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Herausgeber: John Wiley & Sons
Kategorie: Geisteswissenschaft
Sprache: Englisch

Beschreibung

From their shadowy origins in Bitcoin to their use by multinational corporations, cryptocurrencies and blockchains are remaking the rules of digital media and society. Meanwhile, regulators, governments, and the public are trying to make sense of it all. In this accessible book, Quinn DuPont guides readers through the changing face of money to show how blockchain technology underpins new forms of value exchange and social coordination. He introduces cryptocurrency and blockchain technology to readers in terms of their developers and users, investment opportunities and risks, changes to politics and law, social and industrial applications - and what this all means for the new economy. The author argues throughout that, rather than being a technical innovation, cryptocurrencies and blockchains are social technologies enabling developers and users to engage in unprecedented experiments with social and political levers. Cryptocurrencies and Blockchains dispenses with hype and offers sober reflection on this crucial and timely topic. It is essential reading for students and scholars of culture, politics, media, and the economy, as well as anyone who wants to understand, take part in, or change the future of work and society.

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Leseprobe

Cover

Front Matter

1 Experiments in Digital Society

Users

Social technologies

Terminology and definitions

Overview of chapters

2 Origins and Futures of Cryptocurrencies

Origins

Developing cryptocurrencies and blockchains

Future uses and issues

Summary

3 Digital Money

Bitcoin transactions

Money narratives

Alternative theories of digital money

Summary

4 Blockchain Media

Blockchains

Consensus

Mining and waste

Network architectures

Summary

5 Finance and Capital

Financial clearance and settlement

Speculative investment

Crypto investors

Summary

6 Law and Society

Jurisprudence and legal technologies

Financial regulation

Privacy and data protection regulation

Smart contracts

Summary

7 Internet of Things, Logistics, and Smart Manufacturing

New logistical systems

Logistics and IoT

Industry 4.0

Logistical media

Summary

8 The Promise of New Organizations

Collective action and decision-making

Trust and business

Trans-human organizations

Governance challenges

Summary

References

Index

End User License Agreement

List of Illustrations

Chapter 1

Figure 1.1

Online search volume for questions about technologies

Figure 1.2

Notable events

Figure 1.3

Author’s interpretation of interest in use

Chapter 3

Figure 3.1

Deriving a Bitcoin public key from a private key using elliptical curve multipli…

Figure 3.2

Deriving a Bitcoin address from a public key using SHA256 and RIPEMD160

Chapter 4

Figure 4.1

Three types of computer networks. Adapted from Baran (1964, p. 2).

Figure 4.2

Block chaining

Figure 4.3

Forked chain of blocks

Chapter 5

Figure 5.1

Technical analysis

Guide

Cover

Table of Contents

Begin Reading

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Digital Media and Society Series

Nancy Baym,

Personal Connections in the Digital Age

, 2nd edition

Mercedes Bunz and Graham Meikle,

The Internet of Things

Jean Burgess and Joshua Green,

YouTube

, 2nd edition

Mark Deuze,

Media Work

Andrew Dubber,

Radio in the Digital Age

Quinn DuPont,

Cryptocurrencies and Blockchains

Charles Ess,

Digital Media Ethics

, 2nd edition

Jordan Frith,

Smartphones as Locative Media

Alexander Halavais,

Search Engine Society

, 2nd edition

Martin Hand,

Ubiquitous Photography

Robert Hassan,

The Information Society

Tim Jordan,

Hackin

Graeme Kirkpatrick,

Computer Games and the Social

Imaginary

Leah A. Lievrouw,

Alternative and Activist New Media

Rich Ling and Jonathan Donner,

Mobile Communication

Donald Matheson and Stuart Allan,

Digital War Reporting

Dhiraj Murthy,

Twitter

, 2nd edition

Zizi A. Papacharissi,

A Private Sphere: Democracy in a

Digital Age

Jill Walker Rettberg,

Blogging

, 2nd edition

Patrik Wikström,

The Music Industry

, 2nd edition

Cryptocurrencies and Blockchains

QUINN DUPONT

polity

The right of Quinn DuPont to be identified as Author of this Work has been asserted in accordance with the UK Copyright, Designs and Patents Act 1988.

First published in 2019 by Polity Press

Polity Press65 Bridge StreetCambridge CB2 1UR, UK

Polity Press101 Station LandingSuite 300Medford, MA 02155, USA

All rights reserved. Except for the quotation of short passages for the purpose of criticism and review, no part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher.

ISBN-13: 978-1-5095-2027-5

A catalogue record for this book is available from the British Library.

Library of Congress Cataloging-in-Publication DataNames: DuPont, Quinn, author.

Title: Cryptocurrencies and blockchains / Quinn DuPont.Description: Medford, MA : Polity, 2019. | Series: Digital media and society | Includes bibliographical references and index.

