulting netwoik
politics of supeinoues that have moie powei than aveiage
useis with moie common computei haiuwaie.
In the next paiagiaph I will go into Bitcoin's 'viitual' aspect.
The name 'Bitcoin' iefeis to cash tokens like coins anu
banknotes. Fuitheimoie, Nakamoto anu Wallace iespec-
tively uefine Bitcoin as 'viitual cash'. What uoes it imply
that Bitcoin is calleu 'viitual'. In the next section I will uis-
cuss the politicalness of softwaie anu I will aigue that the
use of the teim 'viitual' obscuies the political natuie of
Bitcoin. I will illustiate this by a ciitique of theoiy fiom
expeits on the economies of viitual woilus.
;4 <7=5$5&# 7> $?@ AB5%$9!=C
Nakamoto anu otheis often uesciibe Bitcoin as 'viitual
cash', howevei they uo not explain why they choose to ue-
sciibe Bitcoin by means of the teim 'viitual', oi what this
teim signifies in ielation to both cash anu Bitcoin. The teim
INTERNATIONAL JOURNAL OF COMMUNITY CURRENCY RESEARCH 2013 VOLUME 17 (A) 8-18 JANSEN
13
S
In the financial context of Bitcoin, exchanges like Nt. uox aie examples of new inteimeuiaiies.
Figure 3. Photograph of a Bitcoin mining server farm.
Source: http://25.media.tumblr.com/tumblr_m3sp4m5Oda1qfy0bho1_1280.jpg
'viitual' has a long histoiy, oiiginating fiom Neuieval Latin
L'%#,Q)'3, meaning "influencing by physical viitues oi capa-
bilities" (Bictionaiy, 2u12). In contempoiaiy eveiyuay
language 'viitual' is useu to signify &)/(3#, foi example in
iesponse to the question "aie you finisheu wiiting youi
thesis." one might ieply "Yes, viitually" meaning that you
aie almost, as goou as but not ieally, finisheu. Fuitheimoie,
it has become customaiy to iefei to phenomena ielateu to
uigital cultuie by means of 'viitual', foi example when we
iefei to Seconu Life anu Woilu of Waiciaft as 'viitual
woilus'. 0n Wikipeuia theie is a list of ovei thiity things
uesciibeu as viitual, fiom viitual aiiline to viitual woik
(2u12). The wiki states that "".things aie often uesciibeu
as "viitual" when #4$0 34&%$ '/C(%#&"# -,"1#'("&) &3C$1#3
K'#4 (#4$% #4'"@3 (ieal oi imagineu) that aie oi woulu be
uesciibeu as "moie ieal"" (2u12 emphasis auueu).
In theii book R$K ;$='&? 5 .%'#'1&) !"#%(=,1#'(" Listei et al.
aigue that the viitual as a philosophical concept is not the
opposite of the ieal but a kinu of ieality itself. (Listei et al.,
2uu9 p. 124). Listei et al. aigue that we can no longei use
the teim viitual as an opposite of the 'ieal'. The viitual is
neithei illusoiy noi unieal, it is a state piouuceu by actual
anu mateiial technologies; it can engage oui physical
senses anu it can have ieal woilu consequences (Listei et
al., 2uu9 p. 12S). Bitcoin is actual softwaie anu thus has
ieal woilu consequences. I want to stiess this as softwaie
in geneial is often peiceiveu as immateiial, uue to its ie-
semblance to language anu its seemingly fleeting natuie.
This is what Schaefei, ieseaichei in the fielu of uigital cul-
tuie, uesciibes as "haptic inconceivability" (2u11 p. 64). In
othei woius, softwaie is an intangible that iesists touch
anu seems ephemeial. Bowevei, Schaefei aigues that soft-
waie is always "'.in-mateiial'; it is not only embeuueu in
uata caiiieis, it also must be peiceiveu in teims of mateii-
ality, because it cieates means of piouuction." (2u11 p. 64).
