Cryptocurrency: Still a Cause for Concern

Abstract

The article presents an original critique of cryptocurrencies, contesting claims made by the originators and many supporters of cryptocurrencies that they are future and that future is liberating, and contesting arguments made by opponents which downplay cryptocurrencies’ significance. While unlikely to simply replace the existing money of leading states, cryptocurrencies are likely to become enduringly important within complex monetary hierarchies, further removing money from critical scrutiny and democratic control. Following a brief summary of the claims of libertarian supporters, the article considers critics’ arguments and warns of too easy a dismissal of the social threat posed by cryptocurrency. Monetary outcomes are ultimately determined by social power not by the requirements of an abstract economic rationality. The shortcomings of monetary forms need not preclude their extension. Powerful backers resource cryptocurrencies and blockchain technologies and it is likely that applications will continue to grow within complex, hierarchical and ever-changing monetary systems.

KEYWORDS: :

• Cryptocurrency
• financialization
• economic change
• hierarchy of money

JEL Codes: :

• A13 Relation of Economics to Social Values B55 Social Economics E42 Monetary Systems
• Standards
• Regimes
• Government and the Monetary System
• Payment Systems

1. Introduction

This article develops an original critique of cryptocurrencies. It argues they remain a cause for social and economic concern. This contests two influential understandings. It contests claims of cryptocurrencies’ liberating potential made by its originators and supporters. It also contests arguments which downplay cryptocurrencies’ significance, arguments for example, that Bitcoin is doomed because it is intrinsically poor money and that cryptocurrency is just an epiphenomenon of broader processes of financialization and financial speculation. It is argued, instead, that the many shortcomings of cryptocurrencies from the perspective of an abstract economic rationality do not preclude further growth. Cryptocurrencies may well be at least part of our financial future, which is something to fear.

By developing this argument, the article contributes to a critical political economy or sociology of money. It is written from a broadly Marxist perspective, arguing for a greater plurality and interdisciplinarity than is typically found in either economics or sociology. The neoclassical economic mainstream is dominated—if of course not universally (see e.g. Arrow, 1994)—by methodological individualism and an asocialised view of ‘homo economicus’; of selfish, individualist, utility maximisation (Miyamura, 2000; Urbina & Ruiz-Villaverde, 2019). It understands the economy in terms of a distribution of scarce resources with money reckoned simply a medium of exchange, oiling the wheels of commerce (Hoover, 2012). Money is then ‘neutral’, it does not matter economically. To believe otherwise is to suffer from the serious intellectual malady of ‘money illusion’ (Patinkin, 1987). By contrast, heterodox economists usually see money as profoundly important but again often assert that money is one definite thing or another. For the Chartalist tradition, money is a unit of account and is whatever the state says it is and accepts as payment (Keynes, 2011 [1930]; Lerner, 1947; Wray, 2000). Alternatively, money is bank credit money generated ‘endogenously’ within the private economy (Graziani, 1989; Moore, 1988; Smithin, 2016). For at least of some Marxists, money is again strictly endogenous and even necessarily commodity money (Bellofiore, 2005; Germer, 2005). All this forgets Marx’s often repeated warning that money is a not a thing but a social relation.

Meanwhile, ‘often framed as a reaction to neoclassical economic views’ (Fligstein, 1996, p. 656), many sociologists remember all too well that money is a social relation not a thing. Money is a ‘symbolic token’ (Ingham, 2004; Zelizer, 1997). But, as Ganssmann (2012) argues without addressing questions of what it symbolises and for whom, sociological theories can remain very ‘thin’. Here it is also maintained, following Keynes (1973) that the ‘things’ that constitute money, its material properties, can matter profoundly. Different material forms affect the ability of one thing or another to work as money. They also impinge on the social interests backing one form or another. In the extreme, sociological accounts can flip the social and material so radically that money transforms not just the social but also the physical and philosophical fundamentals. Money leads to the ‘closing down of time, backwards movements in time, and the hollowing out of the potentiality of time’ (Adkins, 2018, p. 12). If such statements should somehow be read as metaphor, they are also characteristic of the way that for many sociologists the emphasis remains on money’s effects. As profound as these may be, this approach can leave the foundations of money uninvestigated or accept an intellectual division of labour with this task left to conventional economics, accepting its ‘essential soundness’ (Parsons, cited in Ingham, 2004, p. 60, see also Simmel 1978 [1900]). The mainstream view goes unchallenged. In contrast, this article sits within a tradition (Marxist and non-Marxist) which accordingly acknowledges monetary multiplicity and hierarchy and seeks to understand its contested social underpinnings (Lipietz, 1985; Mehrling, 2012; Zelizer, 1997). Studying cryptocurrency, its origins and its supports, can shed light on its likely futures but also speaks to these wider issues.

The next section introduces cryptocurrency and claims made by its champions. At the time of writing, cryptocurrencies’ future is again questioned following price falls in the wake of the collapse of the exchange, FTX. But prices have previously recovered after falls and the trend remains upwards. Popular fascination and academic interest continue to grow. Among other things, this makes it is impossible to read, let alone review, what is already a vast literature and it is premature to proffer a general history. However, it is possible to identify key innovations and drivers of cryptocurrency’s rise. Supporters claim that Bitcoin addresses longstanding liberal or libertarian hopes of ‘doing’ money without institutional mediation and so that it becomes a pure medium of exchange.

