! ! Why$Bitcoin$is$a$Foundational$Change$That$Won’t$Go$Away$ 99$and$Could$Change$Everything$ ! by!Cincinnatus! ! ! I!am!old!enough!to!have!been!present!at!the!birth!of!the!free!software!and!

open! source!software!movements.!At!the!time!there!was!nothing!and!no!one!more! improbable!than!the!free!software!movement!and!its!leader!and!founder,!Richard! Stallman.!They!were!the!essence!of!fringe.!There!was!no!way!that!a!ranting!hacker! could!change!the!how!software!was!“manufactured”!and!licensed.!Yet!it!turns!out! that!that!ranting!hacker!was!right!and!everyone!else!was!wrong.!!! ! Likewise,!the!success!of!Linux!and!LAMP!(Linux,!Apache,!MySQL,!Python),!which!are! the!entire!open!source!stack.!!Nowadays!it!is!hard!to!recall!how!much!operating! systems!were!once!in!the!grip!of!the!corporate!giants.!!For!decades,!it!was!standard! practice!for!companies!like!IBM,!DEC,!Honeywell!and!Burroughs!–!and!later,! Microsoft!RR!to!spend!years!and!years,!and!billions!of!dollars,!to!write!these! complicated!software!programs!(and!recall!that!the!notion!of!“mythical!man! months”).!Then!came!another!mad!hacker,!Linus!Torvalds,!who!like!Stallman! personified!and!led!a"movement!by!the!strength!of!his!technical!brilliance!and!the! intensity!of!his!vision.!!In!this!new!world,!talent!was!driven!by!passion!and!merit! was!transparent!and!could!rise!to!the!top.!!Because!leadership!was!grounded!in!real! communities!of!practice,!it!was!authentic.!!!And!so!a!revolution!in!production!and! governance!ensued,!premised!on!the!subversive!ideas!of!passion,!merit,! transparency!and!accountable!leadership!!!!! ! The!hackers!realized!in!their!minds!and!felt!in!their!being!something!what!few!in!the! software!industry!did!–!that!software!is!best!when!it!is!the!product!of!an!open,!social! and!creative!exchange!among!peers.!!Their!software!was!not!the!output!of!a! regimented,!topRdown!industrial!process!solely!motivated!by!high!salaries!and! equity!shares.!These!innovators!were!foundational!because!they!discovered!and! indeed!created!a!powerful!new!niche!that!shuffled!the!deck!in!a!new!way,!combining! social!identity!and!community!with!ambitious!technological!innovation!and!value! creation.!They!invented!a!new!mode!of!valueRcreation!that!radically!challenged!the! prevailing!way!in!which!software!was!produced,!licensed!and!monetized.!It!was!at! once!a!new!social!model,!a!new!innovation!model,!and!a!new!business!model.!! ! This!history!is!worth!recalling!because!Bitcoin!–!or!more!accurately,!the!entire! cryptoRcurrency!and!open!currency!movement!–!is!at!the!same!juncture!that!open! source!software!was!thirty!years!ago.!!It!is!a!defiantly!fringe!enterprise!that!fills!a! social,!indeed!an!economic,!and!technological!niche,!that!is!100%!in!opposition!to! the!current!economic!order.!!Like!during!the!time!of!the!founding!of!the!Free!and!