Following this statement, softwaie is something which may
iesist immeuiate physical contact, ".yet which is incoipo-
iateu in mateiiality iathei than floating as a metaphysical
substance in viitual space' (van uen Boomen et al. 2uu9 p.
9). Schaefei auus that "The in-mateiiality of softwaie em-
phasizes that symbolic language, action - meaning actual
peifoimance - anu socio-political issues of the mateiial
woilu aie inextiicably linkeu (2u11 p. 64).
The teim 'viitual' is often useu to uesciibe Bitcoin as vii-
tual cash, to communicate that Bitcoin is in some iespects
like cash. In a way similai to how Szabo explains that >'#
@()= was uesigneu to mimic ceitain chaiacteiistics of golu,
Bitcoin is uesigneu to be an intangible mouel of cash woik-
ing ovei the Inteinet. Inteiestingly, Nakamoto also uiaws
analogies between the Bitcoin veiification piocess anu golu
mining. Bitcoin is put foiwaiu as mimicking aspects of both
cash anu golu. Bowevei, in stiessing similaiities we shoulu
not foiget that Bitcoin might also in some iespects uiffei
fiom the moueleu phenomenon. Some of these uiffeiences
aie obvious; foi example Bitcoin is intangible, unlike the
tangible cash that it is supposeu to mouel. 0thei uiffei-
ences between Bitcoin anu cash aie moie subtle. Eailiei, I
explaineu that Bitcoins aie cieateu thiough its block chain
piotocol. Beie, choices aie maue with iegaiu to pioce-
uuies, i.e. how Bitcoin 'woiks', anu it is heie that the politi-
cal natuie of softwaie anu thus of Bitcoin manifests itself.
Lawience Lessig, piofessoi of cybeilaw, stiesses the 'politi-
calness' of softwaie uesign as he aigues that "coue is law":
In ieal space, we iecognize how laws iegu-
latethiough constitutions, statutes, anu
othei legal coues. In cybeispace we must
unueistanu how a uiffeient "coue" iegu-
lateshow the softwaie anu haiuwaie (i.e.,
the "coue" of cybeispace) that make cybei-
space what it is also iegulate cybeispace as
it is. (2uu6, p. 2u)
Lessig continues by aiguing that coue ".ueteimines what
people can anu cannot uo." (2uu6, p. 77). Lessig states that
when we look at competing values anu choose among
them, we call these choices "political" (2uu6, p. 78). Beci-
sions like these aie about how the woilu is oiueieu anu
which values aie awaiueu pieceuence. Choosing among
values, making uecisions about iegulation anu contiol, ".
all this is the stuff of politics." (Lessig, 2uu6 p. 78). Lessig
illustiates this by means of an example, namely Nassive
Nultiplayei 0nline uames (NN0u's), wheie ".the possi-
bilities in NN0u space aie ueteimineu by the couethe
softwaie, oi aichitectuie, that makes the NN0u space
what it is" (2uu6, p. 14). Softwaie aichitectuie piogiams
values in coue. 0ltimately, the coue is what ueteimines the
enviionment in which useis inteiact. In auuition, in NN0u
'space' the possibilities aie not only ueteimineu by coue,
but in auuition the metaphoiical 'space' itself also consists
of coue. uiven that these 'spaces' incieasingly foim the
enviionment in which people woik, play anu live, the po-
litical powei of those able to ieau, euit anu wiite coue is
obvious, as this is what shapes the iules of inteiaction in
uigital contexts.
In his book <0"#4$#'1 D(%)=38 viitual woilu economist Eu-
waiu Castionova aigues in line with Lessig that the coue of
NN0u's ueteimines what is possible anu what is not. Cas-
tionova valiuates that a piogiammei, which he iefeis to as
the 'couing authoiity', makes choices with iegaiu to what
coue will anu will not peimit. Castionova wiites the follow-
ing about the volume anu availability of uiamonus in viitual
woilus anu the 'ieal' woilu:
0n Eaith, these items tenu to be quite ex-
pensive. . Theii beauty contiibutes to theii
piice, of couise, but so uoes theii scaicity.