The publisher has used its best endeavours to ensure that the URLs for external websites referred to in this book are correct and active at the time of going to press. However, the publisher has no responsibility for the websites and can make no guarantee that a site will remain live or that the content is or will remain appropriate.

Every effort has been made to trace all copyright holders, but if any have been inadvertently overlooked the publisher will be pleased to include any necessary credits in any subsequent reprint or edition.

For further information on Polity, visit our website: politybooks.com

Acknowledgments

This book is truly a collaborative, global effort. While writing it I travelled nearly constantly and met dozens of people who informed my thinking. My greatest intellectual debt goes to Bill Maurer at the University of California, Irvine, who has long supported and encouraged me. Parts of this book were written during a Fellowship at the lovely Leuphana University of Lüneburg, which was both enjoyable and productive thanks to Armin Beverungen, Paula Bialski, Lisa Conrad, and Jorge Oceja. I am also indebted to my European and American colleagues, whom I have had had many valuable conversations with—Mark Coeckelbergh, Wessel Reijers, Gianluca Miscione, Rachel O’Dwyer, Taylor Nelms, Lana Swartz, David Golumbia, and Finn Brunton. My editors at Polity Press, Mary Savigar and Ellen MacDonald-Kramer, moved mountains to bring this book to press so quickly. Similarly, the anonymous reviewers provided expedient, thorough, and insightful feedback. Special thanks to Megan Finn and Katie Shilton for providing me with the institutional support and opportunity to complete this book.

Writing would have been impossible without my friends and family and their unwavering support. Rory, woof. This book is dedicated to Alana Cattapan, my “producer” and wife who made untold sacrifices—putting up with academic wanderlust, often finding me far from home. On more than one occasion I was warned, “If you mention Bitcoin one more time, I’m hanging up on you”—a refrain undoubtedly heard by many others involved in this field, and yet the phone was never put down and encouragement and care were always forthcoming. Thank you. I do not invest in cryptocurrencies. I do, however, buy small amounts of cryptocurrencies for experimentation. I am also an occasional advisor, participant, and employee of cryptocurrency and blockchain companies and projects. My up-to-date financial investment and conflict of interest disclosure is available at iqdupont.com/disclosure.

CHAPTER ONEExperiments in Digital Society

I bought Bitcoin at $20. I bought Ethereum at $4. I’ve bought coins, tokens, and “crypto” of every kind. As I write this, Bitcoin trades near $20,000, Ethereum above $1,000. Blockchain startups launch in the millions or hundreds of millions. By the time you read this, these prices may very well seem quaint.

But I’m no investor, and this is no investment book. I lost money when the Mt. Gox exchange bankrupted, and then again when The DAO crowdsourcing experiment was hacked. I bought penny coins that stayed penny coins. Those Bitcoins and Ethers? I sold them long ago, making profit enough for a couple of nice dinners. This book is no guide to riches.

This book is a guide to understanding the wide, and yes sometimes wild, world of cryptocurrencies and blockchains.

It is remarkable how quickly the topic has grown in interest and importance. Just a few years ago cryptocurrencies and blockchains were considered fringe topics largely of interest to only a niche community of software developers. Today, banks and institutional investors are actively trading cryptocurrencies, international engineering and standards associations are helping shape the future of blockchain technologies, blue chip enterprises are leading research and development, and government agencies both big and small are deploying the technology for their constituents. By 2016, billions had already been poured into research and development. Through 2017, cryptocurrency and blockchain venture capital funding (US $3.7 billion) surpassed the entirety of all other technology seed funding (F. Wilson 2017), and there are no signs of investment slowing down through 2018 and forward. Hype and general interest, combined with confusion, has also grown rapidly. Issues facing cryptocurrencies and blockchains—from hacks to the hunt for Bitcoin’s inventor—are regularly featured on the front pages of leading newspapers, in magazines, and in the daily television and radio news cycle. The inexact science of online search volume is also indicative of the hype and confusion—searches for cryptocurrency and blockchain keywords are now several factors greater than the big technology stories of the last decade, besting Web 2.0, Cloud Computing, and VoIP (Figure 1.1). Perhaps the truest measure of widespread interest is the number of times I have heard conversations about cryptocurrencies and blockchains at my local café or bar, and even the deli.

The key insight I develop in this book is that cryptocurrencies and blockchains are more social than technological. In fact, few technologies require as much from people as cryptocurrencies and blockchains, yet developers, advocates, critics, and users often ignore this fact and fail to see the broader applications and implications.

