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Neoliberalism and the Rise of Bitcoin

Is Bitcoin a Neo-Liberal Product? A Socio-Economic Analysis

Research Paper (postgraduate) 2018 16 Pages

Sociology - Individual, Groups, Society

Excerpt

Table of Contents

1 Introduction

2 Neoliberalism and Decentralization
2.1 Personal Enterprise Concept and Network Societies
2.2 Globalization as an Accelerator of Neo-Liberal Movements
2.3 Changes in the Financial World

3 Bitcoin, Blockchain and the Crypto Market

3.1 What is Bitcoin?
3.2 Blockchain Technology
3.3 Global Acceptance and Price Development
3.4 The Use of Bitcoins and Blockchains

4 The Rise of Bitcoin in Recent Years as a Consequence of Neo-Liberal Societies
4.1 Bitcoin as a Product of Neoliberalism
4.2 Decentralization and Anti-Government Trust

5 Conclusion

References

6 List of Figures

1 Introduction

By the end of 2017 almost everybody has heard of Bitcoin. Therefore, the topic of this essay is highly relevant and aims to give an insight on Bitcoin and Blockchain technology, as well as analyze the rise of Bitcoin from a socio-economic viewpoint. By applying the 'personal enterprise concept' based on the neo-liberal definition from Dardot and Laval (2013), this essay will look at the correlation between the increase of neoliberalism and the rise of Bitcoin. By highlighting the sociological and financial circumstance that Bitcoin has emerged from, the rise of Bitcoin can be explained. This essay will show how decentralization, the financial crisis of 2008, globalization, digitization and the neo-liberal mindset are the main factors that paved the way for Bitcoin and contributed to its development. The essay will also look at the societal changes that occurred due to digitization to demonstrate why Bitcoin and Altcoins are increasingly popular in today's network societies.

2 Neoliberalism and Decentralization

2.1 Personal Enterprise Concept and Network Societies

Dardot and Laval (2013) define neoliberalism as a way in which we are allowed to conduct ourselves, to relate to others and ourselves. Neoliberalism is seen as a rationality and policy. In that context the term 'government' does not refer to an institution, but an activity of governing people with the ultimate goal of 'self-governance'. Neoliberalism has different aspects: The political aspect of neoliberalism relates to the conquest of power by neo-liberal forces, whereas the economic aspect relates to the expansion of globalized financial capitalism. The social aspect can be seen as "the individualization of social relations to the detriment of collective solidarities; the extreme polarization between rich and poor in a society" (Dardot, Laval, 2013, p.8). The subjective aspect can be found in the emergence of a new subject and the development of new psychic pathologies. All four aspects are relevant to the topic and will be addressed in this essay step by step.

In order to understand how Bitcoin can be seen as the product of neoliberalism, it is important to understand the features and values of neoliberalism. By applying Foucault's (1982) concept of self­governance being a desirable state of mind, several consequences for governing institutions can be deduced. As mentioned before, Foucault, Laval and Dardot do not define government as an institution, but as an activity of governing, which therefore contradicts the "reality" that is present in most countries around the world, where institutions call themselves government. By applying Foucault's concept and focusing on the activity part of government, it can be said that the present institutional government becomes redundant. When individuals pursue self-government, institutions are not in charge of governing people any longer. Individuals are responsible for their destiny and do not rely on the institutional government. Although this is more of a theoretical approach and not currently the global understanding of government, it is a useful approach for explaining current developments in the world resulting in trends and new developments such as Bitcoin. Thus, self-governance in its original definition has not been realized so far as a current form of governing, to a certain degree it has been realized in people's mindsets and is represented in certain political camps, oppositions and social movements.

A decline in the trust in institutional governments has occurred in recent years. This development gives room to global, decentralized movements and developments. Partly, this is also visible in the political sphere: According to Mair (2013), opposition in politics has shifted from active opposition towards a more passive role which can also be described as "displacement from office". The real opposition can now be found in social movements and protests in the streets rather than inside institutional governments where it expresses the dissatisfaction and declining trust in political institutions and their way of governing people.

Just like the opposition has been "outsourced" to the people and takes a more decentralized role in politics, decentralization is also on the rise in many other areas of society. To understand how decentralized movements have been able to grow so rapidly in recent years, it is necessary to understand how society has change since the end of the last millennium. With the rise of the internet as a mass medium and technological advancements around the globe, particularly in the information industry, society has turned into a more closely connected global community. Castells (2004) calls this structure of society a "network society". This societal structure is characterized by nodes which represent relations between people and their environment. A network society is decentralized as it has no center origin. This aspect is very important and different from the traditional societal structure where institutions were the center of society and everything was navigated and controlled by them. A network society is not hierarchical like a traditional societal structure. Although some nods are more relevant to the network than others, the network can only perform as a whole (Castells 2004).

