Written by: Duncan B. on 2 May 2021
Nobody knows who invented Bitcoin. It was invented in 2008 by a person or group of people using the pseudonym Satoshi Nakamoto. Bitcoin came into use in 2009.
Bitcoin and its imitators do not exist physically. Bitcoin is a cryptocurrency - a type of money that is completely virtual - an online version of cash. Bitcoin can be used to buy products or services the same as cash. Each bitcoin is a computer file stored in a digital “wallet”.
Bitcoins can be transferred between “wallets”, each transaction being recorded in a public ledger called a blockchain. Bitcoin is not controlled by governments or banks and does not have one single administrator. Transactions are sent from user to user on the bitcoin peer-to-peer network. These transactions are anonymous.
Bitcoins are created by a process called “Bitcoin Mining”. The “Miners” are people who use specialised computer equipment to perform complex cryptographical problems and are rewarded by payment in Bitcoins. The total output of Bitcoins is limited to 21million of which about 18 million have been mined so far.
Unlike conventional money which is supported by the gold reserves of a country, Bitcoin does not have a commodity or product tied to its value. Bitcoin has a value because its supporters decide that it has value. People have trust in the Bitcoin system and its processes. The finite number of Bitcoins is also a factor.
In “Capital”, volume I, chapter III, Marx analysed the various functions of money:
1) The measure of value and the standard of price.
2) Ideal Money.
3) Money of Account.
4) The means of circulation.
5) The means of payment.
6) Universal money.
Bitcoin can perform these functions of money the same as conventional money. Most financial transactions today involve ledger entries rather than actual cash. However, unlike conventional money where governments and central banks try to keep the currency stable, the extreme volatility of Bitcoin makes it unsuitable as a store of value or medium of exchange. Bitcoin has become a medium of speculation.
The value of Bitcoin is very volatile. Bitcoin has seen spectacular rises in value and equally spectacular falls. At the time of writing, one Bitcoin was worth about $70,000, up from about $10,000 a year ago. The rise is attributed to investors seeking higher returns at a time of low interest rates, and the actions of big players like Elon Musk, who recently purchased $1.3 billion dollars’ worth of Bitcoin.
Despite the volatility of Bitcoin’s value, the anonymity of Bitcoin transactions, the absence of controls and the difficulties of scrutiny by authorities makes Bitcoin the payment method of choice of money launderers, drug dealers, child pornographers, scammers and all the other evil inhabitants of the dark web.
There are objections made to Bitcoin because of the enormous amount of electricity need to power the computers used to mine Bitcoins. It is estimated that Bitcoin mining is consuming energy for computing power more than the annual consumption of Ireland. There are also objections because of the ideology of Bitcoin’s supporters- a mixture of Anarchists, Libertarians and far-right extremists.
Governments and central banks are looking at getting in on the cryptocurrency act. Australia’s Reserve Bank and the Bank of England among others, are looking at creating digital currencies. China is also looking at an e-yuan. These digital currencies will not be attractive to the current users of Bitcoin because they will be regulated by governments and their central banks.
In volume III of “Capital”, chapter XXV, Marx discusses the workings of the credit system as it functioned in his day. He also discusses what he calls “fictitious capital”, devised by capitalists for the purpose of speculation and swindling.
Speculation and swindling still exist today in forms undreamed of in Marx’s day. Finance-capital has invented many new vehicles for speculation such as the securitised mortgage packages and their derivatives that helped fuel the Global Financial Crash of 2008. A glance at the financial press will show there many other new financial creations that are allowing some people to become millionaires out of something that doesn’t exist. Bitcoin is shaping up to be another one of these.
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