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Open!software!movements,!the!mainstream!Press!routinely!sensationalize!both! claims!and!travails,!and!resolutely!to!fail!to!recognize!what!is!new!and!significant.!! !! There!are,!however,!several!important!differences!from!thirty!years!ago.!!Today! software!is!not!something!that!occurs!chiefly!within!computer!science!departments! and!large!computer!companies.!!It!has!become!tightly!woven!into!our!global!social! and!economic!fabric!–!a!deeply!embedded!technological!infrastructure!of!modern! life.!!Its!use!and!creation!is!no!longer!the!sole!provenance!of!technical!wizards,!but! rather!has!become!a!democratic!tool!used!by!all!sorts!of!people!to!embed,!control! and!monetize!more!and!more!forms!of!human!interactions.!!This!has!brought!with!it! a!shift!of!control!and!institutional!power!from!the!physical!to!the!virtual,!from!the! state!and!to!the!cloud,!which!is!neither!respectful!of!physical!boundaries!nor!of! floundering!hierarchies,!legislatures!or!bureaucracies.! ! The!second!major!difference!distinguishing!today’s!burgeoning!universe!of!peer! production!is!the!political!and!economic!context.!!Today!we!are!trembling!at!the! threshold!of!global!economic!and!social!breakdown!and!an!imminent!redefinition!of! institutional!governance.!The!financial!crisis!is!not!simply!the!consequence!of!failed! policies!on!either!side!of!the!Atlantic.!!Its!failings!are!foundational!and!systemic,!the! inevitable!consequence!of!a!socioRpolitical!and!economic!paradigm!founded!300! years!ago!having!run!its!course.!!The!recurring!litany!of!meetings,!resolutions,!and! measures!by!heads!of!state,!“law!makers,”!regulators!and!bankers,!all!working! within!the!same!echo!chamber!of!a!failed!framework,!is!symptomatic!of!a! foundational!failure.!!Those!“in!charge”!are!incapable!of!effecting!the!transformation! that!is!needed.!!The!very!structures!that!are!propping!up!the!floundering!system,!be! they!monetary!stimuli!or!debt!reduction,!or!more!turtles!or!elephants!allegedly! holding!up!the!cosmos,!the!feckless!remedies!are!inevitably!“band!aids!all!the!way! down”!–!which!is!to!say,!they!are!illusionary,!stopgap!measures!assured!to!fail.! ! A!queasy!sense!of!foreboding,!like!the!nervous!calm!before!the!storm,!is!inescapable! as!we!watch!the!churning!news!cycles,!the!Dow!Jones!swings,!and!the!failures!of! governments!in!the!Western!World!to!restore!confidence.!!We!know!that!failure!is! imminent,!but!who!dares!utter!such!basic!truths?!!They!cut!too!deeply!and!imply! radically!disruptive!changes.!!But!let!us!say!it!plainly,!without!ideological!animus!or! political!motive:!!The!primal!social!contract!of!western!liberal!democracies!has!been! broken.!Governments!cannot!fulfill!their!most!elemental!obligations!–!the!provision! of!basic!social!and!security!services,!the!fair!and!effective!organization!of!markets! and!currencies,!and!the!longRterm!leadership!to!assure!a!stable!future.!!! ! Governments!have!failed!to!prevent!the!capture!of!their!governing!structures!by!the! very!parties!they!are!meant!to!govern.!!Not!surprisingly,!democratic!governments! have!lost!the!trust!of!their!citizens,!which!is!now!manifesting!itself!in!“Occupy”! protests!in!more!than!900!cities!around!the!world.!!Protesters!are!no!longer!content! to!“work!within!the!system”!for!change!because!they!realize!that!the!system!itself!is! rigged!and!dysfunctional.!!Read!between!the!lines,!and!it!is!easy!to!see!that!

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protesters!are!demanding!a!new!system!of!governance,!one!that!can!uphold!a!fair! and!functional!social!contract!and!restore!trust,!the!currency!of!legitimacy.! ! Yet!for!now,!we!are!stuck!at!an!impasse.!!There!is!no!going!forward.!There!is!no! going!back.!But!there!is!an!abundance!of!magical!thinking.!On!the!right,!libertarians! are!revving!up!their!utopian!fantasy!of!the!inevitable!dissolution!of!the!state!and!the! spontaneous!arrival!of!a!new!free!order!(sound!familiar?).!!On!the!left,!liberals!and! progressives!make!their!familiar!arguments!for!government,!but!this!time!even! more!of!it:!More!government!intervention,!more!regulation,!but!without!the!real! functioning!of!checks!and!balances.!There!is!in!fact!no!real!governance,!just!the! ritualized!theatrics!of!government.!! ! This!is!where!the!cryptoRcurrency!movement!comes!in.!!This!movement!is! significant!because!it!is!a!vanguard!phenomenon.!It!is!a!crossRover!species!that!is! pioneering!a!transition!from!the!current!socioReconomic!order!of!bureaucratic! states,!grounded!in!rigid!hierarchies,!ruleRsets!and!territorial!control,!to!a!new!order! that!more!resembles!an!ecosystem!whose!governance!institutions!are!based!on!peer! to!peer!social!relations!that!coRevolve!within!a!global!socioRtechnological! framework.!!! ! What!then!is!Bitcoin?!It!is!an!open!source!peer!to!peer!network!and!software!that! supports!the!generation!–!“mining”!and!exchange!of!a!digital!currency!that!is!not! under!the!support!of!any!centralized!authority,!Bitcoin!uses!a!distributed!data!base! spread!over!a!peer!network!to!record!transactions,!as!well!as!highly!sophisticated! encryption!and!proof!of!work!algorithms!to!ensure!that!they!can!only!be!spent!once! and!by!the!person!who!owns!them.!Bitcoins!can!be!saved!in!a!“wallet”!on!a!computer! or!smart!phone!and!be!sent!over!the!Internet!to!anyone!with!a!Bitcoin!address.! There!are!exchanges!such!Mt.!Grox!and!Bitcoin7!that!can!be!used!to!secretly! exchange!Bitcoins!for!real!currencies,!!! ! ! Bitcoin!is!not!without!its!problems.!Although!there!are!retailers!that!accept!Bitcoins! and!Android!wallet!exists,!it!has!had!a!hard!time!gaining!acceptance!as!a!genuine! medium!of!exchange,!and!hence,!achieving!liquidity.!This!has!been!exasperated!by! the!hoarding!and!speculative!use!of!the!currency!which!has!fluctuated!between!a! high!of!$33!per!Bitcoin!to!less!than!a!$1.00,!which!is!below!its!cost!of!production!or! “mining”! $ $ Although!transRnational!collaboration!via!the!Internet!is!already!quite!common,!the! cryptoRcurrency!movement!seeks!to!make!it!dramatically!more!consequential!by! empowering!people!to!take!direct!control!of!their!valueRcreating!activities,! bypassing!the!nationRstate!and!corporations.! ! Conventional!wisdom!regards!the!cryptoRcurrency!movement!as!hostile!to!all! current!models!of!trust!and!sovereignty.!!It!is!dark,!secretive,!and!outside!the! ! 3!

