(By Gabriel Daluz-Ambrosio, Queen’s University)
With the ongoing attention being brought to Bitcoin and its use as an alternative currency, there is much to be said about its legitimacy within our current society. Bitcoin exists as a cryptocurrency meant to bypass the controls and limitations currently in typical financial institutions, such as Banks and Credit Unions, in favour of a more secured peer-to-peer exchange based on trust and privacy. “Satoshi Nakamoto”, the anonymous creator of Bitcoin, suggests that in a traditional banking system, financial institutions resolve disputes and maintain privacy in transactions through the withholding of information from the parties involved, as well as third impartial parties, being the banks themselves. This leads to trust between individuals being directed by a middleman who can enforce whether or not a transaction is valid. In essence, Nakamoto is calling for a reform to the institutions we have presently by creating a new alternative to the way we do and think about banking. Particularly, he is calling for changes to the discourse of finance and the relations of power and control by which secured peer-to-peer networks of communication replaces the traditional banking system.
A peer-to-peer network of currency exchange does two things. First, it encourages society to reconsider the structures and practices we adopt in trusting financial institutions, with particular consideration given to the notions of government involvement and sovereignty. Thus, similar to how many smaller banks have moved to credit unions in order to avoid domination by the big banks, Bitcoin goes even further by eliminating the people in charge of interest rates, currency fluctuation and membership fees by connecting recipients together near confidentially. Secondly, by challenging the traditional discourse of banks and the financial institutions, we change both the way society thinks about finances abstractly, and the methods these institutions utilized to maintain their control over general society. One will recognize that by analyzing the processes that make up Bitcoin, and contrasting it with our current financial institutions, we can better identify how current banking practices exist to discipline, self-regulate and control both society and state. For example, Ross Ulbricht was notable for the creation of “The Silk Road”, a libertarian marketplace where anything can be requested and provided so long as the exchange was conducted near anonymously through Bitcoin. The popularity of this marketplace surged in 2013 and nearly became its own mini-state with its own channels of bureaucracy and rule enforcement as a number of individuals began to conduct financial transactions through the adoption of Nakamoto’s beloved cryptocurrency.
Furthermore, what helped Bitcoin and The Silk Road succeed was their codependency on anonymity and trust. Nakamoto states that in the traditional banking system, this trust is often low as any transaction between buyer and receiver is subjected to a check by at least 2 parties: a counterparty, and a trusted third party, such as a regulated bank or other financial institution. These parties subject both the receiver and buyer to transaction fees and thus profit out of the transactions incurring on their watch. These institutions also retain some information of what transactions are being made, and to who is participating in said activities. This is common with transaction fees, bounced cheques, e-transfers and overdraft charges. In such instances, the institution always claims their fee regardless of whether the transaction is cleared and successful. Yet, when something goes wrong, parties are quick to turn at each other rather than question the nature and purpose of the fees itself. Instead, society is already so reliant on the institution as lenders, traders and channels of finances that they are unaware of
Nakamoto argues that because financial institutions holds low trust on the part of individuals they subject both parties to a series of steps in validating transactions, thus slowing the process down and subjecting all members to a collection fee for both their services (e.g. overdraft fees, transfer fees, etc.) and the maintenance of the system in place. By accepting the services they already provide to us, we assume it is other individuals that we need to withhold trust from. This means that while we have methods to create a secure transaction between sole individuals, we choose to use the bank prescribed method because we have subscribed to routines that we see as easier, safer, and more trustworthy than exchange between persons. What makes Bitcoin so compelling, then, is that by choosing to enable each other as the conductors of transactions rather than the banks, we create new experts of Thus, the way we talk about finance and transactions begin to take new meaning and new forms.
Financial institutions are frightened by this as control over financial power shifts from the hands of experts to the hands of society directly. As mentioned, some fundamentals of the old discourse may become appropriated, such as the existence of Bitcoin traders who exchange currency much like a typical stock analyst. However, the fundamental difference in the discourse of Bitcoin is that the traders of Bitcoins are no longer categorized experts but rather the “every man”. Banks detest this as this becomes a direct challenge to their ideal discourse. A world with Bitcoin is a world where the banks themselves have less control over how people conduct their finances—alternatives such as Amazon, or physical retailers may simply provide customers the option to pay and invest with Bitcoin.
By shifting the power from institution backed personnel to the average individual, Bitcoin takes away the biggest method of control the financial institutions have; the normalization of backed regulators and experts of financial discourse. Bitcoin allows for individuals to bypass the processes associated with financial institutions by conducting their own transactions. However, institutions will do everything they can to retain control. One method is to declare non-licensed Bitcoin traders as wrongdoers or criminals. In doing so it reinforces the traditional discourse as being seen as legitimate as Bitcoin would be considered illegal or illegitimate; reasonably considerable grounds for preserving State authority. This is currently ongoing with underground online markets such as the Silk Road 2, The Sheep Marketplace and the recent arrest of Ross Ulbricht. Here, illegal ventures were taking advantage of this new free market to sell their services and goods near anonymously and without much repercussion. Ulbricht himself exclaimed there is not much that he can do himself as the market is a force of its own and the anonymity of users make the tracing of funds near impossible without records.
Another method to retain control is to through the articulation of “risk management”. For example, one could suggest that by investing in Bitcoin, one subjects themselves to a lack of a regulatory system which means that every transaction is deemed as “too risky”. Such an approach maintains the current system. By enacting some freedom to pursue alternative discourses, while pushing messages of risk management by expert personnel, individuals are more likely to maintain their conformity to the traditional banking system than explore something new and dangerous. Once the individual internalizes the message that Bitcoin is dangerous, unregulated or risky, the individual abandons the ideas associated with cryptocurrency opting for the safer, if currently flawed, legal tender system.
In adopting Bitcoin, one arguably rebels or challenges the practice of subscribing to experts of the state and those who stronghold knowledge of the economy. We take out loans on our homes not because we freely choose to do so but because society has chosen to follow the advice of “professionals” that a home is worth over $500,000 and should be invested as such. Furthermore, the State also contributes to this discourse with the engagement of taxes and forms that require individuals to report the income they earn to ensure the data the financial system has is maintained and corroborated with. Bitcoin prevents this, as the number of personnel either decrease or is revaluated to be individuals themselves. Each individual has the power to create their currency, sign their transaction, and stock and broker with each other as opposed to assigning said control to a small number of individuals.
Therefore, I argue that Bitcoin is a new unique challenge to the discourse presently held by financial institutions. It by which we become more self-aware by the normalizations we adopt in participating in concepts such as loans and bank transactions. By shifting control of knowledge from experts to individuals we constitute the foundation of a new set of ideas laws and regulations. Thus, moving forward, there I propose analyzing the emergence of new Bitcoin ATM machines and the services individuals can presently use through Bitcoin as it is these processes of interactions that will define where the discourse on finance will be in ten or so years from now.
I think it’s good that you present both sides to Bitcoin, but you might want to to say why reform is necessary in the beginning just so it’s a bit more clear about what it is you’re arguing. E.g . in the part about external fees, you can say that Bitcoin eliminates these, but at the same time _____. Therefore, reform is necessary because neither option works.
Also, I don’t believe you ever mention Foucault so maybe just cut that out or throw in a short paragraph explaining his theories and why it’s important.
Overall I think you have a really interesting topic. I think if you answer some of the questions me and the other editor and added in, it would help make some of the terms a little more clear and easier to understand. I highlighted a couple sentences in which continuity/flow could be fixed but overall, the writing it pretty good J