<nettime> bitcoin anyone?

[Roelof Roscam Abbing <roelroscamabbing@gmail.com>]

Hello Nettimers,

?We have elected to put our money and faith in a mathematical framework
that is free of politics and human error,? Tyler Winklevoss said.[1]

Bitcoin has been framed by proponents, like the one quoted above, as the
ultimate decentralized and politically neutral currency. However, to me,
the recent bubble and it's (partial) burst serve to underline the fallacy
the techno-utopian mindset behind projects like this one. The believe that
setting the right technical parameters will 'free us of human error' and
that systems grounded in mathematics are free of politics.

I have made two observations about Bitcoin I would like to share with the
list that I believe support my opinion.

Centralized exchange markets

By design the creation (mining), storage and transfer of Bitcoins happens
in a decentralized fashion. The recent bubble however has shown that in
order for people to liquidify their Bitcoin assets they are extremely
dependent on just a handful of centralized exchange markets. One of the
biggest of these online exchange markets, Mt. Gox, claims it controls 80%
[1] of the market.

As the bitbubble burst it became painfully clear how dependent on Mt.Gox
Bitcoiners exactly are. Also, it showed the extent of Mt. Gox's influence
on the value of the currency. The crash that devaluated Bitcoins from $260
to around 100$ dollars was caused by the failure of Mt. Gox's online trade
infrastructure. The exact cause of the crash is speculation but it is
believed to have been caused either through an orchestrated ddos, technical
failure or the sheer amount of server requests caused by a bank run of
panicked investors.[2]

The catalyst role of Mt.Gox in the burst and it's subsequent suspension of
trade for 'market cool down' illustrate the extent of influence that
centralized structures have within this supposedly decentralized network.

Mining Guilds.

I would also like to point out the emergence of so-called mining guilds or
mining pools. In these pools individual Bitcoin miners join a centralized
organization to share equally in the proceeds of mining, guaranteeing a
somewhat stable income for it's participants.

One could argue that these centralized guilds have also been 'designed'
into the Bitcoin system. Bitcoin miners are rewarded according to a first
to come first to serve model. The miner that discovers the next viable
batch of Bitcoins gets to have them all. In the early days of bitcoin this
could be easily done by individuals. However the mining of Bitcoins
becomes  more difficult due to the finite amount of Bitcoin. Mining
requires increasing amounts computing power, superseding the capabilities
of decentralized individuals. For mining to remain profitable in these
circumstances miners cluster into pools to share both in computing power
and mining proceeds.

As a result, the roughly 30 mining guilds have become the biggest producers
of Bitcoins [4][5] In the face of even more difficult mining in the future
it is not unlikely that we will end up with a handful of guilds in control
of all the production. However, the 30 guilds involved in the production of
Bitcoin have already acquired the ability of injecting large amounts of new
currency into the market and thus influence it's course. This makes mining
guilds de-facto capable of operating as the central banks that Bitcoin
believers so strongly oppose to.

To come back to the Tyler Winklevoss quote at the beginning of this text.
We can see how the design of Bitcoin as a mathematical framework does not
make it free of politics. For in it's design it also contains certain
(unconscious) political ideas about society that are grounded in
anarcho-capitalism. The mathematical framework has thus for not shown to be
capable of preventing the extremely quick formation of potentially
disruptive monopolies in a system that was designed to be neutral and
decentralized.

The idea that setting the right technical parameters will remove the
necessity for supervision and accountability is thus incorrect. For we are
witnessing the appearance of cartels and monopolies that could have never
been formed in a properly regulated market. Bitcoin as such will not work
to empower the individual and free him from centralized power, instead
Bitcoin serves to create new centralized power structures that are
unregulated, opaque and unaccountable. Although Bitcoin as a system does
not free us from human error and on the contrary even facilitates it,
donations are welcome on 1u2VMeVbDpWKUQx8cLSMtLUCTSAUfoz7q

;)

Roel

[1] http://dealbook.nytimes.com/2013/04/11/as-big-investors-emerge-Bitcoin-gets-ready-for-its-close-up/

[2] https://mtgox.com/press_release_20130404.html

[3] https://twitter.com/MtGox/status/322355614414147588

[4] https://en.bitcoin.it/wiki/Comparison_of_mining_pools

[5] http://blockorigin.pfoe.be/chart.php


-- 
=>
  =>
    =>  roelroscamabbing.nl <http://www.roelroscamabbing.nl>


#  distributed via <nettime>: no commercial use without permission
#  <nettime>  is a moderated mailing list for net criticism,
#  collaborative text filtering and cultural politics of the nets
#  more info: http://mx.kein.org/mailman/listinfo/nettime-l
#  archive: http://www.nettime.org contact: nettime@kein.org