Are Cryptocurrencies another form of Fiat Currency?

An important question has always been on my mind about the significance of Cryptocurrencies as central banks around the world digitalize the currencies of their nations. It is well-known that Cryptocurrencies were originally conceptualized as a digital currency for sidestepping the financial powers of a central bank. That was the idea advocated by Nakamoto Satoshi (or “Satoshi Nakomoto,” as the alias is more commonly known in English). However, there is also the possibility that Cryptocurrencies are just another form of Fiat Currency. The central banks around the world are adamantly insisting about this, and it has formed their justifications behind the digitalization of their issuing currencies.

We can point to a few similarities between Cryptocurrencies and Fiat Currencies. A Cryptocurrency, in addition to relying on reliable sources of electrical power, still relies on the full faith and credit that comes with the people depending on the Blockchain. People need to ‘believe’ that any Cryptocurrency is worthy of converting their Kapital into it, implying that there is also the presence of a consensus who give their ‘credence’ to its Value. That is the only way it can be possible to facilitate transactions without the need for a Financial Regime, which includes the central bank of a national government.  Moreover, a Cryptocurrency still relies on a reliable access to the Internet, the World Wide Web in order to facilitate the Blockchain and anyone relying on it. No Cryptocurrency can function as intended without their Blockchain facilitating peer-to-peer transactions, verifying the ownership of individual units by certain Individuals and also concealing their offline identities and locations at the same time.

Although there are similarities with the methodology of Fiat Currencies, there are also similarities with those of Commodity Currencies like the Gold Standard. Additionally, there is an Austrian School-like approach to its conception of Scarcity, which is predicated on the sheer magnitude of a Cryptocurrency’s own existence. Nakamoto demonstrated this by limiting the amount of Bitcoins in existence by 21,000,000 and having people literally ‘mine’ the remaining Bitcoins until there is finally 21,000,000. The moment there are 21,000,000 Bitcoins in existence will also be the moment when those Bitcoin miners end up like those miners in the wake of a California gold rush. They are going to have to find another job since there is no conceivable way to increase the number of Bitcoins in existence. In fact, this alone accounts for the proliferation of other Cryptocurrencies relying on similar technologies and designs as Bitcoin.

How new Cryptocurrencies are created is of course dependent on their Blockchain. Since the creation is done by the users themselves, new blocks in the Blockchain are introduced to facilitate the creation of additional amounts. The Price for those Cryptocurrencies are in turn affected by the Incentives of Supply and Demand, which goes back to my preceding argument about the concept having its origins in the Austrian School. There needs to be some form of Marginal Utility involved to gauge whether the users are getting the most pleasure out of them with the least pain from ensuring the continuation of the Blockchain. This Marginal Utility also manifests itself in the form of a “Timestamp,” which is organized according to a linear model of history as opposed to a “spiral model of history” like in Vladimir Lenin’s Philosophical Notebooks or a “cyclical model of history” as in Oswald Spengler’s Decline of the West. For those who do not know the implications, a linear model basically means it is a continuous, unending line that knows neither a cycle that locks the process into a recurring pattern (like Kapital and Schuld or Arbeit and Geld) nor a spiral that allows alternating directions along that cyclical process (Commodity versus Equipmentality). The Blockchain can theoretically continue forever so long as there will enough electrical power and people relying on it despite the inherent limitations in the amount of Bitcoins in existence.         

Most people, including Marxist and non-Marxist Socialists, remain unaware that it was Friedrich von Hayek who advocated for similar concepts in The Denationalisation of Money in 1976, the same period when computer technologies were still in their infancy and being experimented on by Milton Friedman to demonstrate Monetarism. It makes sense for von Hayek to have had an interest in the implications of Cryptocurrencies due to his post-1945 interest in Cybernetic technologies. Yes, the same Cybernetic technologies which were also the topic of interest for Spengler’s Man and Technics (which is the continuation of a Chapter from Volume II of The Decline of the West on Technology), Ernst Jünger’s Der Arbeiter and Martin Heidegger’s The Question Concerning Technology. In essence, it represents the continuation of his original pre-1945 arguments from the Economic Calculation Problem with Ludwig von Mises, given how Technology was consistently advocated (and to a fault for this author) by those who had favored economic planning.

The ongoing trend of digitalizing currencies by central banks is as much a reaction to Cryptocurrencies as it is the latest trend in the growing abstractions of Kapital. As I had pointed out on various occasions in the SMP Compendium, Kapital has grown increasingly abstract in the wake of Bretton Woods, as the world moved away from the Gold Standard to the Fiat Currencies which contributed to the rise of Cryptocurrencies. This fact is discernible from the explosive quantities of Kapital and Schuld to the introductions of Liberal Capitalist Financial Instruments such as Derivatives and the Sub-Prime Mortgages which caused the Great Recession. Since Kapital has grown so abstract and thus no longer tied to the Value of anything like Gold or Arbeit, it became inevitable for Schuld or “Debt” to ensure that Kapital does not become too abstract to the point that it becomes essentially worthless.   

