Bitcoin, Blockchains, and the Material Cost of Digital Autonomy

WELCOME TO THE AGE OF ARTIFICIAL SCARCITY!

The best indication of the change that affects our financial system is the rise of two new interrelated phenomena: Bitcoin and NFTs (NFT was the Collins word of the year in 2021). Bitcoin and NFTs both emerged out of a libertarian idea to bypass state apparatuses and establish direct communication between concerned parties. In both cases we see how the idea turned into its opposite: Bitcoin and NFTs have their own 1 percent who dominate and manipulate the field. Here we should avoid both praising Bitcoin and NFTs as a new space of freedom and dismissing them as the latest speculative capitalist madness.

First, Bitcoin. Our usual experience with money is that its value is guaranteed by some state authority like the central bank, and that the state can also misuse this authority (printing money and causing inflation, etc.). In the case of Bitcoin, its value is not guaranteed by any public institution of authority, but determined by what people will pay for it—and they are ready to pay for it if they believe in it, if they trust it. Here, in the domain of cold and ruthless financial speculations, belief and trust enter the stage. Bitcoins are like an ideological cause which exists as a real force only if enough people believe in it—without individuals who believe in the Communist cause there is no Communism, for example.

There’s a similarity to how stocks are priced, but the difference is that in principle the value of stocks is not purely self-referential; it refers to investments which are expected to generate profit from “real” production. If one wants the price of a stock to fall, one spreads false news about a company that issues that stock. There is no such reference with Bitcoins. This doesn’t mean that the amount of Bitcoins is limitless: The protocol established by Bitcoin founder Satoshi Nakamoto dictates that only 21 million Bitcoins can ever be mined (almost 19 million have been mined so far). There is a limited supply, like with gold and other precious metals, but no intrinsic “real value.”

How can this be? Bitcoins have to be registered in blockchains, which are: essentially decentralized ledgers. They’re a “place” to store information, and crucially, because they are decentralized, cannot be edited without the knowledge of other users on the blockchain. The idea is that blockchains are able to store records of information without the need for third parties (e.g., banks and financial institutions), so that the system is essentially self-sufficient and self-regulating. As a digital infrastructure, an added benefit is that huge legal fees added by third parties are avoided.87

Here we stumble upon the tension that defines blockchains: Precisely because there is no third party, because the system is essentially self-sufficient and self-regulating, every registration/inscription of a new Bitcoin involves a tremendous amount of work through which the new Bitcoin will be brought to “the knowledge of other users on the blockchain.” Since there is no third party to which every Bitcoin owner could refer, each new owner has to develop a complex texture of algorithms and codes which guarantee that the specific identity of the new Bitcoin will be clearly perceived by all others without making it turn into something that can be appropriated by others. A blockchain as a non-alienated big “Other” needs a lot more than inscription into an alienated third party, making the Bitcoin “miners” who do this work the “proletarians” in the new domain.

We’ve gone from old miners (who do their difficult work deep beneath the earth) as the nineteenth-century typical figure of a proletarian to Bitcoin miners, who work to construct and secure the space for a Bitcoin in the digital big Other. The paradox here is that they do not work to produce new use values, but to create new space for exchange value—to guarantee that Bitcoins do not need a legal external authority and the accompanying legal fees. This work takes a lot of time and uses so much energy (electricity) that an individual who mines for Bitcoin creates a greater ecological burden and pollutes our environment more than a miner digging for coal.88

The potentially progressive idea of Bitcoin as global and independent of state apparatuses actualizes itself in a form that undermines its premise. It is similar with NFTs, which were also invented as a decentralized, anti-State libertarian attempt to preserve the autonomy of artists from institutional clutches. The price we pay for this idea is that “the creation of an NFT is an attempt to create artificial scarcity where there is none. Anyone can create an NFT for a digital asset, even if there’s no actual asset behind it!”89