Bitcoin and Beyond

Cryptocurrencies, Blockchains, and Global Governance

Malcolm Campbell-Verduyn

• Publisher: Routledge
• Year: 2017
• Print ISBN: 9781138318274
• eBook ISBN: 9781351814072
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

Since the launch of Bitcoin in 2009 several hundred different 'cryptocurrencies' have been developed and become accepted for a wide variety of transactions in leading online commercial marketplaces and the 'sharing economy', as well as by more traditional retailers, manufacturers, and even by charities and political parties.

Bitcoin and its competitors have also garnered attention for their wildly fluctuating values as well as implication in international money laundering, Ponzi schemes and online trade in illicit goods and services across borders. These and other controversies surrounding cryptocurrencies have induced varying governance responses by central banks, government ministries, international organizations, and industry regulators worldwide. Besides formal attempts to ban Bitcoin, there have been multifaceted efforts to incorporate elements of blockchains, the peer-to-peer technology underlying cryptocurrencies, in the wider exchange, recording, and broadcasting of digital transactions. Blockchains are being mobilized to support and extend an array of governance activities. The novelty and breadth of growing blockchain-based activities have fuelled both utopian promises and dystopian fears regarding applications of the emergent technology to Bitcoin and beyond.

This volume brings scholars of anthropology, economics, Science and Technology Studies, and sociology together with GPE scholars in assessing the actual implications posed by Bitcoin and blockchains for contemporary global governance. Its interdisciplinary contributions provide academics, policymakers, industry practitioners and the general public with more nuanced understandings of technological change in the changing character of governance within and across the borders of nation-states.

1Introduction

What are blockchains and how are they relevant to governance in the global political economy?

Malcolm Campbell-Verduyn

Imagine having almost instantaneous access to a permanent record of all digital transactions undertaken across the world. Without revealing precisely who and what is involved in these transactions, this digital database grants you nearly real-time overviews of peer-to-peer exchange within and across national borders. Such unprecedented capacity to monitor direct Internet-based interaction between quasi-anonymous individuals who undertake, verify, and publish records of their digital transactions is at the core of promises and fears surrounding blockchains. This volume explores governance implications for the actors and processes involved in ordering, managing, and organising an increasingly digital global political economy arising from growing applications of this set of emergent technologies to Bitcoin and beyond.

At their essence, blockchains are digital sequences of numbers coded into computer software that permit the secure exchange, recording, and broadcasting of transactions between individual users operating anywhere in the world with Internet access. Like most technological changes, the development of blockchains drew on and combined several existing technologies. Blockchains incorporate digital encryption technologies that mask, to varying degrees, the specific content exchanged as well as the identities of individual users. Algorithms, precoded series of step-by-step instructions, are also mobilised in solving complex mathematical equations and arriving at a consensus on the validity of transactions within networks of users. Time-stamping technologies then periodically bundle verified transactions into datasets, or ‘blocks’. Linked together sequentially, these ‘blocks’ form ‘chains’ that make up larger ‘blockchain’ databases of transactions that broadcast a permanent record of transactions whilst maintaining the anonymity of users and specific content exchanged. Blockchains are intended to be maintained by all users in manners meant to be immutable, unless users arrive at a clear consensus to undertake changes.

Ledgers of user-verified transactions were envisioned by the science fiction writer H.G. Wells (2005) in the 1930s and advocated by ‘cypherpunk’ computer hackers seeking to ensure digital privacy as the Internet began evolving later in the twentieth century (Jeong, 2013). The technical blueprint for developing blockchain technology was originally proposed in a white paper published by one Satoshi Nakamoto in 2008. Efforts to identify this individual or group of individuals have remained unsuccessful, adding a substantial aura of mystery to this information communication technology (ICT).¹ The technical design for blockchains initially circulated on the cryptography mailing list was quickly taken up by an online community of technology enthusiasts, who developed Bitcoin as the first time-stamped ledger of user-verified transactions in 2009. Initially intended to enable the transactions of monetary-like ‘coins’ between users, the Bitcoin blockchain was later adapted for the digital exchange, verification, and broadcasting of a range of other information. As non-proprietary and open-source software, the original Bitcoin ‘protocol’ was replicated in developing other blockchains that exchange not only ‘cryptocurrencies’ (CCs), but also a much wider range of information on everything from ownership rights and contractual obligations to votes and citizenship.

