11 minute read
Cryptocurrency
Privilege and Technology - Out of the borders
When the Alternative Route Becomes the Playground of the Rich
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by Silvia Sanz Linares
Cryptocurrencies, blockchain, or NFTs, for the great majority of us, these terms are no longer strange. Over the past years, we have attended to a humongous rise of the crypto world and its technologies. The pandemic times and its promotion as an essential part of the metaverse have set up the crypto world as a field of opportunities that promises to change our relationship with money and technology.
Digital currencies have arisen in the trading world as a critical investment, an innovative way to buy art and the most reliable replacement for traditional banking. However, they were not conceived for all these purposes. So, how did the cryptocurrencies change from being the mavericks’ alternative economic pathway to being the new playground for the better-off?
Physical Bitcoins. Every coin has a private key printed on its back, holding the currency’s actual value in a digital wallet.
The bloom of a new system
It was 2008 when the first blockchain digital currency sprung. Yet, cryptocurrencies had existed long before; admittedly, we can establish eCash, a coin born in 1990, as the first digital coin. However, Satoshi Nakamoto’s —whose identity remains a secret to this day— new ‘peer-to-peer’ electronic cash system caught the public’s attention with blockchain and Bitcoin, today’s highest value cryptocurrency.
As stated in its presentation paper, Bitcoin appeared to offer ‘an alternative financial system’, allowing its users to evade the traditional centralized financial infrastructures and offering a solution to problems such as bans, server shut downs, privacy concerns or the block of payments.
In short, this new technology introduced a colossal benefit: it made it possible to take any third party out of the electronic transactions equation without compromising privacy or security. Hence, no one could ever stop a transaction again, as the whole process would entirely rely on the two active participants of a purchase.
Visual representation of blockchain
What makes Bitcoin different?
Customarily, when we buy something (be it on the Internet or in the physical world), we make a transaction through our banks. These acquisitions involve a series of fast communications essential to complete the shopping process. As a result, the banks become an indispensable part of the transactions, registering all movements and allowing the completion of the purchases. Consequently, they charge a fee for this service.
The ‘traditional’ system entails concentrating private data in a single centre. The banks manage all our financial information unilaterally. This data management permits purchases since our banks can go back to the registers, check that we have the necessary amount of money to acquire a product and record the changes in the same database. Yet, it involves various problems: foremost, not a single bank can guarantee the security of that information, nor the absence of cheats. Besides, this system places all the power in a single institution.
Bitcoin and Ethereum physical coins (Ethereum’s coin is just a collectable item without monetary value)
The cryptocurrencies stepped in to change the rules of the game. Bitcoin, like any other block chain-based currency, withdraws control from the banks by creating a secure and independent database system. Therefore, cryptocurrencies come across as disruptive technology with the power to induce financial, political, and even social change.
Blockchain is at the core of this revolution. Despite its pompous name, it is not radically different from the traditional databases our banks work with. However, they are not merely a single base of information. In fact, what makes it such a reliable system is that it consists of a set of copies distributed in several spaces.
And, what is more enthralling, the information cannot be modified. Every time we perform a transaction, we create a new block containing information. As a result, each transaction is stored in an independent block, connected to the previous ones and ordered in a chronological fashion. As you can imagine, that is where the term ‘blockchain’ comes from.
Blockchain’s redundancy (the copies of the databases) and impossibility to be overwritten make the system incredibly secure despite falling outside of the traditional methods, resulting, once and for all, in the actual incorporation of digital currencies in the markets.
Physical Dogecoin coin (collectable item)
An idea of social change
Behind the hype of blockchain, there is not only a technological transformation but also an ideology of social change; this system provides a revolutionary way for people to interact in respect of things of value, putting them at the centre of the decision-making plexus.
With blockchain and cryptocurrencies, people no longer need to put their trust in a third-party element. The system is deconstructed by overthrowing the traditional centre constituted by governments and financial institutions (whose interests might not be those of the individuals using their currencies and services). Now, money, art and important documents such as land titles or medical records are managed by the net of users.
Such a quality immediately created a group of ‘enthusiasts’ who saw the potential in this form of money —and its technology— to boost financial and, most importantly, social change. These people believe the general implementation of blockchain-based currencies would lead to the elimination of corrupt systems. Hence, cryptocurrencies turned into a subversive element providing the tools to create democratically controlled systems working for the people’s best interests.
Outstandingly, this system does not solely rely on people’s trust in change for the better. Cryptocurrencies are valuable per se despite not being backed or issued by any government like euros or dollars. Alternatively, they leverage their power in the open source community, its transparency, easy maintenance and its disinflationary nature.
While most money’s value depends on their respective issuer governments’ policies, cryptocurrencies ground their value on their limited nature. For instance, there will ever be 21 million Bitcoin; the very last Bitcoin will be mined in 2140, and, after that, not a single extra unit will be put in circulation.
Besides, cryptocurrencies come with extraordinary usability. One of the advantages they of fer over traditional money is easy and pain-free international payments, without fees or long clearing times. And undoubtedly, this independent operativity of blockchain infrastructures is paramount for those encouraging the change.
