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Abstract
The new, decentralized, anonymous digital currency Bitcoin has in less than three years gone from a proof-of-concept to being traded for about €78 million on a daily basis. Its ascendancy offers up a puzzle for financial regulators and other law-enforcers worldwide, while also promising to fulfill the political visions of a group of market-anarchist cryptographers. While it is still a very small economy in absolute terms, Bitcoin also poses some interesting challenges to traditional economic institutions, and is thus an interesting case for economic sociology. Using the notion of material embeddedness, this paper examines the possible implications of a further propagation of Bitcoin. If the currency proves a success, this will have ramifications for a large number of economic institutions, such as the possibility of taxation of untraceable money, the credit economy and interest rates, and international currency control.
Notes on contributor
Henrik Karlstrøm is a postdoctoral researcher at the Department of Interdisciplinary Studies of Culture, NTNU. His research focuses on the construction and maintenance of markets, mostly related to energy technologies.
Notes
1. Shortened to BTC, and written capitalized when speaking of the entire ecosystem and lower case when speaking of specific instances of the currency.
2. From the Bitcoin exchange Mt.Gox (mtgox.com), accessed 11 September 2013.
3. Bitcoin Watch (http://www.bitcoinwatch.com/), accessed 11 September 2013.
4. However, at present a new block requires so much computational power that the cost of electricity for producing new bitcoins is non-trivial.
5. Indeed, Dale suggests that there might be something to gain from adopting the more Marxian view that society is embedded in the economy rather than the other way around.
6. See http://lesswrong.com/lw/lx/argument_screens_off_authority/ for a summary of this position.
7. See the original proposal here: http://classic-web.archive.org/web/20060329122942/http://unenumerated.blogspot.com/2005/12/bit-gold.html.
8. Available for reading at http://www.activism.net/cypherpunk/crypto-anarchy.html.
10. In communications with cypherpunk Hal Finney. Read here: http://www.mail-archive.com/[email protected]/msg10001.html.
14. This can be handled through peer-to-peer payment schemes such as Ripple (Michelfeit Citation2011).
15. At http://www.flexcoin.com/, https://btcjam.com/, and http://torbrokerge7zxgq.onion/, respectively.
16. https://en.bitcoin.it/wiki/Trade keeps a running list, but does not include vendors of things that are illegal in the US, such as gambling and narcotics.
17. Because of the ‘hidden’ status of Tor sites, they do not require a legible URL. Silk Road could, before it was taken down by law enforcement in October 2013, be found at http://silkroadvb5piz3r.onion/.
18. Theoretically, the encryption used by Tor can be cracked with powerful computers and enough time, but with several layers of encryption this would take at a minimum decades. However, this is part of the reason for the use of the term ‘pseudonymous’.
19. http://bitcoinmagazine.com/about-us/ and https://www.bitcoinsocially.com, respectively.
20. Currently, about 64,000 BTC – or about 0.6% of all bitcoins so far mined – are known to be lost: http://bitcointalk.org/index.php?topic=7253.msg1483219#msg1483219.