The New Dawn of Money and Social Revolutions
How cryptocurrency could be used as a weapon
This discourse transcends the conventional narratives surrounding cryptocurrency, avoiding the customary arguments of its merits as a superior form of currency or a natural progression in the trajectory of trade. Instead, I propose that cryptocurrency offers an alternative to violent revolutions by fostering change through disengagement from government-controlled fiat currencies. The rise of populist movements can lead to revolutions, and with its modern-day ascent in various countries across the world, it may soon test cryptocurrency’s role as a catalyst in another transformative historical epoch.
From its nascent origins of commodity money, fiat currencies, and the emergence of digital financial instruments, the evolution of money has traversed a historical trajectory characterized by nuanced progressions and occasional regressions. These trajectories have often culminated in the establishment of centralized monetary systems across countries and the world, through institutions like the International Monetary Fund (IMF).
The intrinsic value of money derives not solely from the tangible assets that may back it, but also from the authority vested in its enforcement and the widespread consensus regarding its value. Paradoxically, the pursuit of centralized monetary authority, which is aimed at ensuring economic stability, has fostered conditions conducive to the emergence of injustices and disparities in wealth distribution. As discussed in my previous article, it is within the crux of such inequities that populist movements and revolutionary fervor have historically found fertile ground.
Centralized fiscal authority, in its role as a steward of monetary policy through interest rate mechanisms, exerts profound and far-reaching impacts on the lives of individuals. It influences employment prospects, homeownership opportunities, and the capacity to accumulate wealth. As the primary architect of fiscal policy, centralized authorities often become the primary target of blame in the face of economic turmoil and injustices.
In this article, we cast our gaze upon cryptocurrency through the lens of social science. It is through this lens that we discern the potential emergence of a transformative tool, one capable of catalyzing societal change on a scale akin to the historical revolutions of the Enlightenment era.
To comprehend the intrinsic nature of cryptocurrency, it is essential to explore its value creation mechanism: one that bears striking similarities to the contemporary financial systems underpinned by government enforcement. The barter system, often misconstrued as the precursor to modern currency, should instead be interpreted as the emergence of gift-giving economies that functioned alongside evolving monetary systems. Rather than being mutually exclusive, the two functioned in tandem¹. Following this, the historical account transitions to the concept of commodity trade as an early form of money. It is important to note, however, that the veracity of this historical perspective remains challenging to ascertain due to the inherent biases in attempts to project contemporary monetary principles onto ancient societies¹.
Given these complexities, our inquiry into the evolution of money will commence with the metallic stage, which is characterized by the use of precious metals as mediums of exchange. Over time, these metals were standardized and certified based on their weight, and their value came from two factors. Firstly, the intrinsic worth derived from the scarcity and desirability of precious metals, and, secondly, their universal acceptance in exchange for goods and services¹. Nevertheless, metallic money had its limitations, notably its cumbersome nature, which rendered it inefficient for large-scale transactions.
The introduction of paper money marked a significant juncture in the evolution of currency. Banknotes represented a promise from a bank to pay the bearer a specified amount upon request². Consequently, the value of these banknotes hinged entirely on the trustworthiness of the issuing banks. This era also witnessed the rise of fractional banking, as banks began to issue more banknotes than they had physical precious metals to back them. The banks were operating on the premise that not all depositors would simultaneously demand their holdings, thus ensuring the system’s stability.
During the War of 1812, a transition occurred from a silver standard to a gold standard, whereby each piece of paper money was backed by a corresponding quantity of gold³. Despite this shift, the underlying principle remained unchanged — a promissory note from the bank, entailing the commitment to redeem the specified amount in exchange for the note. The prevalence of the gold standard effectively established a single global currency with distinct names in different regions².
However, the 1970s marked the end of the gold standard in the United States, ushering in the era of fiat currency⁴. Fiat currency, in contrast to its predecessors, lacks backing by any physical commodity: its value is intrinsically tied to the trust vested in the government. At its core, the value of fiat currency emanates from the government’s ability to enforce it and by creating a constant need for money through taxation. This enforcement, once reliant on the potential for violence, has evolved into a system governed by laws and regulations, backed by the threat of legal repercussions. This is very similar to the essence of property and ownership: “Land is really only ‘yours’, in this sense, if no one would think to challenge your claim over it, or if you have the capacity to summon at will people with weapons to threaten or attack anyone who disagrees, or just enters without permissions and refuses to leave. Even if you shoot the trespasses yourself, you still need others to agree you were within your rights to do so. … [landed property] is a legal understanding, maintained by a subtle mix of morality and the threat of violence.”⁵ This statement holds true when speaking of a currency’s intrinsic value, although violence has henceforth been substituted with laws, regulations, and punishment.
