SoLiXG:Digital Currency
Digital Currency
A digital currency is a digitally minted form of money or a money-like asset that is stored and exchanged on the internet. To illustrate how digital currencies mirrors digital technologies relation to national and state sovereignty, this short entrance describes the emergence of cryptocurrencies, contrasting them with the advent of central bank digital currencies (CBDC).
The first cryptocurrency, Bitcoin, was introduced in 2008 in midst of the financial crisis in the US. As a response to the crises, Bitcoin presented an alternative payment system based on cryptographic proof rather than a trusted third party such as a central bank or a public authority [1]. It is basically accounting on an open and distributed ledger in which every transaction is verified through heavy calculations, a method called proof of work that requires enormous computational power, and consequently, energy, water, and land use. Proof of work is a form of blockchain technology, a technology that has given rise to countless new cryptocurrencies. Together with distributed ledger technology, (DLT) blockchain technology has become a fetish-like concept within broader technological discourse and technological solutionism, as for instance in the process of creating trustworthiness in decentralised networks in telecommunication [2].
Although introduced as a response to the financial crisis, Bitcoin builds on a longer ideological tradition opposing state authority and state sovereignty, in which state authority represents the curtailing of individual freedoms, and where state sovereignty undermines the “sovereign individual”, which is also the title of a book by right-wing writers James Dale Davidson and Lord William Rees-Mogg recurrently referred to in Bitcoin circles. Strongly influenced by cyberlibertarianism, Bitcoin advocators believe in a borderless cyberspace free from state interventions, articulated most forcefully by the libertarian activist John Perry Barlow in his Declaration of the Independence of Cyberspace in 1996. Aligned with the right-wing critique of the state as an authoritarian inflation-infusing entity, repeating right-wing slogans like inflation is hidden tax, Bitcoin advocators invoke frequently the ideas of free market theories from the Austrian libertarian school of economics and thinkers such as Friedreich Hayek and Ludvig von Mises [3]. Mediated through this proposed monetary system, unlike most other cryptocurrencies, Bitcoin has paved the way for a globally wide-spread culture with anti-state sentiments as its main foundation for community. Associated with print capitalism, although in a different way than Benedict Andersen had in mind, currencies underpin national identities. Through print money’s iconography and its ability to communicate value, people share monetary experiences [4]. As an entire new form of economic medium Bitcoin creates a platform for shared ideological values and experiences beyond national monetary culture, challenging state monetary sovereignty.
Despite all criticisms, Bitcoin and cryptocurrencies more broadly are today becoming part of mainstream economy. Through the spreading of blockchain technology and the constant proliferation of new cryptocurrencies, the crypto verse offers a multitude of speculative assets that –in the era of so-called decentralised finance, or, of the financialization of nearly everything through “tokenization”– are part of peoples’ stock portfolio, also, albeit less frequently, in, for instance, pension savings. Furthermore, Bitcoin and crypto is spreading rapidly in the Global South, with proponents selling the idea as a solution to hyper-inflation, dollar dependency, and as a digital substitute to financial inclusion. As a financial scheme like the micro-loans industry on steroids, critiques have dubbed this evolution blockchain imperialism or crypto colonialism [5].
While the crypto space has been prone to many scams and multiple market crashes, its market valuation has increased and continuous to attract market investors, leading, for instance, the EU to update its financial regulations, introducing the Markets in Crypto-Asset Act in 2023. Partly motivated by the advent of new cyber security threats imposed by the crypto verse and as a way of securing the EU’s digital single market, this regulation conceptually collapses digital and monetary sovereignty into one and the same [6].
The advent of CBDCs marks a parallel and opposite evolution regarding national monetary sovereignty. As a form of money trying to mimic some of the features of cryptocurrencies, such as less costly and arduous cross-border transactions, CBDCs increase the centralisation of national monetary system by potentially eroding the role of commercial banks. It does so by challenging commercial banks issuance of digital money in form of credit cards or linking bank accounts to payment applications. A CBDC would offer these services directly to the private banks’ customers [7]. On an EU level, we see how a digital Euro is explored as means to create a EUropean cashless society and a tool for European integration. Moreover, the digital Euro would, the European Central Bank asserts, “support Europe’s strategic autonomy and monetary sovereignty”, by making the “payments landscape more competitive and resilient to non-European Payment providers” [8].
- ↑ Nakamoto, Satoshi (2008) ’ Bitcoin: A Peer-to-Peer Electronic Cash System’.
- ↑ See e.g. how the EU flagship project Hexa-X envision distributed network and security solutions.
- ↑ Golumbia, David (2016) ’The Politics of Bitcoin: Software as Right-Wing Extremism. University of Minnesota Press.
- ↑ Ravn Sørensen, Anders (2016) ’ Monetary organization and national identity: a review and considerations’. Journal of Cultural Economy 9(2).
- ↑ see e.g. Jutel, Olivier (2023) ’Blockchain nancialization, neo-colonialism, and Binance’ Frontiers in Blockchain.
- ↑ Donelly, Shawn et al. (2023) ’ Digital sovereignty as control: the regulation of digital finance in the European union’. Journal of European Public Policy.
- ↑ Peebles, Gustav (2020) ’Banking on Digital Money: Swedish Cashlessness and the Fraying Currency Tether’. Cultural Anthropology 36(1).
- ↑ European Central Bank. Why do we need a digital euro? https://www.ecb.europa.eu/euro/digital_euro/why-we-need-it/html/index.en.html