Bitcoin, the Darknet Economy, and the Low Over-Head Revolution

This article has unfortunately gone missing from the internet, only abstracts and snippets are readily available. C4SS has located the original full text for our readers. We owe a debt to C4SS translator, Tau Demetrious, for not only preserving the original, but translating it into Russian.

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Neal Stephenson’s “The Diamond Age” was set some years after encrypted currencies and e-commerce removed most economic transactions into darknets beyond the government’s capability of monitoring and regulating, and thus caused tax bases around the world to implode. This was followed, in short order, by the collapse of most nation-states. In the ensuing Interregnum, the defunct nation-states were replaced by city-states and by networked global civil societies called “phyles.” The major phyles leased enclaves in most major city-states around the world, much as the Venetian merchant guilds leased “Venetian quarters” in the major port cities of the Mediterranean.

Membership in the phyles was voluntary, and the provision of the kinds of public services and social safety nets formerly associated with states was generally tied to voluntary membership subscriptions of some sort. This is, incidentally, the model of service-provision in some unions like the Screen Actors’ Guild. Unemployment benefits and health insurance are covered by a sliding scale premium, paid as a percentage of income when a member is working.

This has been promoted as a real-world model for darknet economies and resilient communities, in the impending age of hollow states, by such thinkers as Daniel de Ugarte and John Robb.

So you can imagine my reaction to Bitcoin, the “Peer-to-Peer Electronic Cash System.”

Jason Calacanis and his colleagues at LAUNCH describe it as “The Most Dangerous Project We’ve Ever Seen” (May 15, 2011). Not only is it “the most dangerous open-source project ever created,” but “possibly the most dangerous technological project since the Internet itself.” It “could topple governments, destabilize economies and create uncontrollable global bazaars for contraband.”

The beauty of it is there’s no central server network to shut down. Just as with file-sharing, Bitcoin is traded from one desktop or mobile device to another via public key encryption. So, short of catching and prosecuting end-users with harsh punishments, there’s no way to stop it. And we all know how well that’s worked out for the proprietary content companies.

There are currently 6 million bitcoins, with a total value of around $40 million. Bitcoins are generated by a complicated algorithm, with the total number to top out at 21 million. After that, increases in exchange of goods and services will be offset by the appreciation of bitcoins in value and the deflation of bitcoin-denominated prices.

This fixed upper limit and the requirement for price deflation thereafter is one ground on which Bitcoin has been criticized. Another is that, since it’s not denominated in a familiar unit of measure like dollars, it’s confusing as an instrument of exchange for the average person.

As an alternative currency geek, I’d add that you can only engage in bitcoin-denominated exchange if you’ve already obtained bitcoins from previous transactions. This is definitely a downside, compared with the kinds of “mutual credit clearing networks” proposed by Tom Greco. Greco’s mutual credit isn’t a store of value from past transactions — just a measure of value for denominating exchanges of present or future goods and services. The backing comes entirely from the goods and services themselves. Even if neither party to an exchange has any credit, one party can incur a debit to her account by purchasing a good or service from another, and then remove the debit by selling a good or service of her own. The floating bank balance works exactly like a checking account, except the system permits limited negative balances for limited periods of time. Like the many local barter networks that flourished during the Depression, it’s a system for facilitating exchange even when there’s “no money.”

Despite my reservations, I consider Bitcoin to be grounds for enormous excitement. Pirate Party founder Rick Falkvinge calls it “the Napster of Banking” (May 11, 2011).

As Falkvinge argued, it’s usually not the most feature-rich version of a new technology that achieves the critical mass needed for popular acceptance. Rather, it’s the most user-friendly. “…It takes about ten years from conception of a technology, or an application of technology, until somebody hits the magic recipe in how to make that technology easy enough to use that it catches on. And when it does, boy, does it catch on.”

Technologies for sharing digitized music had been around for ten years when Shawn Fanning launched Napster. Video sharing had been possible for geeks for a decade when YouTube came along. Falkvinge thinks Bitcoin will do the same thing for encrypted e-currency. Bitcoin will do to banking what BitTorrent is doing to the music industry.

Here’s how Falkvinge describes the ramifications:

“The governments of the world are on the brink of losing the ability to look into the economy of their citizens. They stand to lose the ability to seize assets, they stand to lose the ability to collect debts. No application of force in the world is going to help: everything is encrypted, and destroying a computer with any amount of police firepower will accomplish zilch.

All the world’s weapons in all the world’s police hands are useless against the public’s ability to keep their cryptographic economy to themselves….

….The decentralized, uncontrollable economy where one lifetime employment is no longer central to every human being is something I’ve called the swarm economy, and I predict it will redefine society to an immensely larger extent than the ability to get rap music for free.”

This is vitally important to a central theme in my work: the emergence of non-state spaces within which the low-overhead informal and household economy can function, outside the state’s ability to create entry barriers, impose artificial capitalization and overhead costs on low-overhead producers, and collect rent on artificial scarcity rents. It’s the enforcement of their iniquitous “laws” that prolongs the corporate dinosaurs’ feeble grip on life, and enables the usurers, landlords and proprietary content owners to collect tribute from us.

There are all sorts of possibilities for the alt economy, with a major part of economic activity taking place via an encrypted e-currency.

Until now, patents have been enforceable largely as a result of the low transaction costs involved when a handful of oligopoly producers in a given industry (who’ve often exchanged or pooled the patents) market a limited number of models of goods through mass-distribution retail chains. What happens when a garage micromanufacturer produces knockoffs of patented mass-production goods – much like the Shanzhai job shops today running knockoffs on the third shift, but with only 10k worth of homebrew CNC machinery that can be bought for three or four months’ factory wages – and there’s no verifiable record of the purchases?

What happens when the unemployed and underemployed start taking advantage of the technical possibilities for low-overhead household microenterprise, in defiance of zoning and licensing and bogus “safety” and “health” standards whose real purpose is to impose artificially high capitalization and overhead costs and make it impossible to stay in business without a sufficient revenue stream to amortize them? Say hello to household micro-bakeries using ordinary kitchen ovens, home-based cab services using the family car, household daycare and beauty salons, raw milk and meat from animals without RFID chips, etc. — all bartering with each other and with those above-mentioned garage manufacturers in an encrypted darknet economy. And all while the state, aka the executive committee of the ruling class, blindly gropes in the dark to prevent it.

The biggest effect of file-sharing was to destroy all the artificial scarcity rents of the content owners and cause an entire sector of the economy to implode to marginal reproduction cost. As Chris Anderson said, atoms also want to be free — they’re just not as pushy about it.

Bitcoin’s importance can’t be exaggerated. Encrypted currency has been at the Altair stage of development. If Bitcoin isn’t actually the Apple II – and it may not be – we’re very close to it. If Bitcoin isn’t the Messiah of the darknet economy, at the very least it’s John the Baptist preaching its immanent arrival.

Translations for this article:

Anarchy and Democracy
Fighting Fascism
Markets Not Capitalism
The Anatomy of Escape
Organization Theory