It all started with the digital money Bitcoin. An unknown software developer by the name of Satoshi Nakamoto started developing Bitcoin around 2007–2008 and continued to do so until 2011. Without much fanfare, Nakamoto then disappeared to let the open-source software community collectively develop the code, much like other successful open-source software products. In the early years, the bitcoins produced by the Bitcoin system were practically worthless and the whole enterprise was a fun diversion for geeks and an online community known as “cypherpunks.” Within a few years, however, Bitcoin became valuable and people started treating it like the money it was meant to be (albeit money without state backing). Some retailers began accepting Bitcoin, a few Bitcoin automated teller machines (ATMs) were installed, and digital “money” started to flow across the globe. Bitcoin also facilitated illegal purchases on the “dark web” and startups claimed to offer lower transaction fees and better service than incumbents while dreaming of banking the unbanked across the globe.

Figure 1.1 Online search volume for questions about technologies

Other digital “coins” soon entered the market, sometimes clones of Bitcoin, and sometimes with different philosophies, designs, or technologies. For example, Dogecoin (2013–) satirized the hype and mania of the time by issuing coins based on the Internet meme “doge.” Soon, despite being a satire, the hype and mania drove the price of Dogecoins up, which eventually became valuable enough for its community to help send the Jamaican bobsled team to the 2014 Winter Olympics. Namecoin (2011– ) sought to use the underlying technology of Bitcoin to create a new kind of decentralized Domain Name System (DNS) to make a more resilient Internet; Litecoin (2011– ) was designed to improve on perceived issues with Bitcoin; and so on. These alternative or “alt” coins now number in the hundreds. Collectively, these are known as “cryptocurrencies” because they are currencies based on technologies derived from cryptography.

The next big shift occurred when a nineteen-year-old Russian-Canadian Bitcoin enthusiast named Vitalik Buterin decided to break away from the prevailing belief that cryptocurrencies were only useful as money. Buterin invented a generic and fully programmable system called Ethereum (2015– ). Unlike Bitcoin and the alt coins previously, Ethereum was designed to be a general-purpose distributed computing environment that would sit on top of the peer-to-peer ledger technology used in Bitcoin. Because this technology used “blocks” of bundled transactions that are “chained” together, it became known as “blockchain” technology. Almost immediately large corporations recognized possibilities for Ethereum and began investing heavily.

No longer shackled to the concept of money, Ethereum and other blockchain technologies were adopted by industries to solve existing technical challenges, and by those companies that simply wanted to look “cool.” The financial sector, itself going through a “fintech” moment, was especially eager to adopt blockchain technologies to facilitate transfers between banks and financial institutions (see Chapter 5). A quasi standard Ethereum-compatible token design called ERC-20 emerged and was widely deployed by startups. Blockchain technology also made possible “smart contracts,” an idea first theorized in the 1990s but brought to life within the programmable and secure environment of blockchains. With blockchain-based smart contracts, lawyers could create digital notary services, or try out entirely new ideas in law (see Chapter 6). Because blockchains are so good at tracking digital things, sectors like logistics and supply chain management developed blockchains specific to their challenges (see Chapter 7). Most ambitiously, entirely new kinds of autonomous and decentralized businesses were dreamt up (see Chapter 8). Blockchain companies soon proliferated, and investment in research and development from startups and established corporations grew quickly.

Throughout this book you will find evidence of this shift from Bitcoin to blockchain. As I discuss in Chapter 2, Bitcoin was invented and popularized by a fringe community with unusual ideas about politics and economics. The turn to blockchains that I discuss in Chapter 4 was more than just a technology upgrade. Banks and blue-chip corporations liked the technology and saw many possible applications but needed to steer well clear of the illegal and unregulated use cases and the fringe politics associated with Bitcoin. To do so, these industries created a new narrative, completely eliminating any talk of Bitcoin and cryptocurrencies, and instead developed blockchain technologies that evolved out of this milieu. In fact, even the term “blockchain” was seen by some as tainted, so the banks created the hollow bowdlerization “distributed ledger technology” (DLT) as a politically safe way to describe the same thing.

To some extent, the introduction of a new, “serious” blockchain pushed out the early community, who saw their invention morph from a technology to remake the world in their image to plumbing for dominant capital. Everything got professionalized and standardized (even major organizations like the IEEE and ISO got involved), and the idea of using Bitcoin as money faded almost completely. Today, it is nearly impossible to actually “buy” anything with Bitcoin (except for drugs), and early Bitcoin evangelists now suffer this pathos. Blockchain has no charm or revolutionary spirit, and the gears of progress and industry “disruption” are now largely owned by incumbents like IBM, Microsoft, and Intel (and the startups who want to become them). The consolation prize is that early Bitcoin users are now rich beyond their dreams.