The second section draws on an already extensive critical literature. This suggests that Bitcoin makes for poor money. Rising prices undermine notions that it can be an effective media of circulation, while volatility means it provides neither a reliable store of value nor unit of account. Stablecoins, by contrast, lack the attraction of rising prices and fall back on, rather than avoiding, conventional state-backed money. The money that pours into cryptocurrency markets is speculative, even a form of ‘Ponzi finance’, relying on ever more incomers to sustain the price rises. Critics also stress that cryptocurrency use remains at low levels compared with traditional financial instruments, is characterized by familiar patterns of inequality and, as the technologies are adopted by ‘legacy’ institutions, that they are unlikely to challenge existing economic and political power.

The third section develops a re-doubled critique; arguing that much of the existing critical literature underestimates the dangers. Cryptocurrencies are likely to have a future not—as supporters suggest—because they circumvent institutional power but because they have powerful institutional supports. Functionalist understandings of what money should do, misunderstand the intrinsically socially constructed, socially contested and inherently imperfect nature of all monetary systems. Taking seriously the idea of money as a social relation (Ingham, 2004; Marx, 2010, 1976 [1867]) means there can be no ideal money and allows that imperfections from the perspective of some putatively abstract, ideal economy, may not prove insurmountable obstacles. Social power decides the forms adopted. Cryptocurrency growth continues to resonate with powerful vested interests, both private and state. This is not to suggest that the technical problems are unimportant or that cryptocurrencies will simply replace existing money. They may, however, become an important constitutive component of what are complex, changing and multiply-hierarchical systems (Lipietz, 1985; Mehrling, 2012). The blockchain technologies have the potential to (further) exclude money and finance from popular scrutiny.

This conclusion is cautious in a double sense; it is cautious of the hyperbole that surrounds cryptocurrencies and cautious of any complacency that cryptocurrencies’ manifest failings mean a return to business as usual.

2. Cryptocurrencies as a Libertarian Ambition

An important ambition of cryptocurrency is to put money into its proper place as primarily, if not exclusively, a ‘medium of exchange’, overcoming the limits of barter (Berg et al., 2020). Bitcoin was originally conceived as a form of ‘electronic cash [which] would allow online payments to be sent directly from one party to another without going through a financial institution’ (Nakamoto, 2008, p. 1). That money should, ideally, be simply a medium of exchange is a standard economic argument but it particularly informs some radically libertarian enthusiasm for cryptocurrency. The principal theoretical influences come from Friedman, Rand and conservative Austrian economists like Mises and Hayek (Baldwin, 2018; Berg et al., 2020). Amongst other things, an economics of exchange—and money as purely a medium of this exchange—precludes the possibility that money begets power or that powerful vested interests might prefer one monetary form to another.

Mainstream writers recognize that monetary practice involves ‘transaction costs’ so the task becomes one of reducing them. These costs may originate in the private or public realm, as institutions take their cut from anything other than spot, cash transactions. Most liberals, notably Friedman and the monetarist tradition, become reconciled to the idea of state money as the least-bad option, although state management is best performed automatically by rule, even by computer, rather than at the discretion of central bank governors, and better these than elected officials, often financially ignorant and swayed by particularist and populist interests. In this sense, Raskin (2018) writes, ‘[t]echnological innovations, including blockchains and smart contracts, have made Friedman’s vision even more plausible’.

Hayek’s (1976) ambition goes further, contesting the right of states to be sole issuers of money and this vision too often inspires cryptocurrencies’ supporters (Malherbe et al., 2019; Nair & Sutter, 2018). With Bitcoin and other cryptocurrencies ‘the need for a trusted central authority is eliminated’ (Lee, 2019, p. 774; see also Costantini, 2019). Sanz-Bas (2020) disputes that Bitcoin satisfies Hayek’s vision, seeing clearer connections with Friedman. So, there are differences of emphasis. But, for many supporters, cryptocurrencies offer hope of a novel, decentred, democratized alternative to both state and commercial bank intermediation, combining technological management with free-market competition (Caliskan, 2020; Ishmaev, 2017).

Nakamoto’s (2008) original paper explicitly invokes the need to reduce transaction costs by establishing trust between buyers and sellers in online transactions. Without attempting to review the technical details, in terms of production, Bitcoin would be a ‘synthetic commodity money’ (Baur et al., 2018, p. 178), which no central authority could manipulate (Yermack, 2015). Nakamoto makes parallels with gold mining. Bitcoins would be the ‘proof-of-work’ involved in solving prespecified algorithms requiring substantial computer power and electricity. By design, the algorithms would become more difficult ‘[t]o compensate for increasing hardware speed and varying interest in running nodes over time’ (Nakamoto, 2008, p. 3). The fixed, rule-based, supply would ‘preclude inflation or any ‘meddling’ with the currency, say quantitative easing’ (Halaburda, 2016, p. 6).

Mining was envisaged as only a preliminary stage. Once supply reached the designated maximum, Bitcoins would become pure medium of exchange: ‘the incentive can transition entirely to transaction fees and be completely inflation free’ (Nakamoto, 2008, p. 4). Unlike mainstream, e-finance, this also means avoiding the costs of bank intermediation (Dodd, 2018). Blockchain ‘proposed a system where there could be trust without individual agents knowing each other’ (Chohan, 2017, p. 2). Both production and exchange are recorded in a computer database, ‘network’ or ‘ledger’: the ‘blockchain’. Each new transaction is ‘broadcast’ to each node in the network so the activities on the blockchain (but not the people performing them) are transparent. Each new block adds to a chain of interactions verifying earlier transactions, protecting each of them from individual cyber-attack. This amounts to a ‘consensus mechanism’ (Jun, 2018, p. 1) which ‘solved a longstanding problem in information science’ (Halaburda, 2016, p. 1). Technical means establish the trust needed to make cryptocurrency transactions comparable to cash transactions.

