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As of late, majority of us have noticed this trend, that more business organizations are accepting bitcoin as a mode of payment. Some governments are planning to come up with their own regularized forms of cryptocurrency such as Venezuela’s Petrodollar. This demonstrates the rising prevalence of cryptocurrency; an internet based virtual monetary standards which were nonexistent until a decade ago. Cryptocurrencies are seen as a new way to store the value and are alternatives to traditional money. This essay will explore a brief history of cryptocurrency and what it meant in the neo-liberal era.
The essay will further examine how the innovation of cryptocurrency can revolutionize the way people conduct trade and challenge the existing governing structures. Because of the word impediment, it won't go in insight concerning the innovation in itself however center around how it can be the boon for neoliberal world.
There are many kinds of cryptocurriencies like bitcoin,litecoin, Ripple and Dash. Throughout the essay, Bitcoin being most popular has been used interchangeably with cryptocurrency to show characteristics of cryptocurrency.
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Besides, due to the absence of critical research available on the given topic the essay is broadly founded on material accessible on newspapers, web journals, interviews and blog pieces.
Keywords: Cryptocurrency, Neo-liberalism, Government regulations, State, bitcoin.
For a long period, since money was introduced it has been the basal element for everyday human life. Assigning the monetary values in gold, coins or paper print is an evolutionary part of human progress. In order to help make goods and services commensurable the Greek philosopher Aristotle came up with four criteria that it must be durable, portable, divisible and must consist intrinsic value to be considered “good money”(Lee,2009).
Originally, gold fulfilled this criterion and later on as demand for trade advances government were forced to introduced more accessible medium of payment and that is how fiat currency was presented. In the present economy, the main source of the money is a fiat currency, which is issued by the state central bank and control through monetary policy of the nation. But with the onset of the 21st century and the advancement of technology as well as with the rise of the neoliberal principle, cryptocurrencies are the innovation on currency. Technology has made this possible that the transaction can be done with a simple click. Online payment is not something very brand new as previous examples such as credit and debit card are there but what made cryptocurrency different from other mode of payment like PayPal and Paytm is that the later ones are the hard currency which is used in online method for which you need money deposited in bank whereas cryptocurrency is the currency in itself. It can be simply differentiated as digital deposit Vs digital currency. You can now use cryptocurrency to buy yourself a sandwich at subway to book yourself a ticket on Expedia. So, what actually is cryptocurrency?
Cryptocurrency is commonly known as “virtual currency” or “digital currency”. It all started with a paper titled Bitcoin: A Peer-to-Peer Electronic Cash System published in 2008 by Satoshi Nakamoto[footnoteRef:1], an anonymous person or a group of people. Nakamoto followed his theoretical system by a working system in 2009 and introduced Bitcoin[footnoteRef:2], the first and the most popular cryptocurrency. “Bitcoin and similar digital currencies are called crypto-currencies by some because the underlying algorithms and security are intimately related to digital cryptographic algorithms” (Dwyer, 2014, p.83). These are digital currencies that provide a secure and low-cost platform for online payment and are not issued by the central government. Cryptocurrencies operate outside our traditional state-sanctioned financial institutional frameworks and without any government regulations and are above any kind of state interference. “The supply of cryptocurrency depends on “mining”. Each individual bitcoin is added onto the database through this mining process” (Dwyer, 2014, p.84). There is an underlying technology called “blockchain”[footnoteRef:3] which is a public distributed ledger and the reason cryptocurrencies are considered secure. [1: Though the actual history of bitcoin is still not properly documented, the information here is provided through bitcoin wiki - (http://en.bitcoin.it/wiki/). Many other journal and blogs also incorporated this information.
