Prelude: There was a conversation recently about the role blockchain tech can play in founding new ideologies. I wrote a research paper that explores essentially this concept, so I thought it might be appreciated to share this. Just to warn you guys, this paper is written under the context of a Marxist Economics course (I am not a Marxist though). The philosophy is essentially the same as I would use in another context, although the verbiage and structure is different that what I'd normally use. I do think the "blockchain mode of production" could be a likely successor to capitalism, although I think this is because it's superior to capitalism, and not because capitalism is broken or evil. Without further ado:
At the core of Marxist ideology lies an unwavering opposition to the capitalist mode of production. Through the deification of capital, the majority worker class is alienated from their labor and reduced from humanity to a mere commodity, where they are valued only for their worth as a wage laborer, through a method no different than that used to assign value to land or infrastructure. “What can displace the capitalist mode of production?” remains an essential question to Marxist thought that has largely remained unanswered. However, cryptocurrency, and more importantly, its underlying blockchain technology, represents a rapidly emerging concept that enables the creation of a new mode of production, enforced by algorithms. This idea, the blockchain-based mode of production, enables a system superior to capitalism, and thus, has potential to act as a tool to truly displace capitalism- empowering workers and eliminating the oppressive, all-powerful ruling class.
Before a Marxist analysis can be applied to cryptocurrency, it’s necessary to first define what exactly this new technology is. Cryptocurrency can best be summarized as a form of digital money. Cryptocurrency is unique from other currencies due to its decentralized nature. Unlike fiat currencies, which are minted, controlled, and propagated by a government or otherwise central body, cryptocurrency belongs to no domain. It is sovereign in nature, free from control or tampering from any body. Instead, participants worldwide form a network of dedicated computing power. These participants are responsible for securing and creating the cryptocurrency following a universal, immutable set of algorithmic rules. What makes cryptocurrency revolutionary is an inherent truth that anyone can act as a participant to the network. Additionally, anyone can use or send any amount of cryptocurrency to any other party anywhere in the world, and no third party, government or otherwise, has any capabilities to restrict or influence activities by any individual that interacts with cryptocurrency.
The network created by participants is coined “the blockchain”. The blockchain represents a universal, completely transparent, fully comprehensive ledger of transactions. When participants dedicate computing power to this blockchain network, what actually takes place is participants receive, verify, and present every transaction made. These transactions are pooled together as a batch, or “block”, of payments, which is published or put forth to the network at frequent intervals. Each new block presented is placed upon, or “chained” to the previously block. The result is an immutable sequence of payment batches that encapsulate every single transaction that has ever taken place.
The first instance of cryptocurrency is Bitcoin, proposed by an pseudonymous author, Satoshi Nakamoto, in late 2008 (Nakamoto). Shortly after, on January 3, 2009, Bitcoin launched, accompanied by a timestamp that read, “The Times[sic] 03/Jan/2009 Chancellor on brink of second bailout for banks” (Genesis Block). From its initial launch, cryptocurrency was situated as a response to the global financial crisis, which saw the livelihoods and security of families and citizens worldwide jeopardized and even demolished, in contrast to the banks and global financial institutions- perpetrators of said crisis, receiving bailouts and maximum support from governments all over the world. Pioneered by Bitcoin, this introduction situates cryptocurrency as a tool for empowering global citizens as a financial alternative that does not subject them to the oppressive nature of the capitalist bankers. Of course, this closely mirrors the rhetoric and ambitions used by Marx.
Another element of cryptocurrency that can be seen as Marxist is the idea of value-backed currency. With the introduction of Bitcoin, there also emerged a new manner in which money could be minted. Termed “Proof-of-Work”, participants in the network, while simultaneously dedicated computing power to processing transactions, are also working to solve complex algorithms, or “mine” Bitcoin. Bitcoin is minted as mining rewards, where computing power competes in a sort of race to find or mine the Bitcoin rewards first. This computing power carries a very real value. That is, so much electricity and hardware resources are sacrificed through the minting of new Bitcoin. As a result, it can be argued that the value of Bitcoin must at least reflect the value of the work put in (Huckle and White). Bitcoin is not the only example of this, most cryptocurrencies utilize a similar approach to distribution. Of course, as was discussed in class, Marx similarly asserts that money should reflect the work put in to it. Karl Marx argues that currency should be merely a representation of some unit of labor, and that prices of commodities should reflect the amount of labor units required to produce it (Mandel). Beyond the Proof-of-Work process, cryptocurrency also maintains intrinsic value as a utility currency. As it currently stands, different cryptocurrencies can be used towards a number of functions. Cloud computing, file storage, product authenticity verification, asset registration, and secure messaging are just a handful of countless use cases cryptocurrencies already encapsulate. There is similarly an intrinsic value in the goods and services represented by these currencies.
