Monday, October 1, 2012

Bitcoin: The Political Virtual of an Intangible Material Currency

By Mark A. Jansen
Utrecht University, New Media and Digital Culture, MA Thesis
August 2012

Bitcoin: the Political Virtual of an Intangible Material Currency


This paper concerns the open source software project Bitcoin. Bitcoin is often described as virtual cash and this paper asks what the term ‘virtual’ signifies when applied to ‘cash’ and in turn what ‘virtual cash’ says about Bitcoin. Bitcoin is related to the 1990s activist movement of libertarian cryptographers known as ‘cypherpunks’ and to the cyber-libertarian political philosophy, demonstrating the historical intertwining of cryptography and politics. Cypherpunks argued that privacy is a prerequisite for an open society and that cryptography and anonymous transaction systems were needed as assurance. Bitcoin is the latest effort by cryptographers to create digital tokens similar to cash, where Bitcoin’s designer Nakamoto argues that with Bitcoin users no longer have to trust a third party, traditionally the bank. Bitcoin does not fulfill this promise as trust remains to be established, albeit in a different manner. Power is not destroyed, but transferred from banks to Bitcoin’s protocol. The paper concludes that ‘virtual’ refers to Bitcoin’s model of how cash appears to function in everyday exchange, allowing user privacy. Bitcoin does not model another aspect of cash, namely that it is a credential referring to debt. Bitcoin discontinues the concept of debt.


  1. I wanted to publish Mark's paper without editorial comments above, so I will comment here.

    While I admire their efforts on currency competition, I generally disagree with the theories of Silvio Gesell and Bernard Lietaer because they advocate for a demurrage-based currency not related to storage costs, which I believe punishes savers and wealth producers.

  2. Hi Jon, thanks for mentioning my paper!

    "Silvio Gesell and Bernard Lietaer ... advocate for a demurrage-based currency not related to storage costs, which I believe punishes savers and wealth producers."

    Following arguments in my paper, I agree with your point that the money system 'punishes', however at the same time it also facilitates human behavior. In fact, this is similar to how new media such as Twitter and Facebook operate protologically, and Bitcoin for that matter (see: In new media studies, these properties are commonly referred to as 'affordances' (see: This means that no technology, social network, or currency, is 'neutral'. Instead, all are biased. It may be consistent (Facebook handles Facebookers equally), but it is consistently skewed. To explain this real quickly; on Facebook you are offered an option of clicking 'like', but not 'dislike', 'tmi:dr' or 'meh'.

    However, it is worth stressing that, as far as I know, Lietaer does not limit the discussion to promoting a demurrage-currency, his broader point is to advocate a diverse money ecology (see: Basically, he does not put one model over the other, this is less about good/bad and more about appreciating alternatives where transaction context co-determines currency relevancy. The world currently knows only one uniform, standardized model of currency which is globally scaled; a 'money monoculture' that we might call 'bank-debt-interest-currency'. This single implementation also makes it very hard for us to imagine alternatives. Lietaer favors a diversity of different (complementary) currency models operating side by side, where the unique characteristics of each cater to specific needs.

    The issue you (Jon) point to, about the effects of demurrage, is understandable but should not lead to the conclusion that the current model of model should be ditched in favor of another monopoly of (demurrage) currency; the idea is rather to complement the existing model. Furthermore, this is related to one of Lietaer's broader points, namely that we currently have one single operable money model, which integrates the four functions of money noted in most economics textbooks; “Money is a matter of functions four, a medium, a measure, a standard and a store.” First, this is not wat money is, but what money does (see: Second, we might ask; why should all these four functions be integrated in one single instrument (currency)? For example, the functions of medium of exchange and store of value work appear to work against each other. Currency is supposed to circulate (1. Latin currar: may I be moved; 2. hence the money metaphors of flow and liquidity), while store of value suggests that it is left stationary for a longer time (like gold, historically). It seems hard to accomplish both with a single currency, so why not implement at least two currencies which are used accordingly? It is interesting that since Bitcoin is modelled after gold, Bitcoin (at least at the moment) better serves the store of value function, rather than medium of exchange (see:

    Diversity of money allows for a choice and enables people to pick the best currency for the task and type of transaction(s) to be accomplished. It also builds what Lietaer calls resilience; basically the opposite of what currently causes so much distress in the Eurozone; dependency on one single money.

    Fur further reading: (apologies for this being a WIP and still mostly in Dutch..)

  3. I found the diversity of money argurment utterly unconvincing. Taken to to its logical conclusion it gives us barter back.

    The whole point of money as medium of exchange and unit of account is to solve the problem of "double coincidence of wants" not to recreate it back.

  4. "Taken to to its logical conclusion it gives us barter back." How do you reach that conclusion? The way I see it, participation of a user in multiple systems does not invoke barter. It means that you select one of the available money systems at the (mobile/online/IRL) point of transaction, one that is most relevant in that context, like you select an email app for emailing and a word processor if you want to type a paper.

    What I understand from your post (mentioning the medium of exchange and the double coincidence of wants) is that you see money like the Bitcoin-model: money as commodity (like gold). It is good to know that there are different models of money available, like credit money (which is actually part of the currently dominant money model).

    I can highly recommend this book if you find this any interesting:

  5. Economic Agent Smith select the money system A. Economic Agent Brown select the money system B.

    Now suddenly they cannot trade with each other directly. And exchanging money of system A for money of system B is barter.

    If money is the most marketable commodity than ultimately there will remain onnly one. And my guess is that would be a money not burdened by storage costs. Be those real, or designed into.

    1. @CB: Sure, but now your assumption is that people can and will only use one system.

      The problem you seem to identify is rather one of pricing; the unit of account function of money ( This is also a difficult point for Bitcoin, because we are used to communicating one price for a product, and one that is more or less stable over time. Suddenly a merchant adopting bitcoin has two prices; one in fiat currency like the dollar, and one in BTC.

      In practice, this is solved by connecting the fiat currency price to the exchange value of a Bitcoin on a market like MTgox in real time.

      If there are no 'holding' costs associated with using many money systems (apps), and the markets enjoy globally-wide, online efficiency that we can expect from software, I see absolutely no problem with a diverse set of systems. And I dont think this should be put under the heading of 'barter', because barter is usually inefficient.


Note: Only a member of this blog may post a comment.