[2: Throughout the report, the term “bitcoin,” lower case, refers to the virtual currency that is digitally traded between users. “Bitcoin,” when capitalized, refers to both the open source software used to create the virtual currency and the P2P network formed as a result. Also while using the term it also refers to its underlying blockchain technology which is not described here in detail but can be obtained on https://bitcoin.org/bitcoin.pdf. ] [3: Further information on blockchain technology https://bitcoin.org/bitcoin.pdf]
Nakomoto own reason to create Bitcoin was to produce a currency that is totally liberated from the traditional banking system. He pointed out in his paper that “What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted 3rd party” (Nakamoto, 2008,p. 1). The major feature of these currencies is that it is decentralized and are created and transacted in the open source environment and rely on peer to peer network whereas traditional currencies are always governed by the centralized government. Similarly, unlike traditional currencies such as Dollar, Euro, Rupees and so on, cryptocurrencies are not tied to one particular nation. These currencies operate as a borderless and decentralized medium of exchange. Another reason why cryptocurrency like bitcoin are highly popular in today’s world is that the transactions are anonymous which allows a huge amount of privacy and the freedom to the individual users. “Bitcoin embodies a major innovation in trading. A peer-to-peer network validates transactions and finalizes them, with no trust in a central authority required” (Dwyer, 2014, p.90). The change cryptocurrencies bring into the system is enormous. It has the potential to disrupt the existing financial system and challenge the role of the state.
Neo-liberalism is a dominant ideology which is shaping the present world and is based on laissez-faire economy, the economy which required minimum interference from the government in the economic issue of individual and society. Neo-liberal believes in the Adam Smith classical principle of “invisible hand” of the demand and the supply of the market should remain uninterrupted. When originated in 1930 it advocates state intervention and a free market, a middle path between classical economics and the Marxist approach. However, with time, this definition got lost. Now, it is often associated with the conservative movement of Thatcher and Regan in 1980s. Intellectually, it is solidified around three schools; Austrian economics which focused on the work of Ludwig Von Mises and Hayek, the Chicago school which centered around the work of Milton Friedman, George Stigler, Aaron Director, and Frank Knight and the public choice theory led by the neoclassical economist like James Buchanan(Cahill, Damien& Konings,2017,p.30-31). There are few key points attached with neo-liberal principle. The primary among them is its belief in the Rule of the market. It advocates for freeing the business enterprises from any kind of government-imposed regulations such as tariff, subsidies and total freedom in the movements of goods and services. It supports free trade, decentralization, privatization and reducing of government spending (Pickard, 2007, p.21). In The Road to Serfdom, Hayek has argued: 'Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends” (ed.Hayek, 2007, p.95) and likewise as Friedman pointed out in his book Capital and Freedom that economic freedom is an essential component for political freedom and the centralized control of the economy by the state is always accompanied by some political repression (Friedman, 1962). From the 1980s onward the neoliberal ideology was being put forward by the Global North through the IMF SAPs( Structural Adjustment Program) within the developing nation which provides credit to the struggling economy under the condition that they adopt neoliberal structure(Cahill, Damien& Konings,2017p.42).
In an interview in 1999, with the development and the subsequent rise of the Internet, Friedman, one of the leading figure of the neo-liberal principle stated “The Internet is going to be one of the major forces for reducing the role of government. The one thing that's missing, but that will soon be developed, is a reliable e-cash, a method whereby on the Internet you can transfer funds from A to B without A knowing B or B knowing A” (Friedman, 1999)[footnoteRef:4]. It’s like Friedman is predicting the rise of the cryptocurrency in the possible future, a decade before it came to existence and what it means for neo-liberalism. This section of the essay will explore how cryptocurrency is furthering the neoliberal principle primarily decentralization. The bitcoin foundation itself at one period listed its three core principle as “non-political economy, openness, and independence”. While the expression 'non-political economy' sounds odd, it is an adept depiction of one objective of numerous Bitcoin advocates: the end of the association of the state in the monetary circle. This is itself a political move and there are many political assortments that cryptocurrency promoter can take but this essay will explore the radical side of cryptocurrency and it possibly on inherently becoming subversive of the State. [4: The quotation is taken out from Friedman 1999 interview conducted by National Taxpayer Union Foundation and retrieved from: https://www.youtube.com/watch?v=mlwxdyLnMXM]