Applications of blockchain technologies began being noticed beyond technologists and technology enthusiasts a half-decade following the publication of the 2008 white paper. Attention to Bitcoin in particular exploded in 2013 because of a confluence of events internal and external to esoteric online ‘cryptocommunities’. Internally, the rise and fall of both the leading ‘exchange’ converting CCs to and from state-backed currencies, Tokyo-based Mt. Gox, as well as the infamous online marketplace for illicit goods and services, the Silk Road, received widespread media coverage. Primarily negative and sensationalistic, this attention alerted citizens, firms, and governments to what appeared as the ‘new wild west’ surrounding Bitcoin (Singh, 2015). At the same time, a host of external events focused more positive attention to the potential benefits of the original application of blockchain technologies as alternatives to the widespread government and corporate surveillance revealed in the Edward Snowden leaks; financial instabilities in the eurozone that included the confiscation of deposits in the ‘bailout’ of Cypriot banks; technical glitches at major banks that left customers unable to access their savings; and confirmation that controversial central bank quantitative easing programmes would be extended well beyond their original intention as emergency responses to the 2007–08 global financial crisis. Whether for philosophical, speculative, or security reasons, wider public interest in the promises and perils of Bitcoin occurred in a period of unprecedented volatility in the exchange values of the original CC, which rose nearly tenfold from just over US$10, only to fall by nearly half and eventually end 2013 at around US$750.

In the wake of this pivotal year, Bitcoin and blockchain technologies became increasingly integrated into the very global economic system that their earliest developers had explicitly sought to provide alternatives to. Bitcoin became progressively accepted for a wide variety of transactions in leading online commercial marketplaces, such as eBay, in the ‘sharing economy’ of AirBnB and Uber, as well as by more traditional retailers, manufacturers, and even by some political parties. Beyond merely accepting Bitcoin for transactions, some multinational firms began developing their own CCs and integrating blockchains into their operations. The world’s largest retailer, Wal-Mart, trialled the technology for enhancing quality control over its global food supply chain. Several investment banks and stock market operators also began integrating blockchains in efforts to streamline their back-office operations. Even some governments began developing blockchain- based land and health registries as well as benefits payments systems. A wider variety of applications² beyond the esoteric online communities and illicit marketplaces in which the technology had originally been applied heralded the growing integration of blockchains into key segments of the global political economy.

While surveys nearly continually hint at ever-greater roles and applications of blockchains (e.g. World Economic Forum, 2015: 24), even traditionally enthusiastic consultants have begun to consider whether ‘peak hype’ has been reached in the excitement this technology has generated (Gartner, 2016). Leading media, such as The Economist (2015), stress the ‘extraordinary potential’ of the blockchain ‘as a piece of innovation on a par with the introduction of limited liability for corporations, or private property rights, or the internet itself’. Scholars have characterised blockchains as ‘the most important innovation in fundamental architecture since the tubes of the internet were first developed’ (Lawrence Lessig, cited in Eyers, 2015). The first book dedicated to blockchains compares the technology to the Magna Carta and the Rosetta Stone, providing ‘the potential for reconfiguring all human activity’ (Swan, 2015: viii).

Further context and nuance is clearly necessary for evaluating the wider socio-economic implications of blockchains in a global political economy that is more interconnected than ever before as a result of the increasing spread and application of these and other Internet-based technologies. In specifically addressing the implications posed by blockchains for governance in the contemporary global political economy, this book provides wider insights into the changing character and role of emergent technologies in organising, ordering, and managing the increasingly instantaneous and multifaceted relationships between actors and processes within and beyond the borders of nation-states.

