Bitcoin suffered a recent Ponzi scheme, just one of many scandals that's hurt the value of the virtual currency. Why does Bitcoin seem to attract scams like this? If a recent research paper is right, the problem isn't necessarily the code behind Bitcoin or who's mostly using it now. Instead, it's a lack of a social infrastructure that makes money valuable in the first place.
"'When Perhaps the Real Problem is the Money Itself:' The Practical Materiality of Bitcoin" published in Social Semiotics and lead written by Bill Maurer, a Professor of Anthropology and Law at UC Irvine, whose specialty is money, and has analyzed Bitcoin before, basically argues that (to very roughly summarize). In the paper, Maurer and his student co-authors Taylor Nelms and Lana Swartz note that Bitcoin advocates prefer to talk about the code behind Bitcoin, rather than the overall social structure that makes money valuable in the first place. This is a displacement, and it's a common misunderstanding many people have around money in general:
"We talk about how currencies often do function with that same kind of displacement," Maurer tells me, "leading people to think that money can be or ought to be backed by a 'real' commodity like gold, but that this is a kind of 'metallism' which again is based on overlooking that the source of value even with something like gold is still a social convention, not something given by a commodity's physical qualities or relative scarcity." Or to put it much more simply: money is money because society calls it money. (Or as Danny Devito once put it: "Everyone needs money -- that's why they call it money!")
However, this doesn't necessarily mean Bitcoin is doomed, and Dr. Maurer has a prescription for Bitcoin supporters who want their money to be more valuable:
"I think I'd want Bitcoin users to realize the fact that they are constituting not just a new currency, but a social infrastructure -- all their social relationships and connections -- and that the value of the currency will really depend on how they leverage that social infrastructure: to create more ways for the currency to be used, for example. The risk that I see is that Bitcoin gets used more as a speculative investment instead of a means of exchange or payment platform. And so I think I'd want them to shift the discussion from 'value' and toward 'use.'"
There's a long and involved discussion on this paper in this Bitcoin forum here. Also, co-author Taylor Nelms sent me through Bill a more academic summary of the paper, below. But first, because I like it so much, here's Danny Devito talking about money in Heist, written and directed by David Mamet. (Which means, of course, it's NSFW.) Notice how even criminals don't devalue the social contract that makes money money (while violating all the other rules, because fuck you Kant):
Taylor Nelms: "Our paper examines the language of users, proponents, and observers of Bitcoin. We focus on three themes that reoccur in conversations about Bitcoin: privacy (how using Bitcoin can protect individuals’ identities, like cash), labor (what goes into creating Bitcoins, the 'mining' process), and the value of money (what makes Bitcoin valuable, its ultimately fixed supply). We find that across these themes there is an emphasis on the material and tangible aspects of Bitcoin; this is what we call Bitcoin’s 'practical materialism.' In particular, we describe how the way Bitcoin works seems to be hardwired by its code and how this hardwiring proves important to Bitcoin users.
"We also argue, however, that this focus on the code disguises an underlying and ongoing conversation about trust and community, as well as the possibilities for changing the open-source code through the peer-to-peer network. That is, while much of the discussion about Bitcoin focuses on its material aspects, the social components that shape money and value are not avoided. Instead, Bitcoin seems to shift the object of concern, from the substance of money (as with commodity money) or the political or legal authority (as with fiat money) to the code and the community that writes, revises, and trusts it."
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