Yet, for all of the investment and focus placed on the serious business of developing blockchain technologies to solve real-world computing problems, money and economics still matter. Even blockchains work best when their abstract “tokens” have some value. The fledgling study of this is known as “cryptoeconomics.” Companies soon realized that cryptocurrencies—valuable tokens—can stand in as a kind of budget version of stocks (free from the hassle, regulation, and safety of existing stock markets). Launching a new “crypto” company with sellable assets became known as an “Initial Coin Offering” (ICO)—the cryptocurrency version of an Initial Public Offering (IPO), when a private company goes public. The investment returns from ICOs now regularly outperform existing stock market picks, and these companies rake in hundreds of millions in investment—sometimes for untested business models, zero sales, or no products. While the enthusiasm and potential are exciting, many of these companies go bankrupt, fail to launch, or simply steal investors’ funds.

Cryptocurrency investors have also gotten more serious. Investors feverishly buy up ICOs and cryptocurrencies, even politically unsavory cryptocurrencies like Bitcoin (see Chapter 5). Hedge funds and traditional financial institutions invest alongside hobbyists and a few geeks holding out from the early days. Index funds and derivatives are now common, with more sophisticated financial instruments on the horizon. Investment activity has driven up the price of cryptocurrencies to truly unbelievable levels, shooting through bubbles on an upward and very volatile climb. But these are not investments for the faint-hearted, since cryptocurrencies regularly lose 20 percent or even 50 percent of their value in a single day. Of course, financial regulators, tax agencies, and concerned politicians have also noticed this, and occasionally reassert control. The danger of writing about cryptocurrency markets and prices, I fully appreciate, is that today’s marvel is tomorrow’s curiosity or calamity.

I have learned from studying cryptocurrencies and blockchain technologies since 2012 that there is never a dull day in this field. The fact that I am one of a few academic experts, with a mere half-decade of experience, is surprising by itself and suggests that many radical changes and interesting opportunities remain on the horizon. The academic research field is nascent and struggles to keep up with changes but is itself developing rapidly. Technical topics are actively researched and a number of previously dormant areas of computer science have since become hot topics (such as consensus systems for distributed computing). Social and behavioral topics are broadly represented too, but there are few truly unique areas of study (an exception is governance and governance systems, which are widely seen both as necessary for the success of blockchain companies, and an interesting proving ground for new ideas about coordinated action, social decision-making, and peer production).

To help visualize the history of cryptocurrencies and blockchains I have created two timelines. In the first (Figure 1.2), I show some of the notable events that have transpired since Bitcoin’s inception. In the second (Figure 1.3), I offer my characterization of the relative levels of interest in use over time. Neither figure is necessarily rigorous or scientific, but these figures do represent a long learned and lived take on changes in cryptocurrencies and blockchains over their early years.

Figure 1.2 Notable events

Figure 1.3 Author’s interpretation of interest in use

But let’s step back. With a market for cryptocurrencies in the hundreds of billions, and billions of research and development dollars being spent on blockchain technologies, where is all the real-world impact? A great joke told to me by Stephan Tual in 2016 supplies an answer: “What’s your favorite blockchain app?” The joke worked in 2016 because there were none, and in 2018 the situation isn’t much different. Today, no single “killer app” has emerged from cryptocurrencies and blockchains (among the hundreds of services and apps that have been developed) and no industries have been “disrupted.” Yet, despite there being little more than hype, speculation, and possibility today, there are reasons to be cautiously optimistic about the future of cryptocurrencies and blockchains. The technology itself holds promise (even though it is constantly attacked by critics who lament that it is nothing new or unique). More consequential, to my mind, are the social changes underway that are driving innovation. With all of this money, labor, and interest there is almost no way cryptocurrencies and blockchains won’t have significant impact in the future, which makes the field worthy of attention and study today.

Users

One of the most significant issues facing the study of cryptocurrencies and blockchains today is the lack of research on who users are and what they do with the technology. There are, however, dozens if not hundreds of market and technology surveys, primarily of interest to business journalists and the industry itself. There are also a number of technical analyses that focus on privacy and security, but not on users’ thoughts or feelings about these issues. Measurement of cryptocurrency and blockchain peer-to-peer networks is another area of research for computer scientists and engineers (Gencer, Basu, Eyal, van Renesse, & Sirer 2018), but while these studies do provide some insights into relationships and trends, actual usage numbers are mere approximations (e.g., Yelowitz & Wilson 2015). The main challenge facing these kinds of studies is that because accounts are pseudonymous there is no way to discover basic demographics (but some research has been able to successfully de-anonymize certain aspects; see Biryukov, et al. 2014; Dupont & Squicciarini 2015; Fanti & Viswanath 2017). A small number of researchers have connected human interests—technological affordances or human-centered design—to the study and development of cryptocurrencies and blockchains (Kazerani, Rosati, & Lesser 2017; Velasco 2016). Others have studied cryptocurrency and blockchain users’ discourses (Hernandez, Bashir, Jeon, & Bohr 2014). But despite a generally robust research field (see the research bibliography at http://blockchainresearchnetwork.org with its rapidly growing sets of published research articles and books covering all disciplines), there are only a few published articles focused on actual people, and none that richly engage with the activities, discourses, and beliefs of cryptocurrency and blockchain users.