Now, what if the Eaith coulu be inuuceu to
piouuce as many uiamonus as anyone woulu
evei want. Such a thing is impossible heie,
but not in cybeispace. The couing authoiity
who owns anu contiols a synthetic woilu
coulu pave the stieets with uiamonus if it
uesiieu. .... All of these couing uecisions
woulu affect the piice of uiamonus anu the
happiness of the people weaiing them. .
The availability of uiamonus is not an en-
uowment but a choice. Thus while the men-
INTERNATIONAL JOURNAL OF COMMUNITY CURRENCY RESEARCH 2013 VOLUME 17 (A) 8-18 JANSEN
14
tal objects in play theie (beauty, piice, love,
piofit, scaicity, ieputation, powei) aie noth-
ing new, the iulebook unuei which they aie
all contesteu is a new thing inueeu. (2uuS, p.
8)
Bitcoin's 'enuowment' is the iesult of many choices maue
by its piogiammeis between possible alteinatives. Foi
example, the maximum volume of Bitcoin's that aie al-
loweu to exist is set to an aibitiaiy limit of 21 million.
Thiough coue this aibitiaiy constiaint becomes a volun-
taiy enuowment foi useis who accept the system. It is im-
poitant to note that this obseivation also holus foi con-
tempoiaiy money, given that monetaiy policy ueteimineu
by cential banks foims the basis foi the enuowment of
money that 'useis' have to accept. uiven that money occu-
pies an impoitant position within economics, Castionova in
his text also touches upon what gives value to money in
'ieal' space. Fuitheimoie, he aigues that this woiks in a
similai way in viitual woilus. Castionova makes the follow-
ing statement about 'golu', the money of viitual woilus
such as WoW:
It is fiankly impossible to ueny that the golu
pieces of fantasy woilus aie money, 7,3# )'H$
#4$ /("$0 '" 0(,% C(1H$#. They aie sustaineu
by exactly the same social mechanisms anu
C$%-(%/ $P&1#)0 #4$ 3&/$ -,"1#'("3. (2uuS, p.
1S1 emphasis auueu)
It is impoitant to note that Castionova uoes not iefei to the
moie geneial 'money' oi 'cuiiency', but to the tangible
money tokens, the 'haiu' cash in youi pocket. In auuition, in
a way similai to how Nakamoto explains Bitcoin, Castio-
nova asseits that the golu pieces in WoW peifoim exactly
the same functions as cash is supposeu to uo in the 'ieal'
woilu, aiguably sustaineu by the same "social mecha-
nisms". Paiauoxically, Castionova in his text also states that
the objective of the couing authoiities anu visual uesigneis
of viitual woilus is not viitual ieality, but "selective fiuel-
ity", which means that "The simulation hau to ienuei only
the things that matteieu foi the exeicise in question."
(2uuS, p. 88). In othei woius, foi the woilu to be believable
it has to simulate some obseivable qualities uemonstiating
functional likeness to the obseivei; golu in WoW is money
because it peisuasively seems to peifoim the same func-
tion as cash. Bowevei, Castionova also puts foiwaiu that
the copy, the simulation, uoes not in any way neeu to be
complete oi peifect. In othei woius, it is "(# $P&1#)0 #4$
3&/$. This is unueistanuable, as theie is no point in aigu-
ing that e-mail is iuentical to snail mail, oi that neithei ta-
ble foosball noi the soccei simulation game FIFA 12 is iuen-
tical to the spoit of soccei that it mouels.
Castionova asseits that no mouel is peifect, but that this is
not a pioblem, since only that what matteis foi the exeicise
in question, matteis foi the simulation. This ciiculai logic
assumes that 'that what matteis' is cleai anu uncontesteu.
Bowevei, the couing authoiity has ueteimineu what mat-
teis anu, maybe moie impoitant, that which uoes not.