2.2 Globalization as an Accelerator of Neo-Liberal Movements

Globalization and technological advancements can be seen as catalysts for neo-liberal movements. Due to society being structured as a network society that is highly connected through the internet, something that has started in one country spreads much faster around the world and unites like- minded people in all kinds of different causes.

Regarding economics and finance, barriers of local markets are broken down much faster nowadays and markets transform from local into global ones rapidly. This allows businesses to be scaled much faster and accelerates economic growth. Thanks to the internet, even small companies have access to the global market and can take advantage of global sourcing and production. This way a global production network can be established.

The rise of peer-to-peer platforms is inevitable: Ebay was one of the first, followed by Amazon's marketplace. In recent years platforms like AirBnB and Uber have been launched, expanded globally and now have a considerable market share in their respective niches without owning any accommodation or vehicles like their competitors, but being solely based on peer-to-peer networks (McKee 2017). An internet connection is all some people need in this day and age to earn money. An example how the internet can change the life of an individual is the platform FIVERR. FIVERR is a Freelance Services Marketplace where anyone can offer their services online. The focus is digital services such as graphic designs, coding, photoshop, video cutting, translations, content creation and so on. While anybody can offer their services, the platform is particularly helpful for individuals in emerging nations. Being able to sell their services to the world and getting paid instantly gives many an opportunity to earn money while those who buy on this platform benefit from the fairly cheap prices compared to their local markets. These forms of global collaborations in a sharing economy bring more individuals together and open up new possibilities, but also challenge the existing parameters for business, legislation, security and finance (Pazaitis et al. 2017).

The fact that technological development these days is not a linear process anymore, is visible particularly in developing and emerging countries. The internet has allowed people to skip certain stages of technological development and jump right onto the "latest" trends. One example would be cell phones in developing countries. In a lot of countries, the landline phone stage was skipped, and people went straight to cell phones and later smart phones once the local markets were able to access the global markets. With smartphones, communication became more and more individualized and personal networks were suddenly able to expand globally much more rapidly than in the past. Everybody is able to connect with anyone around the world with a few simple clicks. Therefore, social networks started forming and have been booming since the turn of the millennium.

Even in politics, movements of decentralization can be observed. By opening up the EU to new member states, the economic network grows. Companies and governments profit from the opening of new markets free from tariff and trade barriers. After all, an increase in intra-community trade particularly increases the overall wealth and accelerates growth even more than international trade.

2.3 Changes in the Financial World

Money has been the medium of exchange for a long time, but over the past three decades, the financial world has undergone a massive process of liberalization and innovation. And although there have been parallel currencies around for decades, such as the WIR in Switzerland, the M-Pesa as a mobile payment founded by Vodafone in Kenya and Tanzania or the Osaifu-Keitai as a mobile payment method in Japan, the financial crises 2007/2008 has changed the financial world around the globe more than ever (Ansart, Monvoisin 2016; Karame, Androulaki 2016). Crowdfunding projects organized through online platforms were just the beginning of a more decentralized way to fund projects. Companies or start-ups that turn to crowdfunding tend to not always meet the requirements related to conventional funding provided by financial institutions. But the popularity of crowdfunding projects has increased drastically since the early 2000s and even more after the financial crisis. "Crowdfunding illustrates the dynamism of the recent collaborative economy" (Ansart, Monvoisin 2016, p.754). This development highlights the demand for alternative types of finance as well as the financial power of social networks.

The same increase in popularity can be observed in currency innovations. Local currencies that are rooted to a certain demography, as well as digital currencies that are more widely accepted, have been launched all around the globe (Ansart, Monvoisin 2016). These digital currencies are also referred to as social, virtual or immaterial currencies. Digital currencies are not used as a synonym for money, but are rather classified as digital assets, trading instruments or resources (Ansart, Monovoisin 2016). "Thus, they share the expression of a form of protest with a system, and they [both] tend to mobilize the principles of participatory democracy. They rely heavily on communities and on the sense of belonging to these communities" (Ansart, Monovoisin 2016, p.756). In recent years, one digital currency has risen in popularity and has managed to gain partially global acceptance in 2017: Bitcoin.

3 Bitcoin, Blockchain and the Crypto Market

3.1 What is Bitcoin?

Bitcoin started in January 2009, after Satoshi Nakamoto, whose real identity remains unknown, had published Bitcoin's white paper in November 2008 (Antonopoulos 2017). Nakamoto presented his idea of a digital currency that was not reliant on financial institutions such as banks, but was based on group consensus and makes payments irreversible and immutable (Low, Teo 2017; Underwood 2016). "Bitcoin exists in a state of tension between anonymity (in the sense that real identities are not required to use the system) and traceability (in that all transactions are recorded on the blockchain, which is a public, immutable, and global ledger)" (Narayanan, Miller 2017, p. 49).