Blockchain becomes a technology of self-sovereignty and freedom (Berg et al., 2020). Replacing financial hierarchies with ‘decentralized networks of exchange’ means ‘increased competition, lower barriers to entry, and a lower pricing of risk’ (Catalini & Gans, 2016, p. 20, 1; see also Lee, 2019). It can ‘improve social and economic conditions for disenfranchised communities’ (Rejeb et al., 2021, p. 11) with particularly ‘great potential in empowering the citizens of the developing countries’ (Miraz & Ali, 2018, p. 4). Cryptocurrency accordingly increases trust in money, lowers transaction costs and thence, realizing a final stage of liberal ambition, increases investment in the wider economy (Berg et al., 2020).

There is much hyperbole but cryptocurrency’s rise was indeed remarkable. The first Bitcoins were mined in 2009. The initial value of each was very low, with a well-reported story describing pizzas sold for 10,000 Bitcoins in 2010 (Ur Rehman et al., 2020; Yermack, 2015; Zook & Blankenship, 2018). Ten months after its first exchange, the price had reached one US dollar (Caliskan, 2020). Despite some eye-watering volatility, the rapid upward trajectory continued, with prices crossing the $50,000 threshold in February 2021 and reaching $67,000 by October that year before another slide to the end of 2022 before prices doubled again in the first ten months of 2023 (Coinmarketcap, 2024). The first dedicated exchange, Mt Gox, was established in 2010 (Yermack, 2015) and while this would collapse, many others emerged. Chohan (2022) lists 15 exchanges with daily turnovers in November 2021 greater than $2.5 billion, the largest, Binance trading nearly $32 billion. Many mainstream corporations, states and international institutions became interested. Volatility could be attributed to the attraction of short-term speculative returns of ‘low quality entrants’ (Catalini & Gans, 2016, p. 16) while the continuing upward trend and increased demand were hard to read as anything other than extraordinary success (Chohan, 2017). Estimates vary but by 2022 between 100 and 300 million people owned cryptocurrency (Chohan, 2022; Howson & de Vries, 2022; Thiemann, 2021). Venture capital put its money where ‘cypherpunks’ had once mouthed fringe libertarian ideas (Baldwin, 2018; Economist, 2018).

As will be elaborated below, critics point to many actual and potential problems. As acknowledged from the start, there was some potential for mining to become dominated by a single entity (or cooperating group), which could make the verification system vulnerable (Nakamoto, 2008). Price gains attracted not only speculative buyers but also some spectacularly speculative coin issues; UFO Coin, PutinCoin, Sexcoin, Insanecoin. There were numerous outright scams. Ur Rehman et al. (2020) estimate the top ten scams alone cost an estimated $687 million. Several thousand coins disappeared without trace (IMF, 2021). Price rises and volatility indicated that Bitcoin was unsuitable as a medium of exchange, while transaction times and costs were also high relative to mainstream e-finance. Currency exchanges proved vulnerable to hacking and fraud.

It did not take long, however, before other cryptocurrencies addressed at least some of these problems (Fama et al., 2019). Bitcoin’s software was open-source and could be reapplied and adjusted. Barriers to entry and innovation were relatively low (Catalini & Gans, 2016). Litecoin, for example, quadrupled total supply to 84 million (Halaburda, 2016). Some coins envisaged production continuing in perpetuity (Dwyer, 2015). Amongst these, Ethereum ‘pre-mined’ 72 million coins and soon emerged as the leading second-generation product accounting for almost 20 per cent of the market by 2023 (Caliskan, 2020; Coinmarketcap, 2024). Stablecoins like Tether and USD Coin could be pegged to national fiat currencies (Sanz-Bas, 2020). Some blockchains offered faster speeds. Hayek’s (1976) vision always involved competition and many failures, with only the fittest surviving.

In short, for its supporters there was great potential: ‘it became apparent that the currencies based on the bitcoin offered a socially unparalleled balance of advantages over disadvantages in comparison to the prevailing order of government-supplied fiat money’ (Bitros, 2021, p. 3). Blockchain even represents a major historical achievement comparable to limited liability, private property rights and the Internet (Garrod, 2019). It is ‘leading to a new economic paradigm’ (Lee, 2019, p. 773), even a new institutional form, comparable to those of firms, markets and governments (Davidson et al., 2018). The technology could move beyond currency to ‘voting, land registers and healthcare’ (Herian, 2018; Miraz & Ali, 2018; Monrat et al., 2019). It offers hope of a wider transformation, enabling wider privatization and greater economic freedom.

3. Critics of Cryptocurrencies’ Achievements and Potential

As might be expected, critics soon objected. The criticisms follow three broad trajectories. First, Bitcoin and its imitators are not, and cannot be, money. Second, cryptocurrencies epitomize the extremes of financialized capitalism and financial speculation. Third, rather than challenging financial hierarchies, cryptocurrencies reproduce them, often being adopted by existing or ‘legacy’ intuitions. This section reports elements of the criticism but the following one suggests that these should be radicalized; critics may be too dismissive of the innovative threat.

