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Why Bitcoin Really Does Represent the Democratization of Money

Op-ed - Why Bitcoin Really Does Represent the Democratization of Money

Bitcoin is commonly regarded as a truly democratic form of money. Interestingly enough, however, there seem to be various explanations supporting this characterization. Furthermore, at least one of these interpretations have caused some to doubt whether Bitcoin does in fact still represent the democratization of money, or whether it has perhaps become susceptible to less democratic forces throughout the years since its inception. In order to understand why this doubt is understandable yet unjust, it is helpful to recognize which two types of democracy, as distinguished by political theorists such as Cambridge professor John Dunn[1], are often attributed to Bitcoin, and why the most important of the two is still very much intact today.

The first main form of democracy, as set apart by Dunn, is essentially a form of government. Hence, at its core, this type of democracy is ultimately a technical procedure, rather than a political value. This procedure basically encompasses the formation of government through the ritual of elections.

In regard to Bitcoin, this democratic feature is commonly attributed to Satoshi’s proposal for a proof-of-work system, which would function on basis of a “one-CPU-one-vote” mechanism. But as we all know, this democratic feature did not really hold up. Due to the introduction of ASIC-miners and mining-pools, hardly anyone who uses Bitcoin today actually has any vote in this specific procedure at all, while those who do have a major one.

But even though this process of specialization has probably weakened the decentralized nature of the Bitcoin-infrastructure to some degree, the “one-CPU-one-vote” mechanism should hardly be regarded as a fundamental ideal bolstering Bitcoin in the first place. Instead, it primarily reflects one specific function within the protocol: the proof-of-work system. And although that specific function is obviously a fundamental technological innovation, as it helpes to solve the problem of double-spending, it seems to have little to do with ideology.

Moreover, this characterization of “democracy” as “majority vote” is a quite limited interpretation of democracy in the first place. Rather, the ideology of democracy, as developed throughout centuries of work by political philosophers and culminating in both the American and French revolutions of the eighteenth century, consists of various Enlightenment ideals. And this latter version should probably be regarded as the more important of the two types of democracy as distinguished by political theorists such as Dunn. Fortunately, this value is still very present in Bitcoin today.

One of these inherent Enlightenment ideals imbued in both democracy and Bitcoin, is the notion of equality. Fundamentally, this ideal inhabits that all men should enjoy equal rights under the law, and includes issues such as freedom of speech and property rights. This, of course, is very present within the Bitcoin-protocol. As opposed to bank-money, which can be censored at will (as the Wikileaks Banking Blockade has shown the world) it is absolutely not possible to censor payments with Bitcoin, since these payments do not require a middleman, and literally consist of cryptographically protected information – a pure and therefore very equal form of free speech if you will. For similar reasons, arbitrary confiscations of wealth – as seen in Cyprus – are simply out of the question as long as bitcoins are stored securely.

Moreover, the organizational structure behind Bitcoin guarantees an incredibly high level of equality in itself. Fundamentally, no one person has more influence over the protocol than anybody else, nor can anyone bend its rules to his or her own advantage. Not even the inventor, Satoshi Nakamoto, or huge stakeholders, such as the Winklevoss twins, are able to change the Bitcoin-code without reaching a consensus among users. Hence, in stark contrast to the immense power financial lobby-groups have exercised over the monetary policy of many nations, or the apparent Too Big To Fail status of modern-day superbanks, each and every Bitcoin-user is truly equal to the network.

A second inherently important principle underpinning modern Western democracy is the ideal of popular sovereignty. The basic tenet of this principle, which dates back to Thomas Hobbes’ social contract, is the legitimization of the rule of law by the consent of the governed.

And regardless of the legitimacy or desirability of this contract regarding present-day nation-states, central banks run their operations with questionable consent at best. Not only are they purposely removed from the democratic political process (in some cases – like the EU – even quite literally), but merely a tiny fraction of the populace understand what these institutions do in the first place.

Moreover, it stands beyond the slightest glimmer of a doubt that private banks do not manage the money-supply by our consent, at all. And yes, they do manage a tremendous amount of our money supply – much more than most people realize. As opposed to the popular misconception, banks don’t actually lend out central bank issued money; not even indirectly, as the money multiplier model suggests. Instead, they actually create money as credit themselves.[2] Yet, private banks are not accountable to the public at all, as the absolute lack of prosecuted bankers in the wake of the financial crisis has clearly shown. To put it bluntly: our current monetary system makes an absolute mockery out of popular sovereignty.

Bitcoin, on the far opposite side of the spectrum, quite literally exists because of the consent of its users; if they did not consent on the rules of the protocol they would not use it in the first place. And this use, in turn, is what makes this currency itself valuable. After all, Bitcoin would be nothing but source code without its users. Indeed, Bitcoin does not even rule by our consent, it effectively exists by our consent.

By extension, unsatisfied Bitcoin-users can simply elect to withdraw their consent, and perhaps bootstrap a new currency. And this has in fact happened a couple of times already, of course. Unsatisfied with Bitcoin’s mining-algorithm, some have left to (at least partially) support Litecoin. Unsatisfied with Bitcoin’s “waste” of energy, some have left to (at least partially) support Peercoin. And unsatisfied with Bitcoin’s community, some have left to (at least partially) support Dogecoin. Many more might withdraw their consent from Bitcoin in the future, only to transfer it to an altcoin they feel does represent them. They can vote with their feet.

Lastly, the third and arguably most important political value underpinning modern Western democracy is the principle of self-governance. And it’s not much of a stretch to argue that the organizational structure of open source programming is, by far, the best way for common people to organize themselves ever invented. Not only is anybody free to contribute to the rules – the code – of the system, this power does not even need to be transferred to anyone else in order to make it work. With Bitcoin, we now for the first time don’t need to delegate a small group of people to govern the rest, but we can instead transfer this power to universally verifiable open source code, written by and for the people. This is a truly revolutionary form of self-government.

Of course, some of the smartest economists alive today have argued that this is actually not a good thing. According to them, money should not be governed by the people at all. They believe that money should be carefully managed by experts in order stabilize the value, for instance, or to guarantee economic prosperity. According to these economists, if the people are supposed to have any say in this regard, it should be a very indirect influence at most.

But guess what. That’s precisely what some of the smartest political thinkers of previous eras – including the likes of Plato, Montesquieu and Hobbes – argued about democracy itself. All of them expected society to end up in a terrible mess if governmental power wasn’t at least partially claimed by some type of autocratic leadership. Indeed, up until the 1800’s, the term “democracy” was actually a fringe word, only perpetuated by the “insouciant and incorrigible dissidents,” as John Dunn put it: “Those who chose to do so placed themselves far beyond the borders of political life, at the outer fringes of the intellectual lives of virtually all of their contemporaries.”

Sounds remarkably familiar, doesn’t it?


[1] John Dunn, Setting the People Free: The Story of Democracy (London 2005). (Final quotes on pp. 71.)

[2] Paul Sheard, ‘Repeat after me: banks do not and cannot “lend out” reserves’ (New York 2013). (PDF)