The measure most regularly used as a proxy for the number of participants or to gauge general interest is the market capitalization (or “market cap”) of cryptocurrencies. Market capitalization is the aggregate value of a market, calculated by multiplying the price of a single item (stock, barrel of oil, cryptocurrency token) by the number available. In traditional contexts, say stocks or bonds, the market capitalization measure is a helpful if somewhat flawed way to compare sizes. For cryptocurrencies, it is a useless measure. The price of a given cryptocurrency does not reflect a simple one-for-one exchange of state-issued currency (i.e., it is not the case that for every $100 of a cryptocurrency’s price, $100 of state-issued currency has been invested). Nor does this figure truly reflect current market demand or any practical ability to sell at this level of market capitalization. While it may be possible to sell $100 worth of cryptocurrency for $100 of state-issued currency, it is certainly not true that $100 million of a cryptocurrency can be sold for $100 million of a state-issued currency. Even for Bitcoin, the largest market for cryptocurrencies by far, selling significant volume is difficult and liable to cause unintended market changes before transactions can be completed. This is because most cryptocurrency markets are surprisingly illiquid and “thin,” with few real buyers but plenty of fabricated market demand (Stubbings 2014). Market capitalization is therefore a measure of a fictional reality, more misleading than informative.

The richest analyses of cryptocurrency and blockchain users so far have come from historical and documentary sources, either found in explicit discussions online, in whitepapers and manifestos, or from the implied commitments of users and developers (see Brunton 2018). In the early days, when there was only Bitcoin, users and developers were largely the same people (up to 2013, one half of Bitcoin users were also Bitcoin miners or had mined previously; Bohr & Bashir 2014). These early users included key and now mythic figures like Charlie Shrem (co-founder of BitInstant, later jailed for operating an unlicensed money-transmitting business), Mark Karpeles (CEO of Mt. Gox, later arrested for embezzlement charges), and Tyler and Cameron Winklevoss (former US rowing Olympians, erstwhile Facebook antagonists, early Bitcoin investors, and now multi-billionaires) (see Popper 2015). Many of these early figures and users held strong anti-authoritarian views, usually with a political and economic libertarian and right-wing bent (Golumbia 2016).

As the user base grew and the possible applications diversified (in the transition to blockchain technologies that I describe in Chapter 4), more mainstream users became involved. Today, there still remains a healthy countercultural element, and the revolutionary spirit of early “dreamers” still drives some innovation and interest (Swartz 2017), but judging from anecdotal evidence many of the newer participants no longer share or care about the political and economic aspirations of early users. In one of the few empirical studies of actual users, Caitlin Lustig and Bonnie Nardi found that from late 2013 until mid-2014, most Bitcoin users reported a distrust of human institutions (such as governments) and held that technology was more equitable and trustworthy, a political view largely in line with cyberlibertarianism and Silicon Valley–style thinking (see Fuchs 2007; Golumbia 2016; Pasquale 2015; Winner 1997; see also Doguet 2012 and Chapter 8 for the issue of trust and trustworthiness). Lustig and Nardi also found that Bitcoin users were overwhelmingly male, heterosexual, non-religious, relatively wealthy, well-educated, young, and politically Libertarian. In another study covering approximately the same time period, Jeremiah Bohr and Masooda Bashir (2014) found similar demographic results. Bohr and Bashir also found that those who used Bitcoin for illegal activities or self-identified as investors were more likely to have a larger investment (suggesting that purchasing illegal goods and investment were dominant uses). Aaron Yelowitz and Matthew Wilson used Google search data to study Bitcoin users (from January 2011 until July 2013), finding similar political and ideological interests.

Since these early (prior to 2014) studies, however, my own research and anecdotal observations suggest that the users of cryptocurrencies and blockchains have changed considerably in the intervening years. Unfortunately, there have been no follow-up empirical studies to date, but some conjectures about the changing user base can be made. For example, when I interviewed hobby and professional cryptocurrency traders in 2017 (for the research discussed in Chapter 5), I found a minority of women, but still far more than the 2 percent reported by Lustig and Nardi and the 5 percent reported by Bohr and Bashir. Women working in the industry have also become more prominent, at least self-consciously so, but it still remains depressingly common to see blockchain companies comprised entirely of men or industry conference panels with not a single woman on stage. Such gender imbalances are not unique to cryptocurrencies and blockchains, of course, but it seems that the nexus of radical politics, money, and emerging technology (all traditionally male domains) has produced a culture that has both ignored women and systematically excluded them. Nonetheless, there are some reasons to be optimistic that this proclivity is declining—during my studies I found an increasingly healthy range of worldviews beyond the libertarian/privacy/technology nexus reported in earlier studies. I even found some diversity in race and geographical location.