The evolution of money has become even more divergent with the advent of digital currency. In this era, physical cash and traditional fiat currency have been gradually supplanted by electronic forms of payment, such as credit cards and digital currencies. Notably, a novel dimension emerges with the proliferation of point systems, exemplified by the likes of Starbucks, whereby loyalty points hold tangible monetary value. The multinational coffeehouse chain annually manages billions of dollars on its gift cards and mobile app with a substantial portion remaining unused. When customers employ these digital credits, they essentially grant Starbucks an interest-free loan, allowing the company to invest these funds for modest returns while awaiting customer redemptions. It is for this reason Starbucks is labeled as the world’s largest unregulated “bank”⁶. Starbucks annually holds around $3 billion USD on its gift cards and app, with approximately 10 percent of that amount going unused⁶.
Why then does cryptocurrency hold such promise as a potential catalyst for a futuristic revolution? To answer this question, we must summarize our prior claims regarding the very essence of money and its value-creation mechanism. Traditional money, whether in the form of government-backed fiat currency or private company-generated currency (such as Starbucks loyalty points), derives its value, not from an intrinsic store of wealth, but rather from the threat of government enforcement and the continuous demand perpetuated by taxation. Private companies issue their own currencies and individuals trust them based on the company’s commitment to honor these currencies when purchasing their products. Therefore, the transition to cryptocurrency is not as far-fetched as it may initially appear. As we have established, the concept of currency has evolved over time adapting to the changing needs of societies.
Now, consider the main distinction between cryptocurrencies, like Ethereum, and both government-backed currencies and loyalty points: government enforcement. While traditional currencies rely on the coercive power of the state to ensure their acceptance and stability, and loyalty points are usually tied to the acquisition of physical goods or services, cryptocurrency does not rely on government protection, making it both a risky asset but also a potential tool for a revolution. This distinction sets the stage for our main argument.
If we were to eliminate government enforcement, cryptocurrencies and fiat currencies would share fundamental similarities in terms of value creation. However, their operational functions would remain distinct. The critical point of consideration is this: in the event of a revolution where citizens disengage from the government system, the necessity for a medium of exchange, i.e., currency, would persist. This requirement is pivotal as it facilitates transactions.
By disentangling themselves from government-backed money, citizens can potentially embrace cryptocurrencies and the blockchain technology that underpins them. The blockchain’s inherent characteristics, such as transparency and immutability, allow it to serve as a decentralized ledger of ownership. Unlike traditional systems that rely on government backing and enforcement, the blockchain enables users to verify ownership rights independently, thereby eliminating the need for external validation.
What makes this concept even more intriguing is the possibility of extending blockchain technology to encompass physical assets. In this paradigm, tangible properties could also be recorded on the blockchain, securely establishing ownership without the need for government intervention. This shift in the way we record and enforce property rights has far-reaching implications.
In essence, cryptocurrency and blockchain technology open the door for property and monetary agreements to endure beyond the lifespan of governments. In traditional revolutions, change is often sought through force, with confrontations involving guns and violence. However, a cryptocurrency-driven revolution would hinge on a transition from government-backed services to blockchain-operated services, potentially rendering the existing Western governmental system redundant. Remembering that the definition of a revolution in political science is a forcible overthrow of a government in favour of a new system.
Historically, revolutions have often been won when those tasked with suppressing them refuse to engage or simply abandon their posts. In the context of a cryptocurrency revolution, if the enforcers cease to enforce and instead embrace the new paradigm, the traditional governmental system could crumble, making way for a decentralized and blockchain-powered future. Thus, blockchain technology and cryptocurrency may well serve as the linchpin of a forthcoming revolution, reshaping the landscape of Western governance as we know it.
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[1] Wray, L. R. (1999). The origins of money and the development of the modern financial system. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.150948
[2] Beattie, A. (n.d.). The evolution of banking over time. Investopedia. https://www.investopedia.com/articles/07/banking.asp
[3] Woodward, G. T. (1996). Brief history of the gold standard in the United States. Congressional Research Service, Library of Congress.
[4] Lioudis, N. (n.d.). What is the gold standard? advantages, alternatives, and history. Investopedia. https://www.investopedia.com/ask/answers/09/gold-standard.asp
[5] Graeber, D., & Wengrow, D. (2023). The dawn of everything: A new history of humanity. Picador/Farrar, Straus and Giroux.
[6] https://www.thedailyscrumnews.com/2023/03/09/is-starbucks-the-worlds-largest-unregulated-bank/
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