Skip to Content

Bitcoin’s Political Problem

If cryptocurrency is to succeed, its proponents need to acknowledge that it’s hard to divorce money from politics.
February 7, 2014

Money is always political. This is obvious enough when we argue about Federal Reserve policy in the United States, or who should next chair the interest rate-setting body. But for over 1,000 years, we have argued about the nature of our monetary systems and shifted between different ways of making payments. Seen in this historical context, Bitcoin and other cryptocurrencies are just the latest in a long line of challenges to prevailing technology—and to current political arrangements.

The dominant design of today’s monetary systems is based on a western European tradition that can be traced back to the silver denarius of Emperor Charlemagne and before to the organization of the Roman Empire. This design bases the amount and nature of money in the economy on an interaction between government policy and what private individuals want to hold. Continual political pressure and repeated technological opportunity have produced many changes to that basic model over the years. Bitcoin’s rise may result in another round of that process.

Enthusiasm for cryptocurrencies is based, in part, on entirely reasonable frustration with our existing arrangements. People on the left who distrust the power accumulated by global megabanks in recent decades have united with people on the right who see the government as overreaching. But history suggests that trying to build a viable national and international payments system completely outside the control of governments will not be easy.

First, money is valuable only to the extent that it can be converted into goods and services. And at the moment of conversion, governments will have a lot to say about the matter, such as whether you have paid tax and whether the transaction is legal.

Second, it is very hard to come up with a technology that will completely hide transactions from governments. The movement of goods, people, or information can all be tracked, as the Silk Road case has shown.

Third, there will be a political reaction led by powerful banking interests. They will point out any illegality within the Bitcoin system and lobby for restrictive regulations.

Fighting on this ground will be difficult. It would be much more sensible for the Bitcoin community and its allies to launch a proactive political strategy. They might focus on the fact that illegal payments are currently made around the world using $100 bills and that there is a need to lower transaction costs for people in countries with a weak rule of law and great risk of theft. It could be argued that operating Bitcoin in a more transparent fashion will not destabilize the credit system or undermine the ability of small banks to make a reasonable profit.

The monetary system of the United States and the world has changed many times and will without question do so again. At the end of the nineteenth century, for example, there was a broad push to reform the U.S. monetary and credit system. Ideas that were initially dismissed as “populism,” such as moving away from a narrowly defined gold standard, had, within a generation, become mainstream.

New technology can definitely offer better ways to organize transactions. But simply assuming that the state can be bypassed is unlikely to work. Bitcoin needs a political strategy, and it must evolve to address legitimate criticisms.

Simon Johnson is a professor at the MIT Sloan School of Management and was formerly chief economist of the International Monetary Fund.

Keep Reading

Most Popular

Workers disinfect the street outside Shijiazhuang Railway Station
Workers disinfect the street outside Shijiazhuang Railway Station

Why China is still obsessed with disinfecting everything

Most public health bodies dealing with covid have long since moved on from the idea of surface transmission. China’s didn’t—and that helps it control the narrative about the disease’s origins and danger.

individual aging affects covid outcomes concept
individual aging affects covid outcomes concept

Anti-aging drugs are being tested as a way to treat covid

Drugs that rejuvenate our immune systems and make us biologically younger could help protect us from the disease’s worst effects.

Europe's AI Act concept
Europe's AI Act concept

A quick guide to the most important AI law you’ve never heard of

The European Union is planning new legislation aimed at curbing the worst harms associated with artificial intelligence.

Stay connected

Illustration by Rose WongIllustration by Rose Wong

Get the latest updates from
MIT Technology Review

Discover special offers, top stories, upcoming events, and more.

Thank you for submitting your email!

Explore more newsletters

It looks like something went wrong.

We’re having trouble saving your preferences. Try refreshing this page and updating them one more time. If you continue to get this message, reach out to us at customer-service@technologyreview.com with a list of newsletters you’d like to receive.