The crucial first objection is that cryptocurrencies are not money. This becomes clear in terms of Bitcoin and the economic mainstream’s vision of money as a medium of exchange. A broader critical understanding of money’s complexity also appears to disqualify many of the alternative currencies.

As prices rose, Bitcoin lost some of its attraction as a medium of exchange. Long before the envisaged 21 million maximum, the fallacy of Bitcoin being ‘completely inflation free’ became manifest. Indeed, a successful cryptocurrency would appear to require a degree of appreciation relative to existing fiat currencies to attract buyers (Fantacci, 2019) while somehow avoiding precipitous price rises driving it out of circulation. The path seems narrow. As buyers poured in and prices rose, Bitcoin became highly deflationary in terms of other goods.

Even in simple, technical, terms, cryptocurrencies’ potential as a medium of exchange seems limited. ‘The Bitcoin network was built to (theoretically) handle seven transactions per second’ (Parkin, 2019, p. 468). One influential competitor, ‘[t]he XRP Ledger is marketized for its speed, measured in 1,500 transactions per second’ (Rella, 2020, p. 242) but this remains orders-of-magnitude slower than conventional e-finance (Claeys et al., 2018).

Cryptocurrency exchanges also raise broader issues of trust. Money’s origins have been depicted as lying in its ability to mediate relations between strangers (Marx, 1976 [1867]: 182; Lapavitsas, 2005). Certain commodities, from cowrie shells to tobacco, but above all metallic money have played this role effectively (Galbraith, 1995). Once monetary forms become detached from any commodity base, the trust relies on institutional support, typically provided by states or commercial banks. Supporters of cryptocurrency and investors, at least implicitly, see digital media as now able to play this role. But there are reasons to doubt this can persist.

In practice, any cryptocurrency transaction function almost always requires conversion into a conventional currency (Böhme et al., 2015) and therefore also ‘traders’ in the sense of intermediaries (Yermack, 2015). Most exchange takes place on organized markets and even supporters acknowledge that blockchain ‘introduces new types of inefficiencies and governance challenges’ (Catalini & Gans, 2016, p. 1). Initially, cryptocurrency exchanges had something of a wild-west reputation, especially after the hacking fraud and collapse of Mt. Gox and Bitfinex and most trading activity continues to occur in exchanges registered in offshore financial centres (IMF, 2021). However, reputable, powerful, institutions moved in. For example, Intercontinental Exchange, the parent of the New York Stock Exchange worked with major corporations including Microsoft and Starbucks to launch, Bakkt, its own crypto-focused exchange (Hwang, 2018). But, whether loosely or tightly regulated, the importance of institutional, profit-making, intermediaries weakens the libertarian claims.

Price volatility also makes cryptocurrencies unreliable stores of value and units of account (Baldwin, 2018). As they became objects of speculation, prices became highly unusable. Bitcoin’s volatility hardly quells our fears of an uncertain future (Keynes, 1973). Stablecoins address this but the unit of account function now reverts to the fiat currency to which the cryptocurrencies are pegged, typically the US dollar, trust in which remains vital. An important element of the Hayekian rationale disappears (Fantacci, 2019; Zook & Blankenship, 2018). Achieved stability has also been imperfect (Joo et al., 2019) with stablecoins, by implication, trusted on hard-to-verify assumptions that they possess sufficient resources to defend par values against speculation or that this can be achieved by the electronic algorithms. Tether, the largest and probably most open of the stablecoins, did not have its reserves independently audited, and in late 2021 was fined $41 million for misrepresenting them (IMF, 2021; Joo et al., 2019). Attempts to resolve problems of volatility therefore readmit issues of trust and intermediation through the backdoor.

The ability to store value is also threatened by theft from hacking. The ‘blockchain’ itself may be relatively secure. Individual passwords protect owners, with Bitcoin’s 64 characters indeed hard to crack. But when cryptocurrencies make contact with the real world they become vulnerable. Passwords need to be transmitted and stored somewhere and whether this is on a computer or as hardcopy they become vulnerable. There are doleful stories of lost passwords and lost Bitcoin millions. Again, secondary institutions may be needed to provide security.

The situation is more ambiguous in terms of money’s functions as means of payment. While grey- and black-economy uses remain important, some major companies, including Dell Technologies, Microsoft, Overstock.com, Virgin Galactica, Tesla and Expedia, accepted cryptocurrencies (Chohan, 2017; Dodd, 2018; Joo et al., 2019; Thiemann, 2021). This acceptance by corporate capital highlights the third issue, discussed briefly below and again in the final section, that cryptocurrencies depend on, rather than circumventing, established wealth and power.

Very briefly, the second important line of criticism identifies how as money poured into cryptocurrencies, they could be seen as speculative assets rather than money (Claeys et al., 2018; Scott, 2016). As such, they could be interpreted as the latest excess of financialized capitalism. Small investors, 95 per cent of them men with an average age of just 34 (Thiemann, 2021), had little knowledge of finance but were captured by the hype and some aggressive advertising. But professionals are not exempt. From euphoria around the ‘new economy’ and the dotcom bubble, to sub-prime, asset-backed securities, commodities and the crash of 2007-08, financiers have sought new vehicles. Cryptocurrencies were recommended to portfolio managers as a diversification strategy because their price behaviour appeared relatively independent of more conventional assets (Corbet et al., 2018). As prices rose, there was a familiar pattern of financial asymmetry with buyers outnumbering sellers of an appreciating asset. Karlstrøm (2014) likens cryptocurrency to a Ponzi scheme, not least in favouring early adopters. There is money to be made from jumping on the bandwagon but the suggestion is that it cannot last.