Theiefoie, I suggest that; 1. we shoulu ask "K4( =$1'=$3
what 'matteis'.", anu; 2. To ueteimine what matteis is a
political act that shapes which values aie awaiueu piece-
uence as these aie embeuueu in coue. In his book 6)&0
;("$0, jouinalist }ulian Bibbell uisposes of questions such
as these, which he calls unnecessaiy anu time-wasting 'on-
tological' questions. Bibbell agiees with Castionova that:
".whethei its conveisational intelligence oi
iush-houi tiaffic oi nucleai ieactions you'ie
seeing moueleu in uigital foim, it is always
just that: a mouel. Anu that theiefoie "it's a
waste of piecious time anu cieativity to
wonuei whethei the mouel is the same, on
some ueep, ontological level as what it simu-
lates. The question, iathei, is whethei '#G3 #4$
3&/$ '" $L$%0 K&0 #4&# /&##$%3 -(% #4$ C,%M
C(3$3 &# 4&"=." (Bibbell, 2uu6 p. 1u8 empha-
sis oiiginal)
I uo not consiuei it pioblematic that Bitcoin is moueleu
aftei cash. This is unueistanuable fiom the point of view of
those who piesent it, given that by suggestively naming the
mouel anu iefeiiing to othei phenomena Bitcoin is
awaiueu a location linkeu to othei concepts in people's
mental fiamewoiks. The key insight heie is that in stiess-
ing the similaiities of the 'mouel' to that which it is mou-
eleu aftei, not enough attention iemains to uiscuss uiffei-
ences.
By uefinition a mouel is piesenteu as a simplifieu, ieuuctive
iepiesentation of (a pait of) peiceiveu ieality. Bence, in-
heient to a mouel is that not all piopeities oi uimensions
aie incluueu. Thus, we can assume that the simulation
oveiall uoes not function in exactly the same way. In othei
woius, Bitcoins anu 'golu' in viitual woilus aie in many
ways not like the money in youi pocket. In auuition, mouels
aie not neutial, but 1("#$3#$=, oi at least contestable. What
'matteis' is not pie-given but ueteimineu by 'authoiities'.
This obscuies that what supposeuly uoes not mattei anu
shoves what is left out of the mouel unuei the veil of the
'viitual'. In case of Bitcoin we shoulu not even expect pei-
fect exactituue, given that Nakamoto is ciitical of ceitain
aspects of the system that (s)he mouels. In othei woius, if
Bitcoin woulu be a peifect copy nothing woulu be uiffeient
anu Bitcoin woulu just be moie of the same, which is
piobably not why Nakamoto uevelopeu Bitcoin. 0n the
contiaiy, political change is the motivation anu Bitcoin is
the aigument. Bitcoin is a piime example of Schaefei's ai-
gument that softwaie is inteitwineu with the politics of the
mateiial woilu. We shoulu contest the 'ontology' of the
mouel, uebate what we ueem impoitant enough to incluue
anu what not. Without analyzing beyonu face value, oi
iathei '"#$%-&1$ L&),$, without asking what is uiffeient, we
might unknowingly awaiu ceitain values pieceuence ovei
otheis.
Now I have uiscusseu the 'viitual' of Bitcoin anu aigueu
that Bitcoin is not the same as cash, it is also impoitant to
ieview what contempoiaiy cash is, in oiuei to note impoi-
tant uiffeiences between cash anu Bitcoin. Relateu to this is
the question why Bitcoin commentatois iefei to cash anu
INTERNATIONAL JOURNAL OF COMMUNITY CURRENCY RESEARCH 2013 VOLUME 17 (A) 8-18 JANSEN
15
not the moie geneial 'money' oi 'cuiiency'. I will fiist in-
tiouuce the contempoiaiy money system, which will in-
cluue a biief analysis of the fiactional-ieseive banking
piactice. Beieaftei, I will uiscuss the status of cash in this
system, which will incluue a uiscussion of the (in)tangibil-
ity of both money anu cash.
