Abstract
The rhetoric in Satoshi Nakamoto's White Paper on the origins of Bitcoin suggests that the digital currency was envisioned as an entirely autonomous money. Due to the increase in popularity and circulation of Bitcoin and other digital currencies, an intense regulatory debate has been sparked at the global level. These debates reveal a fundamental tension regarding the role of the state in establishing money. While the digital currency community insists that Bitcoin is money, states and monetary authorities have declared Bitcoin a commodity, a declaration that can be traced back to Georg Friedrich Knapp's foundational text The State Theory of Money and reinforced by A. Mitchell Innes' The Credit Theory of Money. Circulating alongside state monies, Bitcoin is then neaccessory money,' unable to satisfy tax obligations and behaving as a commodity. This chartalist account of Bitcoin is refuted by what I identify as a libertarian/von Misean understanding of money motivating the circulation of digital currencies. I argue that the circulation of digital currencies is better explained by the chartalist narrative. I then prescribe Georg Simmel's Philosophy of Money, a broader understanding of money in which more abstract monies might create a supranational economic society, as an ideological alternative to digital currency advocates -- one that better conforms to the nature of money gestured to in Nakamoto's White Paper. However, even through the lens of Simmel, the limitations imposed by domestic authorities and taxation prevent digital currencies from reaching the envisioned state of autonomy. Synthesizing these understandings of money, Bitcoin may exist as a compromise, a means of international money transfer that weakens the abstract, international economic borders created by state monies.
Highlights
Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments
A user only needs to keep a copy of the block headers of the longest proof-of-work chain, which he can get by querying network nodes until he's convinced he has the longest chain, and obtain the Merkle branch linking the transaction to the block it's timestamped in
We started with the usual framework of coins made from digital signatures, which provides strong control of ownership, but is incomplete without a way to prevent double-spending
Summary
Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. Non-reversible transactions are not really possible, since financial institutions cannot avoid mediating disputes. With the possibility of reversal, the need for trust spreads. A certain percentage of fraud is accepted as unavoidable. These costs and payment uncertainties can be avoided in person by using physical currency, but no mechanism exists to make payments over a communications channel without a trusted party. 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 third party. The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes
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