Third, claims for any democratizing role are weakened by the necessarily large scale of investment. This is attested by the resources devoted specifically to cryptocurrency applications by major microchip-making firms. It has also been widely reported that a small proportion of Bitcoin producers and users held most of the wealth. By 2017, 80 per cent of mining was performed by at most five companies (Caliskan, 2020), while anonymity means that it is unsafe to assume all five were actually separate (Swartz, 2017). Meanwhile, although there were millions of cryptocurrency owners, that ownership was highly skewed. About 95 per cent of Bitcoins were controlled by 3 per cent of addresses with Nakamoto alone holding perhaps two million (Thiemann, 2021). The collapse of Electra when its founder sold his holdings similarly revealed an extraordinary concentration (Caliskan, 2022). Insider-trading remained a real threat, especially on cryptocurrency exchanges (Ur Rehman et al., 2020), while to gain a listing could cost as much as $2 million (Caliskan, 2022). As will be discussed below, major corporations also became deeply involved in blockchain development (Garrod, 2019). Swartz writes that ‘perhaps ironically, no industry is more interested in or supportive of blockchain than banking, the one Bitcoin was designed to circumvent’ (Swartz, 2017, p. 87). For Lawrence and Mudge (2019), the early radical potential therefore went unrealized as a ‘new guard’ of Silicon Valley and Wall Street elites took control. Cryptocurrencies reproduced some familiar asymmetries of wealth and power (Baldwin, 2018; Dodd, 2018; Howson & de Vries, 2022). For Herian ‘legacy financial power can easily absorb ‘disruptive’ technologies into existing paradigms and thus not be disrupted by them at all’ (Herian, 2018, p. 164).

The conclusion is often that there is not much to see. Blockchain’s supporters’ claims ‘are speculative visions’ (Swartz, 2017, p. 83), a mix of experiment and propaganda (Stinchcombe, 2018). Cryptocurrencies are not money and blockchain is still mainly used for speculation and illegal transactions.

Some authors steer between the libertarian enthusiasm and the critical dismissal and see potential for adopting the technologies for progressive purposes (Jun, 2018; Scott, 2016). Garrod, for example, argues that ‘blockchain has a history that is far more varied than its critics are willing to acknowledge’ (Garrod, 2019, p. 614). Technologies, after all, are only tools that can be used by different people to different ends. Baldwin argues ‘there is the possibility of harnessing reactionary technology outside of its neoliberal emergence and context to forward the aims of the Left and serve the Commons’ (Baldwin, 2018, p. 7). The argument in the next section takes this diversity as its cue but instead sees it allowing that the critics underestimate the dangers and dismiss cryptocurrencies too quickly. It may be too early to write-off cryptocurrencies, or the underlying libertarian ambition.

4. Reasons to Be Fearful: The Social Power in Money Hierarchies

This section argues that all monetary forms are imperfect and that powerful backers of cryptocurrencies and blockchain technologies may therefore overcome technical or narrowly ‘theoretical’ obstacles to their establishment. Recalling that money is a social relation not a thing, it warns, first, that economic trajectories are shaped by social power rather than reflecting some objective economic rationality. Second, money is not a singular thing, but exists in hierarchies of different forms (Cohen, 1998; Lipietz, 1985; Mehrling, 2012, 2016). Third, all monetary forms are transitory, but with path dependencies and institutional inertia. Therefore, while cryptocurrencies are unlikely to simply replace major national fiat currencies, they may play a growing role, serving powerful interests with their existence also putting pressure on monetary authorities and other forms of money (Claeys et al., 2018).

Not anything can serve as money and the material characteristics can matter profoundly but no money is ideal and if monetary history teaches anything is surely that all currencies are ultimately doomed. The fact that all monetary forms are imperfect and come and go reminds us both of the problems of functionalism and that no money performs all the different functions of money adequately. The different forms of money—Davies (1996) lists ten, but the more conventional four-way categorization is sufficient for what follows—come into conflict with each other. Different social interest prioritise different functions and accordingly benefit from, and support, alternative monetary arrangements. Witness the struggles between the Banking and Currency Schools in Marx’s day, between the supporters of gold and bimetallism in late-nineteenth century USA, through the re-adoption and abandonment of gold in inter-war Britain, to arguments around the Euro. The continuities and path-dependencies of monetary arrangements also allow that there may be growing disconnects between monetary forms and the social interests in the wider political economy that established them in the first place. Ways of doing money, once established, become ‘locked-in’, and need not match changes in the broader economy. This provides a rationale and material basis for alternatives which develop within what are always heterogeneous, hierarchical and changing systems.

The shortcomings of cryptocurrencies as money are substantial but it is worth contextualising these by briefly noting the failings of other monetary forms. Gold itself was always profoundly flawed; imperfect as a store of value and impractical medium of exchange. There are still ‘gold bugs’ who hark back to the nineteenth century or earlier and insist gold is the only proper money but even as gold still sat at the apex of monetary hierarchies, practical ways of doing money and finance developed using central bank notes and private, commercial credit. Famously, for Keynes (1973), gold had already become a ‘barbarous relic’ long before its demise. State-backed paper money overcomes many of the limits of specie as a medium of exchange but at the cost of becoming a much less reliable measure or store of value. Today, the US economy’s relative weight is much less than when the dollar was made the pivotal global currency, backed by gold, in 1944. Its enduring dominance becomes anomalous. Meanwhile, inflation and currency volatility, at of least some weaker currencies, can look similar to the roller-coaster ride of Bitcoin prices. That cryptocurrencies became objects of speculation reinforces rather than contradicts the parallels with both precious metals and many contemporary fiat currencies. More broadly, the increasingly globalized character of the economy contrasts with the national character of fiat currencies (with the Euro failing to provide a conspicuously attractive alternative). Conceived globally, fiat monies are essentially arbitrary and unreliable counters (Yermack, 2015). They may be ‘plebian currencies’ in Cohen’s (1998) terminology, and at times fail to fulfil money’s basic functions but even as they rise and fall, they are, surely, money.

