BITCOIN IS THE MONETARY VERSION of a gnostic heresy: an alternate financial cosmology full of secret names and evocations, with a masked prophet in the pseudonymous “Satoshi Nakamoto” (whose real identity, whether singular or a collective plural, remains unknown). Arguments in comment threads and discussion boards are bright with millennial fervor for the end of authority based in governmental scripture and the advent of a new fiscal age founded on cryptographic work and the steady roar of cooling fans. “Mining rigs,” computers built to do nothing but solve special mathematical problems that hunt for bitcoinsessentially, numbers that are very hard, even for a computer, to calculatewarm up basements and server rooms from Sydney to Nashville. In Hong Kong, “Block Erupter” circuit boards immersed in tanks of coolant eat electricity and generate heat and possible solutions; in Iceland, under the aurora, currents of arctic air prevent meltdowns while the machines work. This is strangeness of a high order.
The contradiction of an immaterial currency built on pricey matériel (custom chips and hardware, massive air conditioners, elaborate security gear) is only one of Bitcoin’s paradoxes. It’s an exquisitely logical concept and an exuberantly irrational bubble; a futuristic system that hearkens back to the gold standard; a currency where units of money have identities and humans are anonymous; a competitive model with a cooperative core. These paradoxes begin with Bitcoin’s solution to the problem of “cryptocurrencies,” forms of money that can be spent over digital networks anonymously and untraceably (and untaxably). How do we know that this digital note is worth what it claims to be worth? How do we know that the person spending it can only spend it once? (If your digital money is just a string of bits, why not copy and paste it and spend it as many times as you like?) And how do we know that the person making the digital notes won’t make so many that they become worthless?
Nakamoto’s answer was first announced on a mailing list for cryptographers on October 31, 2008, in the midst of the unfolding global financial crisis. “His” proposal was Bitcoin, a protocol for the collective verification of transactions. When you send a bitcoin (a string of characters with certain properties) to a payee, the transaction is broadcast out onto the peer-to-peer Bitcoin network, where it is added to a master public ledger. This ledger, the “blockchain,” becomes the historical basis for a set of mathematical problems that the computers on the network compete to solve in order to calculate and thereby “discover” newly minted bitcoinsthe process called mining. The problems get incrementally harder, which prevents bitcoins from being produced too quickly; the protocol is built to become more demanding over time. There are about twelve million in circulation now, with rates of new production slowing steadily, and only twenty-one million will be produced in total. This deflationary move makes Bitcoin behave anachronistically, like, say, gold, with a fixed supply theoretically stabilizing value without state regulation. (And, like gold, Bitcoin is an extractive industry: Those megawatt hours of electricity for the computers mostly come from great ashy pits of coal.)
The blockchain is Bitcoin’s truly innovative component: Imagine that any given dollar, euro, or renminbi note could be unfurled like a genealogical scroll with the tale of its circulation. The humans can remain incognito, identified only by their transaction “addresses” in the network, but every transaction is seen by all and vouched for by ludicrous quantities of computational power. Yet, for all this work, what can one buy with bitcoins, without trading them for more conventional currencies? Drugs, chips at online casinos, seats on Virgin Galactic, various Web services, donations to WikiLeaks, tuition at a Cypriot university, and, in a few months, Overstock.com knickknacksbut you’d be a fool to spend them now. Bitcoin is dominated by hoarders and speculators and has been on a roller-coaster run, going from ten US dollars for a single bitcoin in early 2013 up to one thousand dollars and above on the Chinese exchanges, before losing half its value overnight and climbing back to the high seven hundreds (as of press time).
Bitcoin can seem like a satire of the present moment: an extravagant waste of electricity, hardware, and venture capital for a Central Banker Fantasy Camp thrown by Soylent-drinking geek dudes who daydream of post-national libertarian seasteads with good molly and kick-ass guns. Much of the rhetoric around the currency is symptomatic of the myopia of the highly but narrowly intelligent, reflecting the assumption that being a hardworking programmer means you can solveor “disrupt”any given problem. International finance, interbank transfers, and smashing the state? Boom, solved, and in time for my CrossFit class. A sharply joking online neologism for bitcoins is “Dunning-Krugerrands,” after the South African gold coin and the Dunning-Kruger effectthe cognitive bias by which those less skilled or more knowledgeable in a particular field will correspondingly overestimate their abilities and understanding.
If we set the currency itself aside, though, something far more interesting emerges. Nakamoto has produced a swiftly adopted system in which the whole participating community verifies the activity of its parts. There are already forks of the Bitcoin protocol to produce new blockchains, whether for alternate currencies with other social properties or for systems that can reliably authenticate acts of production and exchange on a global scale. The protocol implies new orders of cooperatively approved value, shared among strangers, managed by machines, and looking like nothing we’ve ever seen beforecertainly not the all-amenities Galt’s Gulch of individualist fantasy. Paradoxical Bitcointhis virtual, coal-fired, worthless, expensive currency, as fluid as data and as fixed as a florinis a libertarian fetish that may yield a wealth of communal, collective ideas.
Finn Brunton is an assistant professor in media, culture, and communication at New York University and the author of Spam: A Shadow History of the Internet (MIT Press, 2013).