The labour theory of bitcoin
When we think about digital technologies, especially new and incipient technologies such as blockchain, it can be easy to take for granted that there are real people whose labour is involved in supporting and maintaining digital infrastructure – from telecommunications to the manufacture of electronics. Filipe Calvão’s (2019) paper Crypto-miners: Digital labor and the power of blockchain technology presents a study on the labour of bitcoin miners and reminds us of the important physical-world labour which goes into supporting cryptocurrencies.
Bitcoin (and other cryptocurrencies) allow you to send money online while avoiding the need for a third party to verify your payment. These payments are regulated using a decentralised system where computers around the world are used to record transactions in a shared, publicly available and secure database known as a blockchain. Blockchains work by grouping all the transactions which take place across a period of about 10 minutes into a block. This block is then linked to all previous blocks to form a chain (hence the name “blockchain”). In each block is a puzzle, which when solved validates the history of all payments to date. This puzzle can only be solved through trial and error. The computer which successfully guesses the answer to a puzzle starts a new block and as a reward wins some bitcoin for itself. Solving the puzzle is computationally demanding, and it becomes more demanding to solve over time, requiring increasing amounts of power to decipher. The process outlined above is known as mining, and it is through mining that the entire bitcoin network is supported and that new bitcoins are created.
As a researcher of extractive economies and mining labour in postcolonial Africa, Calvão’s paper adds insight into the argument that bitcoin can be understood as technologically and semantically comparable to resource commodities such as gold or gemstones. As he notes himself, the original comparison with bitcoin to gold minting was established in the founding document of the cryptocurrency – also known as the bitcoin white paper (Nakamoto, 2008; p. 4). This comparison to gold was picked up in economic anthropology by a slightly earlier paper by Maurer, Nelms and Swartz which focused on bitcoin’s “digital metallism” (a term borrowed from Ingham’s (2004) “practical metallism” to describe how commodity money theories naturalise the social relations of credit which constitute money). Maurer, Nelms and Swartz argued that the way we talk about bitcoin as being like gold – with reference to scarcity, supply, mining and rigs – foregrounds the ‘materiality’ of the digital currency and backgrounds the relations of credit which underpin it (Maurer, Nelms & Swartz, 2019; p. 2).
Calvão takes this materiality argument further, arguing that the metallism is more than just a semantic way of understanding bitcoin, and that it is in fact the labour of mining which makes bitcoin valuable to us at all.
The idea that value only derives from labour is an old one – it harks back to Adam Smith’s classical economics – that the price of a commodity is the same as the value of the labour that went into producing it. Some recent papers in economic anthropology have highlighted how value can derive from things other than solely labour. For example, Foster (2018) highlights three different forms of creating value which are not labour – namely, debt, fame, and brands. In the case of bitcoin, I would argue that while mining does contribute to the value bitcoin (bitcoin would not exist without mining) – the mining is not the sole determinant of the cryptocurrency’s value. To go back to the metaphors of gold and gemstones, surely it is not the mining alone which solely contributes to the value of a diamond?
For example, it came as a surprise to me, especially following the gemstone metaphors, that no mention was made to the scarcity of bitcoin in Calvão’s paper. Encoded within Bitcoin is a virtual scarcity. Only 21 million of the coins can ever be produced (at least if we trust that no one could or would ever change this). Much like diamonds, bitcoins are not just hard to mine, they are limited. Once this limit of 21 million is reached, all bitcoin transactions will continue to be grouped into blocks and chained together. New blocks will still need to be made through the standard process of ‘mining’. Without the reward of new bitcoins produced, however, the process will resemble a lot less like mining than simply solving cryptographic algorithms (note that ‘miners’ will still generate revenue during this process through transaction fees).
Contributed by HeidiCooke on 01/02/2022