Crypto’s aggressive bid for more DC firepower. (bitcoin-on-capitol-hill.png)
© Protocol. (2022).
The flip side of the coin
Yet, controversy has always surrounded this new trading asset regardless of the potential benefits the extended use of cryptocurrencies could bring to society.
For many, its disconnection from regulatory entities offers opportunities to perpetuate questionable activities. Indeed, since its very origin, Bitcoin was linked with the infamous website SilkRoad, a place on the darknet where all sorts of illegal products could be bought.
For others, the bad reputation of cryptocurrencies comes from the greediness of some creators and investors. The crypto world is crammed with thousands of worthless coins without any cutting-edge underlying technology. Hence, most of them are built upon nothing and tend to fail.
Over the past years, several scandals popped up linking certain coins to scams, pyramid schemes, and fund hacks. As a result, a big part of the population perceives cryptocurrencies as a fad, a simple speculation trend that will eventually fade away, leaving people with out their money.
Musk and Dogecoin
One of the most recent and notorious cases feeding the scepticism on cryptocurrencies is that of Elon Musk and Dogecoin. A case that clearly depicts the speculative bubble around digital money.
Dogecoin is one of those currencies lacking any value. In fact, it came out as a meme, a response to a high speculation period. It is a virtual joke to amuse those making part of the blockchain world. And incipient purchasers of this coin acquired it knowing it had no value nor utility. They invested just for fun.
Surprisingly, the coin was strongly supported and promoted by the entrepreneur Elon Musk, who declared to own the coin himself and even his companies (Tesla, SpaceX, and Boring Co.) accepted the digital currency as payment for some time.
By doing so, Musk profited billions of dollars at the expense of other Dogecoin investors, which ended up with him being sued for $258 billion over a pyramid scheme. Musk knew all the way the currency lacked intrinsic value and that his influence would lead this particular coin market.
Revolving doors
While personal influence is one of the most effective ways to manipulate the cryptocurrency market and thwart change, it is not the only street the privileged can take to benefit and preserve their position.
Revolving doors have set in, making it clear that there is a rising conflict of interest in this field. This situation is undeniable in the United States, where the industry growth has reinforced the need to address crypto’s biggest challenge: legal and regulatory matters.
Navigating the convoluted sea of regulations is not only complicated but also remarkably expensive. Thereupon, it is no wonder that these digital businesses have turned to top regulators. And, being such a lucrative enterprise, it has attracted ex-members of the Securities and Exchange Commission, The Federal Deposit Insurance Corporation, the Treasury, and Congress.
According to the Tech Transparency Project, nearly 240 officials with key positions in the American regulatory institutions are now working in companies such as Coinbase Global Inc, Binance Holdings Ltd., and Ripple Labs Inc. The cryptocurrency industry is committed to the White House lobbying machine, creating a crack that undermines the foundational ethics of blockchain-based digital money.
Serving the interests of the fat cats
Ostensibly, the populist and democratic foundations of cryptocurrencies are shaking. Digital money gained, indeed, significant popularity, yet it never caught on as an alternative to traditional finance. Even so, it worked to make the rich get richer.
The beautiful dream of Bitcoin appealed to thousands with its promises of equality and its apparent possibility of creating something from nothing. An idea that the media has sustained with stories of successful investors that went from being ordinary people to millionaires.
Still, that idealistic approach to digital money was never veracious. Everyone can invest in cryptocurrencies, yet those with the ability to risk losing big money have the biggest advantage. Investing in cryptocurrencies can resemble gambling; those putting more money can play more games with better odds.
Bitcoin, Ethereum or Ripple are just a method for the better-off to continue to get richer. The achievement of making money from this type of investment hides a privilege; usually, those who could afford to lose thousands became obscenely affluent, proving that economic in equality creates more disparity. Note that 1000 people own 40 percent of the Bitcoin market, according to Aaron Brown (former managing director and head of financial market research at AQR Capital Management).
Blockchain came into this world with an anti-statist democratic spirit. But, ironically, it rapidly evolved to favour the elite in a new speculation game. It is the same old song played with a faster speed, that of the Internet. And while it has gifted the world with more immediate, se cure and reliable transaction technologies, it has dramatically failed its original purpose by only helping the rich get richer in a new playground.
Sources:
Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System.
https://bitcoin.org/bitcoin.pdf
Adentuji, J. (2022). Behind the crypto hype is an ideology of social change.
https://theconversation.com/behind-the-crypto-hype-is-an-ide ology-of-social-change-177981
Revolving Door Project. (2021). Tracking Crypto’s Revolving Door.
https://therevolvingdoorproject.org/tracking-cryptos-revolving-door/
Khemani, K. (2022). The rich get richer: Rethinking Bitcoin’s power as an inflation hedge.
https://techcrunch.com/2022/01/09/the-rich-get-richer-rethink ing-bitcoins-power-as-an-inflation-hedge/