The discourses of users on social media portray a narrow band of interests. Cryptocurrency users tend to discuss investments and price fluctuations, often dogmatically and vocally. This focus on wealth generation still has a revolutionary twinge, but more in the spirit of a gauche nouveau riche than a community working towards a radical new technology to change the world (which characterized the community spirit up until about 2016). On social media there are visible examples of this shift in the community. For example, one formerly influential cryptographer and software developer (responsible for a technology that directly informed the invention of Bitcoin) as of 2018 appears to have given up on developing technologies and now focuses on maximizing cryptocurrency profits. While not all cryptocurrency users have become millionaires, the number of punks and misfits in the community has significantly declined from its early days.

Beyond Bitcoin, users are a more diverse group, ranging from software developers working at Microsoft and IBM to privacy-maximalists at Zcash (in the spirit of early cypherpunks) to international development and charity workers trying to stem corruption in developing nations. In recent years, interest in cryptocurrencies and blockchain technologies has broken out of its niche, attracting the attention of the general population (although largely for purposes of speculative investment). In late 2017, the Coinbase iOS app rose to the top of the Apple App Store sales chart, signaling broad adaption, while—somewhat inexplicably—celebrities like the rappers 50 Cent and Snoop Dogg, the pop star Katy Perry, and the boxer Floyd “Money” Mayweather all publically promoted and purchased cryptocurrencies. As with those in the Bitcoin community, this more diverse group of users still tends to believe strongly in free market capitalism. Small projects originating from innovators on the political left have been developed as well, although these have not always been met with great success or universal approval (one creative project that sought to use idle computer resources to generate funds for Americans unable to afford bail proved controversial for its side effect of wasting electricity). In general, many in the blockchain community lament the focus on investment and wish to build new technologies instead—although they recognize that soaring prices finance development work.

A study by Garrick Hileman and Michel Rauchs (2017) offers a more recent snapshot of the changing face of cryptocurrencies and blockchains. Although focused more on industry than on actual users, the study highlights a few relevant facts: 1) cryptocurrency exchanges are essential infrastructure in the industry, 2) global transfers do happen with some regularity (i.e., not all activity is speculative investing), and 3) cryptocurrency miners control technical development of the networks. One conclusion from the study is that the labor force developing core features of the industry is still small, employing less than 2,000 people globally across exchanges, wallets, payments, and mining companies (Hileman & Rauchs 2017). Nonetheless, the study argues that the industry is growing rapidly, and I would expect that if the study had included workers across the complete range of commercial activities, the labor force would be much larger, perhaps ten or a hundred times larger.

Hileman and Rauchs’s study also highlights an important change in the user and developer community. As I described above, in the early days most participants were simultaneously advocates, developers, entrepreneurs, and users. Hilemand and Rauchs’s study suggests that cryptocurrency and blockchain miners have since emerged as a community distinct from users. Miners have always been an important part of the ecosystem because they are responsible for validating and processing transactions (see Chapter 4). This special role is part of the design first set out in the Nakamoto (2008) whitepaper describing Bitcoin. And because miners control the network, they are able to dictate protocol changes. Significant changes to protocol require miners to upgrade their software, but refusal to upgrade is tantamount to veto power, which has been effectively leveraged by Bitcoin miners in recent years. This is known as the Bitcoin “scaling debate,” which has resulted in the community of miners effectively blocking a muchneeded increase in network capacity, thereby resulting in slow processing times and enormously high fees. Until miners agree to upgrade the software that processes transactions, the Bitcoin network will remain hamstrung (barring clever workarounds or alternatives like “Bitcoin Cash,” a forked version of Bitcoin). Given that the community of miners has grown distinct from users, decisions made by miners impact the user ecosystem but hardly impact miners themselves.

The core issue facing the Bitcoin network is that miners’ interests are not aligned with those of the broader community of users. Even in the early days, Bitcoin miners did not share the ideological interests of the broader community (Bohr & Bashir 2014). Rather than being motivated by an ideology of privacy and libertarian politics (and being focused on the technology to produce this vision), miners were and are mostly economically incentivized. Because processing fees are set by a market mechanism (transactions that include higher fees are processed first), network congestion is actually good for miners, who collect higher fees even though this means that users fare worse. When miners were more likely to be users themselves (only in the very early days), they had some interest in maintaining a healthy network. But as Bohr and Bashir found, by 2013 miners had already started to separate themselves from the rest of the community. Then, as mining difficulty went up (it is correlate to price; see Chapter 4), mining soon required specialized hardware, which caused further bifurcation between the user and miner communities. Today, the majority of cryptocurrency and blockchain mining (especially Bitcoin) is done in China (Velasco 2016), a country that has effectively banned cryptocurrencies (Wolfson 2015). Outlaw Chinese miners now control the global Bitcoin network, are economically incentivized to keep it congested (so long as the Bitcoin price stays high), and do not share the ideology or community interests of most users.