Implications for, and insights into, contemporary global governance

How does examining a relatively esoteric set of emergent technologies yield useful insights into the character of contemporary global governance? Journalists and technology enthusiasts regularly hint at how applications of blockchains have been transforming key facets of twenty-first-century global governance. Gillian Tett (2014) at the Financial Times, for instance, has emphasised how blockchains shift trust from traditional centralised institutions towards decentralised users interacting directly through digital cryptography and computer code. Technologists, meanwhile, celebrate how blockchains foster nearly instantaneous exchange to occur amongst individuals that bypasses a range of intermediaries and centralised ‘trust actors’, governments in particular (e.g. Cox, 2013; Brito et al., 2015; Koenig, 2015). Rather one-sided praise of such curtailment of centralised authority, along with journalistic assessments hampered by formats more conducive to sensationalistic claims than nuanced analysis, provide some, albeit limited, insight into the changing character of twenty-first-century global governance (e.g. Kaminska, 2015; Soltas, 2013; Rifkind, 2013; Vigna and Casey, 2015; for an exception see Popper, 2015).

Scholarly treatments of Bitcoin, CCs, and blockchains began to emerge in 2011. With some exceptions, early studies have remained technical and narrowly focused, largely avoiding consideration of the wider implications that blockchain applications pose for contemporary global governance.³ Legal scholarship detailing the varied manners in which Bitcoin, CCs and blockchains fit within existing formal laws and regulations often loses sight of the wider governance implications presented (Bollen, 2013; Farmer, 2014; Hughes and Middlebrook, 2014; Penrose, 2013; Kiviat, 2015; Pflaum and Hateley, 2013; Ponsford, 2015). Studies by computer scientists focused on the technical properties of blockchains are largely concerned with testing the immutability and pseudo-anonymity of blockchain applications (Arvind et al., 2016; Böhme et al., 2014; Yli-Huumo et al., 2016). Economists, the most prominent public commentators on CCs and blockchain technologies (Foley, 2015), largely contemplate whether or not CCs can be considered as currencies or central elements of the so-called ‘Internet of Money’ (Wladawsky-Berger, 2014; e.g. Dwyer, 2015; Lo and Wang, 2014; Selgin, 2015; Weber, 2016).⁴

While pioneering in their analysis of complex technological developments, initial scholarly studies tend to be economistic, legalistic, and technical in manners that overlook, or merely hint at, wider considerations for global governance in the ‘digital age’ (Der Derian, 2003). Key questions of governance often remain unaddressed in this literature, such as how and where exactly are decisions made and discontent voiced in blockchain-based activities? Do blockchains overcome the flaws of existing decision-making processes? Do blockchains give rise to new governance problems and pathologies? Is ‘blockchain-based governance’ desirable for all actors in the global political economy?

Social scientists, and scholars of global political economy (GPE) in particular, have long addressed questions more generally pertaining to the nexus of technology and global governance, and in regards to ICTs in particular (Singh and Rosenau, 2002; see also Ruggie, 1975; Talalay and Farrands, 1997; Porter, 2002). The turn of the millennium technology stock bubble and rise of Internet technologies were analysed in nuanced debates, such as over the opportunities and threats presented for traditional forms of monetary governance posed by electronic moneys (Cohen, 2001; Helleiner, 1998; Kobrin, 1997). More widely, GPE studies provide a range of insights on key questions of agency, ethics, legitimacy, and power arising from applications of novel technologies. For example, scholarship on ‘digital gaps’ draws attention to how technology-enabled decision-making can become dominated by specialists and exclude those less familiar or less able to ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright
• Contents
• List of figures
• List of tables
• Notes on contributors
• Acknowledgements
• 1 Introduction: what are blockchains and how are they relevant to governance in the contemporary global political economy?
• 2 Moneys at the margins: from political experiment to cashless societies
• 3 The internal and external governance of blockchain-based organizations: evidence from cryptocurrencies
• 4 The mutual constitution of technology and global governance: Bitcoin, blockchains, and the international anti-money-laundering regime
• 5 Between liberalization and prohibition: prudent enthusiasm and the governance of Bitcoin/blockchain technology
• 6 Cryptocurrencies and digital payment rails in networked global governance: perspectives on inclusion and innovation
• 7 Governing what wasn’t meant to be governed: a controversy-based approach to the study of Bitcoin governance
• 8 Experiments in algorithmic governance: a history and ethnography of “The DAO,” a failed decentralized autonomous organization
• 9 Conclusion: towards a block age or blockages of global governance?
• Index
• Back Cover