From the point of view of its largest financial backers, the fact that Bitcoin combines 21st century computer science with 17th century political economy isn’t an unfortunate limitation. It’s what they want it for.
We have grown as used to the concept of money as to any other component of our infrastructure, but, all things considered, it’s an astoundingly successful technology. Even in its simplest forms it helps solve the combinatorial explosion implicit in any barter system, which is why even highly restricted groups, like prison populations, implement some form of currency as one of the basic building blocks of their polities.
Fiat money is a fascinating iteration of this technology. It doesn’t just solve the logistical problems of carrying with you an impractical amount of shiny metals or some other traditional reference commodity, it also allows a certain degree of systemic adaptation to external supply and demand shocks, and pulls macroeconomic fine-tuning away from the rather unsuitable hands of mine prospectors and international trading companies.
A protocol-level hack that increases systemic robustness in a seamless distributed manner: technology-oriented people should love this. And they would, if only that hack weren’t, to a large degree… ugh… political. From the point of view of somebody attempting to make a ton of money by, literally, making a ton money, the fact that a monetary system is a common good managed by a quasi-governmental centralized organization isn’t a relatively powerful way to dampen economic instabilities, but an unacceptable way to dampen their chances of making said ton of money.
So Bitcoin was specifically designed to make this kind of adjustment impossible. In fact, the whole, and conceptually impressive, set of features that characterize it as a currency, from the distributed ledger to the anonymity of transfers to the mathematically controlled rate of bitcoin creation, presupposes that you can trust neither central banks nor financial institutions in general. It’s a crushingly limited fallback protocol for a world where all central banks have been taken over by hyperinflation-happy communists.
The obvious empirical observation is that central banks have not been taken over by hyperinflation-happy communists. Central banks in the developed world have by and large mastered the art of keeping inflation low – in fact, they seem to have trouble doing anything else. True, there are always Venezuelas and Argentinas, but designing a currency based on the idea that they are at the cutting edge of future macroeconomic practice crosses the line from design fiction to surrealist engineering.
As a currency, Bitcoin isn’t the future, but the past. It uses our most advanced technology to replicate the key features of an obsolete concept, adding some Tesla coils here and there for good effect. It’s gold you can teleport; like a horse with an electric headlamp strapped to its chest, it’s an extremely cool-looking improvement to a technology we have long superseded.
As computer science, it’s magnificent. As economics, it’s an steampunk affectation.
Where bitcoin shines, relatively speaking, is in the criminal side of the e-commerce sector — including service-oriented markets like online extortion and sabotage — where anonymity and the ability to bypass the (relative) danger of (nominally, if not always pragmatically) legal financial institutions are extremely desirable features. So far Bitcoin has shown some promise not as a functional currency for any sort of organized society, but in its attempt to displace the hundred dollar bill from its role as what one of William Gibson’s characters accurately described as the international currency of bad shit.
This, again, isn’t an unfortunate side effect, but a consequence of the design goals of Bitcoin. There’s no practical way to avoid things like central bank-set interest rates and taxes, without also avoiding things like anti-money laundering regulations and assassination markets. If you mistrust government regulations out of principle and think them unfixable through democratic processes — that is, if you ignore or reject political technologies developed during the 20th century that have proven quite effective when well implemented — then this might seem to you a reasonable price to pay. For some, this price is actually a bonus.
There’s nothing implicit in contemporary technologies that justifies our sometimes staggering difficulties managing common goods like sustainably fertile lands, non-toxic water reservoirs, books written by people long dead, the antibiotic resistance profile of the bacteria whose planet we happen to live in, or, case in point, our financial systems. We just seem to be having doubts as to whether we should, doubts ultimately financed by people well aware that there are a few dozen deca-billion fortunes to be made by shedding the last two or three centuries’ worth of political technology development, and adding computationally shiny bits to what we were using back then.
Bitcoin is a fascinating technical achievement mostly developed by smart, enthusiastic people with the best of intentions. They are building ways in which it, and other blockchain technologies like smart contracts, can be used to make our infrastructures more powerful, our societies richer, and our lives safer. That most of the big money investing in the concept is instead attempting to recreate the financial system of late medieval Europe, or to provide a convenient complement to little bags of diamonds, large bags of hundred dollar bills, and bank accounts in professionally absent-minded countries, when they aren’t financing new and excitingly unregulated forms of technically-not-employment, is completely unexpected.