Bitcoin is not derived or based on fiat money, but on its own creation process called mining. Mined coins get transferred to the system instantly once the transaction is verified by the blockchain. The blockchain technology is the core technology that is responsible for the increasing popularity and demand for Bitcoin and other cryptocurrency. Blockchain technology is based on a computer network that can be physically located around the world and is virtually connected over the internet. Each Bitcoin transaction is verified by the network and group consensus determines the accuracy of the transaction. This way Bitcoin decentralizes trust and cuts out the "middle man", any form of centralized authorities such as banks (Antonopoulos 2017). When the majority of the nods in the network confirms it, the transaction becomes valid and shows in the blockchain (Nakamoto 2008). Afterwards it cannot be changed, therefore this technology can reduce fraud (Low, Teo 2017). Bitcoin is a peer-to-peer network which means that all nodes in the system are equally important. But different types of nodes exist, and nodes perform different functions such as mining, network routing, storing (wallets) and storing the full or parts of the blockchains (Antonopolous 2017).

The demand for Bitcoin has increased drastically over the past years and more and more Bitcoin exchanges opened, allowing people to purchase Bitcoin without having to mine their own coins. The Bitcoin supply is limited. The scarcity has led to strong price increases of more than 1000% in 2017. Bitcoin transactions require Bitcoin addresses called public keys, which are similar to bank account numbers but more anonymous (Pangas, Park 2017). While the address holder's identity remains anonymous to the network, all transactions related to one address are transparent and visible to the network. Therefore, more and more Bitcoin wallets have been offering their users to generate a new wallet address with each transaction to increase privacy, but with an advanced analytic software it is still possible to track transactions back to the primary account, since each internal transaction from one wallet address to the next is also verified by the blockchain (Low, Teo 2017; Piazza 2017).

3.2 Blockchain Technology

Blockchain technology is the core of cryptocurrency and the reason why these currencies are considered "secure" (Antonopoulos 2017). A blockchain is a ledger - a chain of linked blocks starting with the genesis block, the first block that was ever created. Each block is linked to the previous block (Pazaitis et al. 2017). The previous block is also referred to as the "parent block". Every block contains the hash of the parent block in the block header. A block hash is comparable to a digital fingerprint - a unique cryptographic 32-byte compilation of numbers and letters that allow each block to be identified (Antonopoulos, 2017). Blocks also hold timestamps. Each block is capable of storing information which could be anything from money, digital assets, intellectual property rights, patents, deeds, identity documents or any other digital document (Pazaitis et al. 2017). Blockchain's trust element is particularly favored in developing countries. "If blockchain technology can be used to secure robust, self-sovereign digital identities around personal data, there's a real possibility that people in places with poor documents, registries and rules of law can establish trusted measures of their good reputation. This would allow them to assert who they are and access proof of their digital identity anywhere using a private key." (Underwood 2016, p.17)

The fact that the valid blockchain is stored in multiple nods around the network assures that changes in blocks can be spotted instantly. If a previous block is changed, all the following blocks need to be rooted for the blockchain to become valid. But since the group consensus is responsible for the verification, the other nodes in the system can determine which blockchain was changed and which one is the valid one. Therefore, transactions in previous blocks would not be verified by the blockchain and the changes cannot be made. This way blockchain transactions are fully transparent and secure.

Abbildung in dieser Leseprobe nicht enthalten

Figure 1: Blockchain Technology Process (Villanacci, 2017)

Bitcoin's blockchain technology was groundbreaking for the cryptocurrency market and its applicability and potential goes beyond Bitcoin (Kostakis, Giotitsas 2014; Underwood 2016). This has resulted in an outbreak of alternative cryptocurrencies, so-called "altcoins". Altcoins have their own modified blockchains and each one aims to meet a different need in the market niches, such as for example a faster blockchain (than Bitcoin), being suitable for micro-payments, more anonymity, being mobile friendly, etc. Blockchain validation time varies from Blockchain to Blockchain.

3.3 Global Acceptance and Price Development

Bitcoin has increasingly been accepted around the world. Some countries have officially legalized it and adopted Bitcoin as a currency, among them Japan. (Smyth 2017). Japan made up about half of the Bitcoin trade volume in 2017, whereas the United States made up only about 25% leaving the rest of the world with the remaining 25%. With more global acceptance and awareness, the demand for Bitcoin is increasing, which results in the strong price surges.

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Details

Pages
16
Year
2018
ISBN (eBook)
9783668803213
ISBN (Book)
9783668803220
Language
English
Catalog Number
v441772
Institution / College
Bournemouth University
Grade
75 - Distinction
Tags
neoliberalism rise bitcoin neo-liberal product socio-economic analysis

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Title: Neoliberalism and the Rise of Bitcoin