An argument can be made that, given the presence of an antecedent within the Austrian School vis-à-vis Friedrich von Hayek, Cryptocurrencies represent yet another reaction against those same abstractions of Kapital. It is known in the historical record that von Hayek, also during the 1970s, voiced skepticism over Monetarism and Milton Friedman’s own arguments about the growing impracticality of the Gold Standard by citing those same growing abstractions of Kapital. Von Hayek’s language in a 1983 interview with the American Classical Liberal Cato Institute in its Policy Report does point to this particular phenomenon since the death of Bretton Woods:

PR: Do you think monetarism has failed? And what would be wrong with enforcing a monetary rule that limited the growth of high‐​powered money?

[von] Hayek: I don’t know what monetarism is. If monetarism just means a good old‐​fashioned quantity theory, of course it has not failed. If it means the particular version of Milton Friedman, I think it has because he imagines that he can achieve—ascertain—a clear quantity relationship between a measurable quantity of money and the price level. I don’t think that is possible. In fact, just about 40 years ago [in 1943] in the opening sentences of my book, Prices and Production, I wrote that it would be a great misfortune if people ever cease to believe in the quantity theory of money. It would be even worse ever to believe it literally. And that’s exactly what Milton Friedman does. He imagines that it is possible to prescribe to the monetary authorities a definite rate at which “the” quantity of money must be allowed to increase. I must say that I don’t know what “the” quantity of money in a measurable sense is. It has become so complex. There is a distinction between Ml, M2, and so on. I don’t think there is such a simple relationship.

When you mean by monetarism that you can instruct the monetary authorities—the Federal Reserve System—to adjust the quantity of money to keep the price level stable, I believe that is correct. But they have to find out by experimentation what they have to do to keep the price level stable. If you understand correctly what Milton Friedman believes, that you can tell them to increase some particular observable quantity by 3% a year, I think it is nonsense. I say this although Friedman is a great friend of mine, and I admire most of his views, but his quantitative approach to economics seems to me to involve a gross oversimplification of what things really are like.

What von Hayek was trying to suggest here is that, because Kapital has grown abstract and Schuld is the only thing preventing it from becoming worthless, the Quantity Theory of Money (QTM) is also obstructing those some of those abstractions. QTM controls the abstractions by imposing control over the Incentives of Supply and Demand by a central bank as in the case of Monetarism through vis-à-vis the “Velocity of Money” or, in the case of Cryptocurrencies, a Blockchain and limiting the sheer magnitude of any Cryptocurrency in existence.  

If it has already been concluded that Cryptocurrencies share similar characteristics as Fiat Currencies based on their methodology and those of Commodity Currencies due to their software programming, there is the chance for Cryptocurrencies to someday become a “Representative Currency.” That is most likely going to happen with Bitcoin once there are 21,000,000 Bitcoins in existence and people beginning to claim stakes over a portion of that same amount. A good analogy that points to the presence of an Austrian School antecedent were the “Gold Certificates” that had once been issued by central banks with currencies pegged to the Gold Standard. Since not everyone could own physical Gold, the solution was to introduce an LCFI to allow someone to claim, but never actually own, a stake in a fixed amount of Gold in existence. The emphasis here is on ‘claim’ because there are always going to be possibilities of counterfeits like those “Gold-backed Bearer Bonds” that were all over the news in the late 2000s and early 2010s as well as the infamous “Sukarno Revolution Fund” of Indonesia. Additionally, another source of evidence for Cryptocurrencies being a Fiat Currency is that they cannot be accepted as the Legal Tender of any nation-state, just as there is evidence of Cryptocurrencies being a Commodity Currency based on how they can be valued in terms of actual Kapital like US Dollars and Euros.

In retrospect, what can be concluded from Cryptocurrencies? Are they Fiat Currency, a Representative Currency, or a Commodity Currency? It can be argued that Cryptocurrencies share the characteristics of Fiat and Commodity Currencies as part of an attempt to deter the growing abstractions of Kapital. As long as the Blockchain continues unabated and as long as there is ample sources of electrical power, the Cryptocurrencies can endure. The best way to internalize these implications is to understand Cryptocurrencies as the “Austrian-Monetarist Synthesis” of Liberal Capitalist finance, rather than the official “Keynesian-Monetarist Synthesis” which emerged since the Great Recession as “Quantitative Easing” (QE) and “Modern Monetary Theory” (MMT). An “existential crisis of ontology” is more appropriate philosophically than an epistemological one.     

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1 reply

  1. Reblogged this on muunyayo and commented:
    Very important…the new cryptocurrency ETFs are a pure scam.

    The critical component of cryptocurrencies are that you store them on a digital wallet with which you have control and “physical” possession(in theory)…an ETF is nothingness

    Liked by 1 person

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