Globally, communities of cryptocurrency and blockchain users have unique and sometimes competing interests, inhabit distinct monetary and technological cultures, and live in radically different and often changing regulatory climates. The range is massive. For example, Venezuela developed a state-backed “petro” cryptocurrency (in a remarkable reversal of the libertarian ethos of Bitcoin), while Bolivia has declared Bitcoin illegal and punishes any users (most countries simply turn a blind eye or occasionally reassert control).

Even in countries where cryptocurrencies have attracted broad use, the kinds of uses are often novel and the regulations inconsistent. For example, China has long been at the forefront of digital payments, but not cryptocurrencies, which have come under scrutiny by regulators many times, despite growing use (Y. N. Lee 2017). In China, Bitcoin mining is legal (for now) but cryptocurrency exchanges are not, so Chinese miners have had to turn to nearby exchanges in Japan, South Korea, and Vietnam in order to exchange mining rewards for local state-issued currency. The governments of Japan, South Korea, Vietnam, and India have all been cautious about cryptocurrencies, despite considerable use by their citizens (largely for investment). Japan has also led several blockchain development efforts, especially in the financial technology space. Although North Korea is a political outsider, it is rumored that the country is extensively involved in cryptocurrencies—both through legitimate and hacking or cyberwar means, ostensibly to launder funds to bypass international sanctions (Zoey 2018). Russia also has a significant indigenous interest in cryptocurrencies and blockchains, although use currently occurs without clear laws (Liao 2017). The former Soviet state of Estonia—a small country that is always at the forefront of new digital technologies—has embraced cryptocurrencies and especially blockchain technologies. In particular, Estonia has experimented with using blockchain technologies for offering a range of government services (Mettler 2016; Sullivan & Burger 2017). Whereas, following the Greek economic crisis and the capital control rules imposed in 2015, it was conjectured that Greeks would flood to Bitcoin as an alternative currency, yet this has not come to fruition (Zamani & Babatsikos 2017). Europe, North America, and Australia have long been involved in the use and development of cryptocurrency and blockchain technologies. Indeed, although China now dominates cryptocurrency use (up to 40 percent globally, according to Hileman & Rauchs 2017), most cryptocurrency and blockchain software development—and its funding—occurs in the United States.

Developing nations, and in particular those in Africa, have a unique relationship to cryptocurrencies and blockchains. Hileman and Rauchs (2017) describe a fledgling industry for cryptocurrencies and blockchains in developing African nations and yet these fringe use cases have garnered an outsized amount of (largely speculative) academic and industry attention. Providing banking services for the unbanked is seen as a key use case for cryptocurrencies (and is a particular interest of technology-oriented, or ICT4D, scholars; see, e.g., Ammous 2015). In many countries in Africa, however, alternative banking structures have already arisen, such as M-Pesa, the largest and most famous of the digital “leapfrog” banking services in Africa. BitPesa, a direct competitor to M-Pesa (and incumbents such as Western Union), is currently the largest cryptocurrency startup company focused on Africa, although to date the number of transactions and users is miniscule.

Global remittances are a large and lucrative market, with over US $500 billion transferred every year. Like banking for developing nations, remittances were seen as one of the first use cases for cryptocurrencies. Today, startups compete on the belief that cryptocurrencies can provide fast, low-fee global transfers. In recent years, however, Bitcoin has failed to live up to this promise (exacerbated by high fees and difficult use; see RogomonZ 2016). Other cryptocurrencies (such as Litecoin) have done somewhat better in this regard, but it is not clear that any cryptocurrency solution will create the necessary socio-technical infrastructures to actually aid developing nations. According to researchers at the Consultative Group to Assist the Poor (CGAP), BitPesa in particular has not been able to provide a service rivaling either M-Pesa or Western Union. Instead, BitPesa is being used to facilitate global payments for African entrepreneurs, and is not used for remittance and banking services. In general, many of these efforts to bring cryptocurrencies to developing nations have been critiqued as typical of the technology-focused external “solutionism” that often characterizes aid and development (Mazer 2014; Scott 2016).