jurisdiction!and!oversight!of!any!legitimate!state.!!It!is!also!an!enabler!of!all!forms!of! illicit!activities!–!drug!trafficking,!money!laundering,!and!perhaps!even!terrorism.!! ! On!the!other!hand,!a!cryptoRcurrency!offers!the!prospect!of!rebuilding!social!trust! precisely!because!it!is!not!under!the!jurisdiction!of!any!sovereign,!powerful!actor,! whether!a!national!government,!central!bank!or!privileged!charismatic!leader.!!The! putative!leader!of!Bitcoin,!Satoshi!Nakamoto,!purports!to!be!Japanese,!but!given!that! he!has!taken!elaborate!and!highly!effective!steps!in!protecting!his!real!identity,!no! one!really!knows.!!According!to!an!October!10,!2011!New"Yorker!article!about!his! endeavor,!Nakamoto!writes!in!an!impeccable!British!English.!!!! ! What!is!striking!is!that!unlike!many!founders!of!movements!or!open!source! software,!(one!only!has!to!recall!Julius!Assange!of!WikiLeaks),!Nakamoto!has!no! interest!in!publicity.!On!the!contrary,!he!seems!to!grasp!the!importance!of!new!kind! of!leadership,!whereby!effective!authority!is!not!based!on!a!cult!of!personality!or! celebrity.!!His!reputation!has!been!cemented!by!the!sheer!brilliance!and! thoughtfulness!of!his!vision!of!a!digital!currency!and!his!craft!in!writing!hackRproof! code.!Indeed!the!success!of!what!Nakamoto!has!done!depends!upon!his!preserving! pseudoRanonymity.!! ! Bitcoin!is!the!first!of!a!series!of!viable,!crossover!species!of!governance!because!it! effectively!and!radically!redefines!the!socialReconomic!relationships!between!the! physical!and!the!digital.!!It!has!achieved!this!because!it!has!managed!to! institutionalize!!and!concretize!trust!not!through!physical!artifacts!such!as!gold! bullion,!a!Fort!Knox!repository!of!gold,!or!the!Federal!Reserve,!but!through!an! autonomously!functioning!algorithm!embedded!in!software.!!Trust!is!preserved!and! governance!achieved!through!the!implementation!of!an!algorithm!that!no!one!!!R! princes,!plutocrats!or!politicians!–!can!“game”!or!change.!! ! This!is!a!macroRevolutionary!achievement!of!the!highest!order.!!If!value!can!be! stored!and!traded!through!an!entirely!trustworthy!algorithm,!and!not!manipulated! through!monetary!or!budgetary!policies!adopted!by!the!Fed!Chairman,!the!President! or!Congress,!then!social!trust!is!likely!to!migrate!to!these!digital!spaces!and!tools.!! To!be!sure,!the!architecture!of!these!digital!platforms!and!their!implementations! remain!in!their!early!stages!and!will!require!considerable!refinement.!!But!however! rudimentary!Bitcoin!and!other!systems!of!digital!governance,!this!much!must!be! conceded:!!they!have!a!promising!future!and!a!discernible!evolutionary!path.!!The! same!cannot!be!said!of!the!neoliberal!state!and!its!policies.!!! ! Does!Nakamoto!cut!the!Gordian!Knot!of!!Quis"custodiet"ipsos""Custodes!–!“who!shall! watch!the!watchdogs?”!!It!remains!to!be!seen,!but!Bitcoin!is!very!likely!the!first!in!a! series!of!real!world!experiments!in!new!forms!of!trustworthy!digital!institutions! that!will!challenge!the!sovereignty!and!governance!power!of!states.!!These!new! institutions!may!even!come!to!supplant!traditional,!physical!democratic!institutions! because!of!their!inherent!efficiencies,!versatility,!stability!and!safeguards!against! corruption.!!! ! 4!

! If!the!future!will!belong!to!governance!institutions!that!can!secure!social!trust!and! legitimacy,!then!nationRstates!are!now!on!notice!that!the!terms!of!their!coercive! authority!may!need!to!be!reRnegotiated!in!coming!years.! ! ! ###!

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