All this reminds us that in general there is not a single universally accepted monetary form. There is gold, still held in large quantities as reserves by major European countries. There is narrow money and broad, with all sorts of credit-money. There are all sorts of more or less liquid assets that can perform some of the functions of money. Above all, recognizing that money is a social relation, means that what we get need not be what works best according to some putative ‘general interest’ or ideal economic rationality.

Brief reflections on two properties of money that Keynes thought essential, illustrate how the social practices are always ambiguous and money inherently imperfect. First, for Keynes, money must possess ‘a zero, or at any rate a very small, elasticity of production so far as the private sector was concerned’ (Keynes, 1973, p. 230). For money to be a medium of exchange of other commodities, it must itself be radically unlike those commodities. In absolute terms, cryptocurrency fails. It is possible for private capital, to invest in the computer power and electricity needed to ‘mine’ Bitcoin. But, of course, in this it is indeed rather like gold, which once served rather well as money. Second, money must have ‘an elasticity of substitution equal, or nearly equal, to zero’ (Keynes, 1973, p. 231). Here cryptocurrencies succeed. They are intrinsically useless beyond the financial sphere, lacking even the limited applications of precious metals. And if cryptocurrencies are unreliable stores of value, there is an important sense in which the money pouring into cryptocurrencies can be understood as a liquidity-preference, as a means of hoarding. The built-in deflationary effects of Bitcoin’s limited supply make it particularly attractive (Baur et al., 2018). So Bitcoin and other cryptocurrencies are surely profoundly flawed as money but they possess certain properties of moneyness.

They also have powerful backers. Turning to these, it becomes clear that despite some populist rhetoric, cryptocurrency is dominated by powerful elites. The computer algorithms of blockchains are the work of real people, almost always men, written in particular social environments, always in English, and requiring substantial technical expertise (Basu & Gabbay, 2021; Caliskan, 2020). In practice, as above, production is particularly highly concentrated. ‘Bitcoin’s production process operates through strict authoritative channels … assembled and maintained by human discretion’ (Parkin, 2019, p. 463). Large mining companies or pools quickly became necessary to afford the investments in computing power and the electricity costs (Yermack, 2015). This was confirmed as early as 2013 when a ‘fork’ in blockchain mining could be resolved by agreement amongst the big miners (Parkin, 2019). Cryptocurrency ownership is more dispersed but still highly skewed with numerous small investors but relatively few ‘whales’. Asymmetries of access are likely to remain (Herian, 2018).

Lists of corporate investors in cryptocurrency are very long (Joo et al., 2019; Lee, 2019). Major banks quickly became involved. Goldman Sachs created USD Coin. A collaboration of major banks created R3 and Ripple (Garrod, 2019; Joo et al., 2019). By 2018, more than 75 global banks, including HSBC, Deutsche Bank and Rabobank, were using blockchain, particularly in large value, cross-border transactions (Garrod, 2019). In such inter-corporate relations, high values reduce or eliminate some of the perceived drawbacks of high-costs and slow speeds, while the gains from secrecy are potentially substantial (Caliskan, 2020; Eyal, 2017; Joo et al., 2019). Problems of trust also diminish in inter-corporate transactions. Corporate applications of blockchain also extended beyond cryptocurrency, notably to inventory control, where users included Walmart, Maersk, Kroger, Nestle, Tyson Foods, Kodak and Unilever. The technologies could track valuable art and minerals as well as payments for the use of intellectual property. Much of this remains experimental but large investments continued (Dodd, 2018; Yadav et al., 2022). These investments and vested interest in cryptocurrencies, already produce powerful ‘lock-in’ effects. As supporters claim, Bitcoin and blockchain are themselves institutions ‘governing relations between individuals, organizations, and other institutions’ (Ishmaev, 2017, p. 670). Basu and Gabbay (2021) make explicitly Marxist claims linking interest in blockchain with the particular period of capitalism. Rather than capital accumulation, firms became increasingly financialized and concerned with securing Intellectual Property Rights. They are ‘profiting without producing’ in Lapavitsas’s (2013) phrase, making gains through monopoly and accumulation by dispossession (Harvey, 2003) rather than (or more than) through the exploitation of labour in production (see also Rotta & Paraná, 2022). Minimally, there are powerful interests, within finance and the wider economy, in limiting innovation’s disruptive effects and assimilating them to extend existing hierarchies of wealth and power.

This highlights an important if pervasive fallacy involved in conceiving networks as intrinsically anarchic or anti-establishment. Baldwin (2018) recalls how decentralized networks originated in US nuclear strategy, to protect rather than challenge existing power. Caliskan writes, ‘there is nothing fundamentally ‘public’ about blockchain technology’ (Caliskan, 2020, p. 548). The rhetoric of decentralized ‘people power’ misrepresents cryptocurrency reality. It will be argued below that states themselves were involved in the reproduction of cryptocurrencies but the state-avoiding claims themselves favoured existing elites. Notably, cryptocurrency provided a vehicle for the wealthy to escape the regulation and volatility of ‘unreliable’ poorer country governments (Scott, 2016).