D4 &76$@E<7%!%F E76@F #F#$@E
The contempoiaiy money (t) system in the Euiopean 0n-
ion is oiganizeu by cential anu commeicial banks, manageu
thiough the piinciples of accounting anu the fiactional-
ieseive banking piactice. Noney is cieateu as uebt thiough
loans anu tiansactions aie manageu via this system. Beie,
goveinment-sanctioneu piivate institutions calleu cential
banks have a monopoly on money. In the Netheilanus, S$
R$=$%)&"=314$ N&"H RJT. (the Butch National Bank) is a
piivate coipoiation in which the Butch goveinment, via its
uepaitment of Tieasuiy, is the only shaieholuei. The Euio-
pean Cential Bank in tuin iesembles a coipoiation, wheie
the membei national banks aie its shaieholueis. via mone-
taiy policy, the cential bank ueteimines the volume of what
is known as 'base money', often thiough loans to the gov-
einment. In the contempoiaiy money system, money is
cieateu as uebt, auministeieu by banks. This has leu Bei-
naiu Lietaei, the foimei Piesiuent of Belgium's Electionic
Payment System anu implementei of the conveigence
mechanism (EC0) to the single Euiopean Euio-cuiiency
system, to state in his book 94$ :,#,%$ (- ;("$0 that
"Noney is mouein society's cential infoimation system
(2uu1, p. 22).
Aftei cential banks have cieateu 'base money', commeicial
banks aie also alloweu to cieate money by means of the so-
calleu 'money multipliei' enacteu by the fiactional ieseive
iatio imposeu by the cential bank. This means that com-
meicial banks maintain money ieseives that aie a fiaction
of its customei's ueposits. The fiaction is calleu the ie-
seive iatio, which is the peicentage of ueposits that the
bank keeps as ieseive. Foi eveiy ueposit of money at the
bank, the bank keeps a peicentage as ieseive anu may
loan out a new amount of new money baseu on the iest of
the amount. The fiactional ieseive banking piactice in-
cieases the money supply, anu banks aie saiu to cieate
money. Bue to fiactional ieseive banking, the bioauei
money supply is a multiple of the amount of base money
cieateu by the countiy's cential bank. Nakamoto is ciitical
of this piactice that (s)he holus iesponsible foi banks'
lenuing money in ".waves of cieuit bubbles K'#4 >&%$)0 &
-%&1#'(" '" %$3$%L$J (2uu8, p. 1 emphasis auueu). The Bit-
coin iepoit by the FBI valiuates that ".cential banks can
&%>'#%&%')0 inciease the supply of cuiiency." (FBI, 2u12
emphasis auueu).
Nakamoto is coiiect that commeicial banks can extenu
cieuit in excess of ueposits. Bowevei, the statement that
banks shoulu have something 'in ieseive' iefeis to the
notion of how banks opeiateu at a time back in histoiy,
wheie customeis woulu ueposit objects like golu with a
bank anu get a ieceipt, an I00, which woulu ciiculate like
cash money uoes touay. Bowevei, this is not how the con-
tempoiaiy money system opeiates; (cential) banks can
have assets on theii balances such as golu, but in effect
they have nothing 'in ieseive' but the iegistiation system
that pioviues infoimation about uebits anu cieuit, anu
assets anu liabilities. In othei woius, if an E0 citizen takes
hei Euio's to the cential bank, the bank is not legally
obligeu to pioviue anything othei in ietuin foi one Euio
than anothei Euio. Fuitheimoie, Nakamoto is also coiiect
that cential bankeis can inciease the supply of money, as
bankeis have no set goal of keeping the supply unuei a
ceitain thiesholu - insteau the ECB taigets a iate of infla-
tion, meaning aggiegate piice levels. In othei woiu, theie
is no pie-ueteimineu 'iight' money volume anu I have
shown that volume is just as aibitiaiy with Bitcoin's limit
of 21 million. uiven that Bitcoin is specifically positioneu as
a uigital mouel of cash, I will now go into the status of cash
in the contempoiaiy money system.