Cryptocurrency is the perfect blend of the economics, technology and political ideology supporting individual freedom and privacy. The problem with our current monetary system is that the fate of the entire monetary system is largely dependent on the whims of the company running the mint (Nakamoto, 2008, p.2). The problem with any centralized governing system is that it naturally created hierarchy and inequality levels. Yes, there are check and balance but in recent years we have seen that it has been regularly used by few in power to create and maintain their domination. Bank and state government have a direct relationship. For example, you can take the US dollar and how its status as a world reserve currency has been used to advance US hegemony in the world. As, per Nakamoto, it is this problem of money creation ineptitude to which Bitcoin claims to have an answer in its ‘mining’ process. (Nakamoto, 2008)
Globalization and technological advancement have accelerated the neoliberal movement. In this era of internet, societies are highly connected and the local market can be easily transformed into a global network. But a still larger part of the fiat currency, which is a major source of the money, in circulation in today’s world as mentioned above is constrained by a legislature or an administrative body and their creation can be regulated, based on the internal calculations, forecasts, or requirements of the regulatory or government backing the currency. In contrast to this cryptocurrencies, creation and transactions are open source and publicly available, controlled by the software code which is again open source, and rely on “peer-to-peer” networks, rather than a centralized agency. There is no single entity that can affect or manipulate or regulate any of these aspects of the cryptocurrency. This is what neoliberal dreamt of when they say that state role should be minimalistic in economic activities of an individual. No matter whatever barrier we broke in today’s neoliberal world the central bank of each nation and the subsequent government controlled this primary function of issuing the money and change in monetary policy. As an example, we can take demonetization in India imposed by the present government and how the GDP growth rate of 8.01% in 2015-2016 fell to 7.11% in 2016-2017[footnoteRef:5] after demonetization. Cryptocurrency challenged this function of the state and have the potential to remove the state from the equation in term of the market economy. [5: Data obtained from https://economictimes.indiatimes.com/news/economy/policy/demonetisation-all-cost-and-little-benefit/articleshow/65639832.cms]
There are other core principles attached with cryptocurrency that shows that it is the product neoliberal dreamt of. It ensures privacy protection. The use of pseudonyms conceals the identities, information, and details of the parties to the transaction. It is the core neoliberal principle as well as i.e protection of individualism. Secondly, the major advantage associated with the digital currency is low transaction cost. When we transact using debit and credit card, we pay processing or transaction fee when used overseas, which is somewhere of the order of 1% to 3%[footnoteRef:6]. Cryptocurrencies solve this problem as they cut down the third part and as they have single value globally the transaction is inexpensive and instantaneous. There is no intervention from the third party in the transaction causing the time delay. Every one of the exchanges over digital currency, regardless of whether local or international, is equivalent. And this is the boon for neo-liberalism as there are no state-backed regulations to hinder the movements of trade. Similarly, most of the financial institutions have their own define eligibility criteria on who can use their facilities and also demand the documented proof of your identities and income. In the case of the cryptocurrency, there are no such barriers. They are free to join, high on usability and do not require personal identification, address, and income. These are regulated on the basis of simple digital identification. And the major advantage the cryptocurrency brings forward is that it is immune to government-led financial retribution. In many repressive regimes, the government can easily freeze your bank account but they are unable to do so with the digital currency. [6: Obtained from Foreign Transaction Fee: What is it? and how does it work?, available at https://www.valuepenguin.com/credit-card-foreign-transaction-fees, accessed on April 5, 2019]
While there are questions regarding the vulnerabilities and threat associated with digital currencies itself such as code-based attack and its anonymity can provide a perfect platform for illegal trade, the innovation in itself opens the door for the evolution of new neo-liberal world order where the market economy can truly be free from the state intervention. It’s not that the problems are not there with fiat currency as well. There are corruptions, forging of money, black money and so on. So the problem is attached to the very concept of the money.
It is very difficult to say at this point that present cryptocurrency like bitcoin is the ultimate answer for the evolution of new neoliberal order and will actually take off and replace the state when it comes to the market as the technology is still new but the debate it brings forward as well as its underlying concept that decentralization of network is possible will have a lasting impact. The ongoing shift toward cryptocurrency also shows the interest of the consumer. And, I personally believe that having a currency that is completely free from political control can make a big difference to the world.
Neo-Liberalism and Cryptocurrency. (2024, Jan 24). Retrieved from https://studymoose.com/neo-liberalism-and-cryptocurrency-essay
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