Another major criticism of Capitalism from Marxists is the role of intellectual private property. Most evident in the insurance industry, there are significant negative externalities associated with commoditizing and profitizing knowledge, as we had discussed in class earlier in the term. Another core value of cryptocurrency is an open-source approach to development. With few exceptions, the codebase of each individual cryptocurrency is transparent, accessible to anyone. Beyond this, anyone can contribute to the code of different cryptocurrencies. This community-driven approach was first formed via Bitcoin and is now seen across most cryptocurrencies. In the case of Bitcoin, anyone can propose additions or revisions to the Bitcoin codebase as a Bitcoin Improvement Proposal (BIP). When a BIP is submitted, participants in the network review it and decide whether or not to accept it. This community development approach is one of the purest forms of public ownership in today’s society, and very accurately reflects the Marxist paradigm of thought (Huckle and White).
While these ideas are interesting, these early Marxist implications do not necessarily equate to a breakthrough Marxist progression. Similarly to Marx’s views on labor cooperatives and their use of an IOU-style currency system, it’s very possible that Marx would even suggest these values are simply a distraction to the Capitalism problem. In order to meaningfully apply Marxist thought to cryptocurrency, it’s necessary to address it in regards to its relationship with Capitalism. More specifically, the Capitalist mode of production must be understood in order to assess cryptocurrency and blockchain technology as a tool for forging a superior mode of production.
At the core of Marxist thought is a socioanalysis of Capitalism- where it derived from, how it rose to power, and how it’s maintained dominance thusfar. The socionalysis of Capitalism is a core pillar of Marxist thought, and while many opinions of Marxist thinkers may often veer away from Marx and other Marxists, each must “accept and begin from… an understanding of what capitalism “is” that derives from Marx’s original insight” (Heilbroner 21). As this socioanalysis of Capitalism is a core value of Marxism, his critiques are frequently shared throughout his publications, such as in The Communist Manifesto and Capital. Marx believes that Capitalism emerged as the dominant mode of production due to its insatiable emphasis on efficiency and technology. While Marx views capitalism very poorly, he does admit his awe regarding the rate of technological progress brought on by capitalism. According to Marx, the capitalist mode of production is made up of the dialectical capitalist ruling and subservient worker classes. The introduction and proliferation of capital as the ultimate good spawns the normification of wage labor. That is, workers exchange their human output for monetary wages. Wage labor lies at the heart of Marx’s capitalist criticisms. He views this relationship as the complete exploitation of workers, as they forfeit the ability to maintain ownership of the outcome of their labor, or rather, they lose the right, as Marx sees it, to reap what they so. As such, the ruling capitalist class wins the entire labor surplus and exerts complete ownership over labor. Marx strongly believes that work is the essence of man, and to strip man from the fruits of his labors, he is completely alienated from his work. Wage labor acts as a means to reduce the worker to merely a commodity, whose value is assigned in a manner no different than that is to land or machinery. In the capitalist mode of production, Marx asserts that man is stripped of his humanity.