INTERNATIONAL JOURNAL OF COMMUNITY CURRENCY RESEARCH 2013 VOLUME 17 (A) 8-18 JANSEN
16
Figure 4. Money creation via the fractional reserve banking
practice. Note: borad money is a typo, which should be
broad money. Source:
http://upload.wikimedia.org/wikipedia/commons/f/f2/Money-c
reation.gif
Cash is a stanuaiuizeu cieuential that pioviues authentica-
tion to a bank that the beaiei of the note oi coin has valiu
title to the cieuit auministeieu by banks. In othei woius,
the 'you' pioves title to the uebt of 'I' in I00. Thus, someone
who pays with cash uoes authenticate, but not by means of
a goveinment I.B.; it is not iequiieu to supply peisonal
uetails along with the token as it is tiansfeiieu fiom peison
to peison. It is this cieuential aspect of cash that makes
that cash can be falsifieu. Fuitheimoie, this type of authen-
tication is also what ciyptogiapheis acclaim, namely that it
allows foi piivacy. It also explains why Bitcoin is posi-
tioneu explicitly as a mouel of cash anu not as moueling the
moie geneial money oi cuiiency, i.e. the uebt anu cieuit
ielations between legal entities in the contempoiaiy
money system that aie tieu to iuentities. In othei woius,
intangible Bitcoin tokens in fact mouel the cieuential func-
tion of the tangible cash tokens that in the contempoiaiy
system function as pioof of title to intangible money 'in the
book's'. As aigueu eailiei, Bitcoins aie not cieateu as uebt
but via the veiification piocess I uesciibeu in section 2
above. Wheie the contempoiaiy money is self-iefeiential,
Bitcoins iefei to nothing as they aie cieateu anu pie-
uistiibuteu as tiansactions without a souice. Biffeient fiom
contempoiaiy money baseu on uebt ielations, Bitcoin to-
kens exist inuepenuently as piivately owneu ciyptogiaphic
tokens, as cypheitext infoimation 'objects' in the netwoik.
Thus, Bitcoins aie conceptually veiy much uiffeient fiom
cash, which iefeis to anu coulu not exist without the uebt
ielations of bank bookkeeping. Lietaei asseits that the be-
lief that money is a tangible object is ".a key illusion in the
magic about money" (2uu1, p. 46).
To concluue, the goal of this analysis was neithei to uis-
qualify Bitcoin as opposeu to contempoiaiy money, noi am
I suggesting that Bitcoin is the uefinitive iueal money
mouel. I suggest that Bitcoin's highest achievement might
be that it, as a meie alteinative available, pioviues insight
into the stiuctuial biases of the contempoiaiy money sys-
tem (Rushkoff, 2u12 p. 197)
4
. Lietaei notes that "By be-
coming awaie of the vaiious money systems anu theii ef-
fects |we aie ablej to make knowleugeable choices |whichj
allows us to imagine, uevise anu suppoit uiffeient futuies."
(2uu1 p. 26). Bitcoin-as-alteinative may assist in iealizing a
peiceptual shift, as a new lens that helps us to see, ieveal-
ing the stiuctuial biases of an ancient natuializeu meuium
that until now iemaineu laigely invisible as it quietly but
consistently ian in the societal backgiounu. In the context
of the puipoiteu ciisis of the contempoiaiy money system,
I aigue in favoi of a uebate that shoulu unfolu focusing on
the values embeuueu in Bitcoin's coue anu whethei we
agiee on the mannei its powei is exeiciseu. In othei woius,
uoes Bitcoin live up to oui iueas how money shoulu func-
tion in the age of the Inteinet. vaiious alteinative ap-
pioaches to concepts of money functional on the Inteinet
aie available builuing on uiffeient piinciples anu values.
S

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