Even in the developed West, cryptocurrencies and blockchains have yet to be adopted to any significant extent outside of speculative investment. In the last couple of years, a number of early blockchain products have launched in a variety of industries (see Chapters 5, 6, and 7). While these have immense promise, few are fully operational and none can be considered critical to any industry. The adoption of cryptocurrencies as currency is even worse. No cryptocurrency has had widespread adoption for the kinds of practices usually associated with money (investment activity is, on the other hand, vigorous). Bitcoin is the most successful cryptocurrency in terms of user adoption, but the dream of retail sales, payments, or any typical use has faded to almost zero (Chaparro 2017). In Chapter 2 I discuss many of the reasons why Bitcoin has failed to be adopted as a currency; these reasons include high price volatility, economic incentives to hoard, high fees, slow transaction processing, poor user experience, and security risks. Beyond these critical socio-technical issues and limitations, there are also more subtle psychological reasons why Bitcoin has failed to be adopted as a currency. Most people simply don’t care about alternative currencies—seeing few limitations with state-issued currency—and therefore any impediment or issue with an alternative is likely sufficient to prevent adoption.

If there was ever a chance for Bitcoin to flourish in the West, it would have been with the young and technologically savvy undergraduates at the Massachusetts Institute of Technology (MIT) who were given free Bitcoins in 2014. But, as this experiment played out, adoption has been limited. As of 2017, only 13 percent of the MIT undergraduates had actually used their Bitcoins; the remainder had exchanged them for US dollars (39 percent) or simply forgotten about them (48 percent) (Athey, Catalini, & Tucker 2017; Catalini & Tucker 2016). (Technically, these Bitcoins are simply “unused,” but given the difficulty of securing Bitcoins it is reasonable to think that most are now inaccessible and effectively lost.) If MIT students cannot or will not use Bitcoin as an alternative currency, I see no reason to think that the general population will, at least not yet.

Social technologies

The single greatest innovation of Bitcoin was not the development of new software. Rather, Bitcoin solved a social coordination problem. The consensus protocol (see Chapter 4) introduced a practical way of coordinating computational activity without explicit and sustained participation, and with unknown and untrustworthy actors. In doing so, Bitcoin revitalized a dormant research field in computer science, spurring further technical development (see Lamport, Shostak, & Pease 1982). And with machine coordination came new experiments on human coordination, including the availability of social and political tools to control populations and “optimize” the delivery of services. Bitcoin, and, later, cryptocurrencies, also presented a practical solution to the challenge of creating and maintaining value online—as a form of money, as abstract tokens, and as economically incentivized behavior. Together, these innovations—consensus and value—make cryptocurrencies and blockchains powerful because they are social technologies.

In thinking about cryptocurrencies and blockchains as social technologies we can draw on the rich literature about money. Even though Bitcoin has largely failed to be used as money, it still looks and behaves a lot like money. In a classic work, Georg Simmel (2004) described money as “the purest form of the tools” with “no purpose of its own,” which therefore has “unlimited possibilities” and “unpredictable uses” (210 ff.). With no purpose of its own, money is just a “means” that gains value in exchange (in Chapter 4, I develop this insight into a theory of blockchain media). Simmel’s description of money is particularly apt for understanding cryptocurrencies and blockchains. In the shift from Bitcoin—imagined as a kind of money—to blockchain, there has been an abstraction (and elimination) of ideology and meaning. In being less about money, blockchain technologies have become purer tools, and therefore gained more possibilities. Software developers in the blockchain industry perfectly reflect this sentiment; when faced with any problem, only half-jokingly they exclaim, “Put it on a blockchain!”

Cryptocurrencies and blockchains are different than the kinds of money Simmel was imagining back in the late 1800s in an important respect—they are computing technologies. Mark Coeckelbergh (2015) explores what the recent rise of “money machines” means for society and finds that there is a significant moral dimension that ought to inform discussions about their development and use. Using Simmel’s argument that money is a means, Coeckelbergh notes that money both bridges and creates distance (2015, p. 36). Coeckelbergh argues that technologies are often tele-technologies that also affect distances, sometimes helping to connect geographically distant people, but also creating further social and moral distance. Consider the ways that Facebook helps friends stay close but erodes engagement in local democracies, such as the town hall meetings of an imagined pastoral past. With this change in democratic engagement, it is possible that “clicktivism” fails to create the same kind of emotional proximity in society, thereby diminishing empathy and fueling hatred and vitriol. Yet, every new technology brings social change—both positive and negative—and moral outrage. Attending to the ways that technology changes society is complex and context specific. When it comes to questions of money and finance, Coeckelbergh draws on Simmel’s claim that money objectifies, depersonalizes, detaches, automates, and alienates (2015, p. 12), and even more so when money is a creation of high technology. In so doing, money machines change our values and goals, sometimes causing us to mistake a means for an end.

In his specific reflections on Bitcoin, Coeckelbergh highlights the ways in which money has become dematerialized. This dematerialization has resulted in some puzzling issues, prompting questions about the ontology of money (what is