As has previously introduced in this paper, cryptocurrency holds no weight as a potential “capitalism killer”, so to speak. However, in 2014, the introduction of a new cryptocurrency network, Ethereum, massively expanded the size and scope for the possibilities capable through blockchain technology. Often referred to as “blockchain 2.0”, Ethereum represents a network that, beyond just currency, individuals within the network are given the capabilities to transact data (Blankenship 25). What makes Ethereum important is the introduction of this new method of communication called smart contracts. Similar to contracts as they traditionally exist, smart contracts represent some sort of agreement between two or more parties. However, the pen and paper contracts of yesterday differ in that they are enforced by law and government. In contrast, smart contracts are automatically enforced by the Ethereum network itself. In other words, the agreements that take place through smart contracts are published, recorded, and enforced automatically via computer algorithms. On their own, smart contracts provide a number of use cases. They can be used to orchestrate loans, escrow, data transmission, exchange of virtual goods, and much more. These smart contracts are a massive evolution beyond traditional contracts because the automatic and unwavering nature of algorithmic enforcements means that it is impossible for one party to cheat the other, and thus, trustless cooperation can take place.
While each smart contracts individually provide significant value, the real, massive value possessed by smart contracts is unveiled when they are used in conjunction with one another. When a number of smart contracts are combined towards a specific goal, to create a web or network of contracts, a never-before-seen organization of communication is born: the Decentralized Autonomous Organization (DAO) (Blankenship 51). If each part of DAO is approached individually, the entity it represents is fairly straightforward. Decentralized has been explained previously- that is, a descriptor of something that operates peer-to-peer, or in the absence of some central regulator or authority. Autonomous represents independence or sovereignty, and an organization is some sort of collective or conglomerate of parties. As such, the Decentralized Autonomous Organization represents a driven ecosystem governed automatically and immutably through a system of algorithms. Of course, all the previously mentioned qualities of cryptocurrency similarly extend to any DAO. These organizations are completely transparent, with the entire codebase and functionalities of the DAO completely public. Beyond this, any participant similarly can contribute to the addition or improvement of the existing code. And of course, there are similarly no barriers to entry to a DAO. Even internet access is not a requirement to participate in a DAO or any cryptocurrency. Those with intermittent or no access to the internet can maintain ownership or participatory rights through paper or brain wallets (Loera).
When production is organized in a Decentralized Autonomous Organization manner, the role of capital is completely replaced by that of the algorithm. In other words, the managers and CEOs of the capitalist class are made obsolete through a perfectly consistent alternative, the algorithm. Of course, capitalists share a dialectical relationship with workers, so if capitalists are removed from the mode of production, so are the workers. While the capitalists are replaced by algorithms, the workers are replaced by participants. Unlike workers, participants have complete freedom to associate with and support any number of DAOs. As participants share public ownership over and are responsible for forging and improving algorithms, they maintain complete control over their individual participation and the productivity of the DAO as a whole.
Of course, the Decentralized Autonomous Organization is worthwhile, and wildly exciting to the Marxist, in its approach to production that provides and upholds ownership in a completely egalitarian manner. However, in a society dominated by neoclassical ideals, such as the capitalist society of today, these Marxist ideals can only carry water so long as they are competitive with their capitalist counterparts. That is, the blockchain mode of production as introduced through the DAO is only significant if it can compete with the dominant capitalist organizations.
And it is for this reason that the DAO is truly a remarkable concept. For not only can a Decentralized Autonomous Organization compete with capitalist alternatives- it outperforms them. Capitalist progressions and advancements take place in the pursuit of higher efficiency: maximum output and minimum input. Firms strive to approach zero marginal costs of production. However, the DAO eliminates an input cost, which can now be seen as a negative externality, completely: the organization of capital via the capitalist class. Algorithms require no upkeep cost, and above all else, are automatic. Whereas the capitalist banker, manager, or CEO requires education, training, resources, transportation, and more, the algorithm does not. And at the end of the day, capitalists are humans, and not perfect. Whereas the capitalist can never be perfect, the algorithm can never not be perfect. There is no margin of error in an algorithm. In certain situations, the marginal cost to produce in a DAO achieves a rate of zero. Such a reality makes the capitalist alternative completely obsolete. In all situations, the removal of the capitalist class improves efficiency and productivity in a DAO in a manner that capitalist competitors fundamentally cannot.