The ability to exclude and appropriate, the opportunities afforded in realms of the unpriced and imperfectly priced, has also been an important driver. Cryptocurrencies gained support from extra-market applications and appropriations. The most obvious example is in the widely reported environmental costs. Mining uses vast amounts of electricity and occurs disproportionately in locations providing cheap supply (Eyal, 2017; Zook & Blankenship, 2018). It also generates vast amounts of heat and concomitant carbon dioxide emissions, estimated 274 kg per transaction by 2018 (Monrat et al., 2019). Extra-market uses in disguised payments; in avoiding taxes, in money laundering, on black or grey markets, even for extortion and ransom, contribute to the appeal (Chohan, 2017; Sanz-Bas, 2020; Zavoli, 2020). Demirors argues ‘It’s a millennial’s version of a Swiss bank account, for every person in the world’ (cited in Vigna, 2018) although unfortunately, estimates of the proportion of illegal activity vary widely. (Zavoli (2020) reports a figure of 46 per cent of transactions, Thiemann (2021) puts it at 0.34 per cent.) A further attraction came from the ability to legally circumvent exchange and capital control restrictions, which many developing countries had increased after 2008 (Grabel, 2013; IMF, 2021). Dollar-linked stable coins could also protect the assets of the rich against devaluation. In such contexts, the costs of surrendering an appreciating asset and of slow transaction times again become worth paying. More formally, Dwyer sees mining as a viable operation, because there were ‘positive nonpecuniary returns’ (Dwyer, 2015, p. 84).

Finally, in contrast to the Hayekian rationale offered by many supporters of cryptocurrency, it is a truism of critical political economy that markets need state support. This is not to resort to determinism in either direction. States are hybrid with interests of their own but are profoundly influenced by social and economic forces within and beyond their borders. Accordingly, as both public choice and Marxist theorists insist, the state cannot be conceived as benign embodiment of general interest. If tax avoidance might satisfy state-avoiding ambitions in a narrow sense, the bolder ambitions of cryptocurrency developers to circumvent the state contrast with the experience of states allowing, enabling, and themselves developing, cryptocurrencies and blockchain applications.

Without attempting a world-tour, almost all rich-country authorities have been at least permissive (Monrat et al., 2019). The US situation was somewhat ambiguous. Digital tokens could be taxed as property, meaning that in principle tax should be paid on gains in the tokens’ value and the possibility of taxing capital gains simultaneously gave states a potentially significant source of revenue while such recognition helped establish Bitcoin’s legitimacy (Garrod, 2019; Thiemann, 2021). Japan, Germany and Finland similarly taxed cryptocurrency gains (Farell, 2015). In 2014, the US also formally approved cryptocurrency derivatives trading (Chohan, 2017). Some individual US states became much more supportive and, in 2021, elected mayors in Miami and New York announced that they wanted to be paid in Bitcoin (Reuters, 2021). China too was initially supportive, if sometimes implicitly and outside the official regulatory framework. But here there were repeated intimations of severe restrictions and finally an outright ban. In many other countries there were also persistent rumblings of the need for tighter control. For example, in Thailand, there were more or less formal restriction and outright prohibitions (Chohan, 2017). In most African countries Bitcoin was proscribed (Monrat et al., 2019). But elsewhere the general tendency remained permissive (Ishmaev, 2017).

Perhaps most importantly for likely futures, states and international institutions themselves began to contemplate using and developing cryptocurrencies. Jun (2018) lists numerous government projects encouraging adoption. The most dramatic endorsement at the time of writing came with El Salvador’s 2021 acceptance of Bitcoin as legal tender. Plans to create their own cryptocurrencies were reported of the US, Britain, Russia, China, Singapore, Sweden and Uruguay (Dow, 2019); the latter two probably the most developed (Fantacci & Gobbi, 2021). Interstate competition also played a major role in stimulating alternatives to the US dollar dominated system, and the US supported SWIFT payments, through which sanctions have been enforced (Duque, 2020; Fantacci & Gobbi, 2021). It is beyond the scope of this article to detail the development of official, central bank digital currencies but their increasing adoption added to the mainstreaming of currency innovation.

The attraction for (neo-)liberal-minded government seems clear (Dwyer, 2015). Arguments for money to be managed on anonymous blockchains align with powerful claims that it would be good to reduce democratic interference in the economy, if only that were possible. The case for restricting monetary policy autonomy has been particularly influential in relation to poorer countries.

Whatever the case may be for passive monetary policy in the U.S., it is much stronger for states with a history of unstable monetary policy. Countries like Argentina and Zimbabwe should study tethering their monetary policy to a blockchain and using smart contracts to precommit to certain rules. Unlike economically more-influential nations, the flexibility of a small nation’s countercyclical monetary policy should not be a factor in making the decision to go passive. (Raskin, 2018)

The state-avoiding claims of the libertarian literature, cut with rather than against the grain of leading states and international institutions. There is continuity in prioritizing ‘sound’ (restrictive, unaccountable and depoliticized) monetary policy to achieve important elements of reforming ambition.

States also played vital, if less direct enabling roles. They facilitated the appropriation of non-marketized, or incompletely marketized resources. Natural monopolies mean that even privatized utilities’ prices are often substantially politically determined and supply effectively subsidized. Low electricity prices in China’s northern provinces like Sichuan, in Washington state, and in Iceland, Russia and Kazakhstan, helped these became major production sites.

