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Cryptocurrency – An opportunity for change?

Alec Edgecliffe- Johnson explores the potential of alternative currencies in amending the abundant social failings of  the current financial system.

In the wake of the 2008 financial crisis, an unknown person or collective under the pseudonym Satoshi Nakamoto released a decentralised, cryptographic currency into the digital space. Motivated by the failings of the financial system that becambge apparent after the 2008 crisis, the currency was intended as an alternative means of exchange, outside of the control of governments, central banks and financial service companies. Today, after a turbulent decade of price fluctuations, regulatory attempts and near-total crashes, a single bitcoin is worth thousands of dollars and this has motivated thousands of other cryptocurrencies.

Looking beyond their ideological underpinnings, cryptocurrencies hold enormous practical potential for the global citizenry. They can connect the unbanked, more than two billion people worldwide, to basic financial services such as saving and borrowing, allowing them to overcome some of the largest barriers to economic development. Cryptocurrencies also hold promise as an alternative store of value for those  who have seen huge portions of their savings disappear as the value of their national currency rapidly depreciates.

All of this however, distracts from the most important consequence of the rise of cryptocurrencies – that they have forced us to confront the nature and function of money, thus prompting us to question how our monetary system shapes our institutions, our individual behavior and our society. And they have prompted us to consider alternatives.

The Current System
If we direct our collective attention to our monetary system, we can perceive a system of interest-bearing debt wherein the total amount of money in circulation is always less than the amount owed. This creates a tightening in our chests, a feeling of scarcity and lack that drives competition and separation between individuals. We have allowed the creation of a system that necessitates indefinite growth and awards dividends to those who hoard rather than deploy excess wealth. Unfortunately, a significant portion of this growth  ‘strategy’ is built on the back of natural resource extraction, an expansion of markets into increasingly destructive activities and the creation of desire for consumer products and services.

At a macro-level this is a system in which 97% of the current money supply is debt. One in which we ravage the environment at all points in the production process – extracting from it to produce more items to replace those which we carelessly pile into landfills. Through legal barriers, lack of education and social pressure we are continually commodifying products and services that were once performed by individuals and communities outside of the market – music, childcare, communication, food production and home construction.

When this growth stops, or stalls as it did in 2008, the results are catastrophic, particularly for those at the lower end of the socio-economic scale. Our monetary structure has facilitated the growth of an enormous financial services sector that, among other things, manages flows of derivatives. These exotic financial figments of our collective imagination have an estimated total value of ten times the world’s GDP, and do not directly derive their value from their underlying assets. Derivatives themselves are not necessarily problematic, but when they are integrated at such a colossal scale into a system that is rife with debt, they introduce a level fragility into the global financial market that greatly increases the chances of economic meltdowns.

At a more micro-level our monetary system has robbed us of our interdependencies on the people we know and love. Bonds of community are formed through the exchange of services and gifts and assistance in times of need. When we move these activities into a depersonalised market and pay for them with depersonalised tokens, we remove humanity from the exchange.

Consequently we have shifted our focus to accumulating ever larger quantities of money, not only to satisfy manufactured desires, but also to ensure our future security in a world that has been stripped of traditional community and family support systems. This reinforces certain aspects of our nature, in lieu of others – namely greed and competition rather than altruism and cooperation.

This is not condemnation for the sake of condemnation. We have to give our current system the credit it is due. It has enabled a century of unparalleled (if unbalanced) economic prosperity. However, in its current form supported by institutions it has fostered, it may have overstayed its welcome by its failure to adapt. The solution to a flawed system is seldom a complete dismantling of the system. We should conduct a frank and holistic cost-benefit analysis in which benefit is measured in well being as well as GDP and cost incorporates social cost.

That we haven’t done so already highlights a fundamental and deeply disturbing disconnection between economics and sociology. By separating these disciplines, our ability to analyse monetary theory through a human-centric lens has atrophied. As a result, we have largely severed the connection between money and consciously imparted social values within our currency system. We have lost the power to consciously shape our society through this medium but it has not lost its capacity to shape our society.

This disconnection, however, is less severe at a local level. Over the past few decades thousands of communities have implemented complementary currency systems that operate alongside the national currency with significant impact on social objectives.

Chief among these systems are Time Banking systems like Japan’s Fureia Kippu, wherein people accept tokens representing hours of time for the help they give to others. The tokens can then be exchanged for other services, for example childcare, housework and skill-sharing. These are exchange networks grounded in connection that emphasise reciprocity and change the way the local economic system values time and relationships.

Complementary currencies have been created with a variety of additional intentions that reflect the ethos of the community. Currencies like the Totes Pound, in the transition town of Totnes, encourage local purchasing and exchange, reinforcing environmental sustainability as well as social cohesion. Another such currency, The “Bancos Palmas”, is a microcredit initiative aimed at facilitating economic development in some of Brazil’s poorest favelas. Unlike traditional microcredit lending, the system lends a geographically-bound community currency which increases money circulation and prevents money from leaking out of the local economy.

Cryptocurrencies too, are becoming an intentional medium for social change. Innovations like Carbon Coin use its retained share of the currency for a specific charitable purpose, in this case to plant trees, converting increases in value into the accomplishment of a particular mission. Other currency initiatives, namely humaniq, are designed specifically to accomplish the goals that other cryptocurrencies boast as periphery – namely financial inclusion in the developing world.

For some though, these local and crypto-currency initiatives are not drastic enough. Recently there has been a resurgence in thought about redesigning the monetary system, not just with complementary currencies but with an entirely new monetary paradigm. Financial economists and activists alike are advocating the introduction of national currencies with negative interest rates. This, they claim, would incentivise faster circulation of currency, remove rewards for hoarding and accumulation of excess and would begin to treat money as the commodity it was meant to facilitate. In turn, this would alter the nature of debtor-creditor relationships, reduce inequality and slow our reckless pursuit of growth at all costs.

The True Application of Cryptocurrencies
Until recently the cost of creating, implementing and maintaining complementary and alternative currencies has been prohibitive. As a result, an estimated 80% of community currencies fail. Furthermore, the history of monetary system alternatives is filled with instances of successful local currencies disrupted by national governments when they begin to challenge the efficacy of the national currency.

For better or worse, decentralised, internet-enabled exchange systems, cryptographic or otherwise, sit outside of regulatory boundaries and greatly lower barriers associated with cost and maintenance. Of course, this can enable unscrupulous behaviour and initiatives with less-than-pure intentions, but it will also enable an era of innovation.

This may be the true promise of cryptocurrencies: they can function as tools in a laboratory of monetary experimentation outside of governmental influence. They can dissolve some of the traditional barriers to creation and implementation of new monetary systems. They can allow us to test and refine different currency ideas before implementing and might allow us to build in an element of adaptation that is missing in our current, stagnant, system.

If we can leverage the power of cryptocurrencies and internet-enabled currencies we can move from the theoretic to the practical through experimentation and iteration. Community and alternative currencies can be designed and redesigned to reflect the character of microcosms of society. National and supranational currency can be complemented and integrated with alternative systems. Perhaps in the future our monetary system will not impose values and behavioural responses, it will constantly adapt to reflect them. We have ready access to tools to create blueprints for a new monetary system and with it, a values-driven society.

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