Even though the technology and ideology behind Decentralized Autonomous Organizations is very new, there are already a number of DAO’s in existence. Perhaps the most widespread example is the Steem blockchain. The Steem network propagates a blogging website called Steemit.com. On Steemit, any user can create blog posts, as well as comment and vote in other posts and comments. Like Bitcoin, Steem is a Proof-of-Work cryptocurrency, where participants that dedicate computing power act as miners, and are rewarded with Steem cryptocurrency. However, unlike Bitcoin, only a fraction of each chunk of rewards is awarded to miners. The majority of it is distributed among bloggers, commentators, and voters. The way it works is that, when participants vote on new content, it affects the value or reward of said content. Additionally, those who vote “smart”, or, are determined by Steem’s algorithms to vote positively on quality content and negatively on poor content, are also rewarded. Each day, upwards of thousands of dollars worth of Steem are paid out to contributors, with close to one million unique users contributing content since December of 2017 (Thelwall). Every cost associated- from site upkeep to content payouts- are ensured automatically through the blockchain itself. There is currently more than US$2 million worth of Steem currency in the active rewards pool. Of course, this only includes rewards that have yet to be paid out (Steem).
Other examples of DAOs include the DASH protocol, which, like Steem, sets aside a percentage of each mining reward to be paid out. Unlike Steem, DASH’s payment pool is reserved for funding projects proposed and voted on by participants in DASH. DigixDAO is another example, which acts as a means to digitilize gold. MakerDAO acts similarly to Digix, but instead works with the US Dollar. Current industries already facing pressure from DAO alternatives includes banking, escrow services, and investment banking. Of course, it’s logical to suggest that the purely or primarily capitalist industries are the most at risk to be displaced by the blockchain mode of production.
In classroom discussion, two industries we focused on that see large externalities associated with the capitalist mode of production were insurance and medicine. These are two industries that a DAO can easily encapsulate. In the case of insurance, a DAO could represent an insurance collective where participants vote on rates and frequencies of payments that are put towards a global insurance fund. Participants can then propose insurance claims, which can be accepted or rejected by the network. Alternatively, participants in this DAO could vote to delegate responsibilities, associated by a set amount of funding to a party that acts as the claims processor for the DAO. In the case of medicine, we could see a similar approach taken by DASH, where funding is generated by the network, and/or contributed by participants, and put towards research initiatives. The outcomes of the research would be published to the DAO itself and become public domain, eliminating the burdens of privatization of IP that promotes the profitization of health and medicine.
Of course, it’s more difficult to suggest how a blockchain mode of production could apply to more material industries- anywhere from automobiles to restaurants. While there is not currently infrastructure to support a DAO alternative to factories or brick and mortar businesses, there will be in an automated future. Under the capitalist mode of production, further technological development is inevitable, and many scholars and theorist suggest automation must act as a catalyst to a new mode of production. Economic theorist Jeremy Rifkin argues that a sharing economy will take hold out of sustainability necessities. Technology research company Gartner argues that the future will encapsulate a “programmable economy”. The commonality among different predictions is the vital role that the blockchain mode of production plays in enabling these futures.
In viewing this emerging composition, the Decentralized Autonomous Organization, as a new, blockchain mode of production, it’s worthwhile to assess it through the five themes of Marxist socioanalysis. Economically, we see a complete displacement of the role of capital. As is seen through the Steem example, the role of capital is replaced by participation, and beyond that, incentivized participation. Politically, the consensus-reliant nature of the DAO applies true democracy at every level. Beyond this, the sovereign, or autonomous, nature of the DAO greatly diminishes and could even eliminate the role of governments and other central overseers. Ecologically, the digitalization associated with the blockchain mode of production can displace the role of fossil fuels and unsustainable resource consumption with renewable resources- electricity and computing power. Familially, work life can transition back to the home, as participants are not constrained to urban, corporate settings as their primary place of work. Participation happens where the participant is the most comfortable. Participation is also fully inclusive. Women, minorities, or otherwise are not treated differently in the blockchain mode of production. Ideologically, the pursuit of knowledge and technical literacy replaces capital accumulation and profit as the ultimate desired goods. Society is morphed into an egalitarian meritocracy.
While there are a number of Marxist implications behind cryptocurrency, by far the most exciting and significant is the role cryptocurrency and its underlying blockchain technology can play in forging a new mode of production- the blockchain mode of production. This concept finally solves the essential question, “What can displace capitalism?” and can introduce a political economy that, for the first time in history, could be truly equal.
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