The government rescue operations after the financial crisis of 2007-09 and ongoing easy money policies were also vitally important. Fiscal and monetary interventions put huge amounts of cash into the hands of the already rich. In the US, monthly levels of M1 correlate closely with the Bitcoin price, especially when the latter is offset by six months. Taking Bitcoin prices from the end of July 2010 to the end of 2021, the R-squared was 0.88 and the t-statistic 31.9 (calculated from Fred, 2022; Yahoo, 2022). Easy money and low interest rates fuelled renewed speculation. If materially the crisis response threw cash at the already-rich without resolving the underlying reasons for a reluctance of firms to invest in the ‘real economy’, this also had ideological effects as disappointed liberal supporters saw avowedly pro-free-market governments rush to rescue not only banks but also hedge-funds and insurance companies.

States’ interests also extended beyond currency. The computer databases promised better tracking and pricing of economic activity with the potential to extend to areas of social life—education, healthcare, intellectual property—which are harder to marketize. Herian warns of the expansion into more areas of civic life, ‘[i]n practice this means growth in blockchain-based private public partnerships, or to put it another way, privatisation of forms of public administration’ (Herian, 2018, p. 168). Stinchcombe (2018) argues that ‘[i]nstead of relying on trust or regulation, in the blockchain world, individuals are on-purpose responsible for their own security precautions’. Liberalizing states might use blockchain technology to increase individuals’ responsibility and further the privatizing agenda.

Finally, this returns to questions of contested social outcomes. Cryptocurrencies will not live or die according to their technical strengths and weaknesses alone. Neither the fact that cryptocurrencies make for poor money nor that many of their proponents’ claims are profoundly flawed preclude their continuing to prosper. There are many reasons, retrospectively, to see specie as poor money and to see that it should have been recognised as poor money long before it was abandoned in the 1930s or 1970s. Students now find something confronting, even comical, in the long history of cowrie shells as money and as tobacco as legal tender. The attempts of poorer-country governments to secure their currencies’ values can appear doomed, after they have failed. Monetary forms come and go. Each particular form exists alongside others. Their duration and place in the hierarchy should be understood as social achievements.

Cryptocurrencies have attracted huge investments, and established communities around them with vested interests in their success. The trust in blockchain creates a momentum of its own. For all the inherent problems, the longer cryptocurrency thrives, its reliability appears to be confirmed and trust reinforced. Smaller speculations may be particularly vulnerable as was confirmed by the experience of Electra, collapsing when its founder withdrew their stake (Caliskan, 2022). Optimism that the community could leave its founder behind in a new project and product appeared to be confounded in a market capitalisation reaching barely 0.1 per cent of Electra’s peak (Coinmarketcap, 2024). As Fligstein (1996, p. 665) argues, there is a liability of newness, with new forms appearing volatile and unreliable but into which structures of control may develop. The huge and at least relatively diversified investment in Bitcoin, Etherium, Tether and so on render them more secure. Ultimately, such security is built on no more than faith but that is true of all token money, and been the norm since the introduction of fractional reserve banking (Galbraith, 1995). Ideas and ideology can produce powerful effects even as experience contrasts with their claims. Much as the broader liberalizing discourses gained ground and helped establish practices whose fit with achieved restructuring often looked very loose (Cahill, 2014), the cyber-libertarian, anti-state, enthusiasm for the market-liberating potential of blockchain, cut with the prevailing ideological grain of the early twenty first century and cryptocurrencies’ powerful ideological drivers themselves became a vital institutional support (Zook & Blankenship, 2018).

As above, more sympathetic critics stress that technologies are tools, potentially capable of being utilized in different ways, potentially including more ‘progressive’ uses. But as yet, the overwhelmingly dominant practices have been established by powerful institutions adopting and developing the technologies to their own advantage. Neither intellectual shortcomings, nor a mismatch between theory and experience, are themselves sufficient to halt a rise which, for all its volatility, remained remarkable.

5. Conclusions

Cryptocurrencies fail to fulfil the libertarian claims of their originators and early supporters. They make for poor money and do not obviate the need for institutional support.

However, it has been argued here that it is premature to write-off cryptocurrencies. Monetary forms are socially determined. They are multiple, hierarchical and changing. The first proposition reminds us of cryptocurrencies’ powerful backers, whose investments are likely to influence future applications, while the libertarian ambitions continue to thrive, gaining sustenance from the ongoing fragility and inequities of financialized capitalism. The second proposition reminds us that cryptocurrencies need replace neither central bank money, nor conventional bank credit, to become important, particularly within intercorporate networks. It is too easy to compare Bitcoin with US dollars and find it wanting. The comparison with other forms of money may lead to more positive if more troubling conclusions. The anti-egalitarian and exclusionary potential of cryptocurrency is at least part of the attraction. Any temporary wane in market and media enthusiasm should not allow dropping the critical guard against cryptocurrencies and their legitimization.

Doing money one way or another, or more one way than another, involves important social and political choices, which will determine if cryptocurrencies have a future, its extent, its character and relation to other monetary forms. It becomes unsafe to assume competition will produce what works ‘best’ according to some hypothetical universal interest. Identifying what money ‘ought’ to do can occlude powerful interests in establishing particular forms and the benefits achieved for at least some cryptocurrency users.

Disclosure Statement

No potential conflict of interest was reported by the authors.