A new academic paper, entitled “Bitcoin: Order without Law in the Digital Age”, explores the “fundamental structure” of Bitcoin. The paper seeks to show “how its decentralized order contrasts with currency regimes”. Highlighting how technology has changed our lives, the paper notes how – with the advent of Bitcoin – even modern currency is not exempt from the steady march of technological progress.
Also Read: Could Bitcoin Affect Emerging Market Monetary Policy?
The paper highlights how bitcoin can “perform the functions of currencies without the traditional law of currency”. The paper also adds that Bitcoin’s global and distributed approach to order without law, as opposed to more spatially-close communities, is novel. “Order without some forms of law is nothing new”, the paper reads. “But previously most forms of order without law depended on relatively close-knit communities”.
Technology Changes Central Bank Money
“Software is eating away even a function as basic as currency”, concludes the paper. “The digital revolution is evolving from a phenomenon that changed the way we communicate, to an era that is producing innovations that disrupt many of our preconceived notions of law and governance”.
The paper, penned by John O. McGinnis and Kyle Roche, does not suggest that bitcoin will replace the US dollar, but that the digital currency could change people’s ways of life.
“Bitcoin’s sustained success and growth is proof that it is changing the way individuals and societies exchange value”, the paper argues. Bitcoin is significant for both its own order without currency law and for establishing a platform to help sustain other forms of non-legal order, according to the paper.
More Resistant to State Control
“Bitcoin represents a potential third currency regime far more resistant to state control, because it is minted in no physical place, operates under encryption, and places a numerical ceiling on the number that can be created”, according to the paper’s abstract. “The trust required is not in any government but in the decentralized order of those who verify Bitcoin transactions”. Bitcoin has advantages over other currencies.
“As the Bitcoin ecosystem continues to grow, its non-legal order can help it climb the rungs of stability created by distrust in government”, state the authors. “Bitcoin’s order without currency law will facilitate other forms of order with less law”.
The Internet could provide an example of how technology disrupts longstanding institutions.
“Like the Internet, Bitcoin is multijurisdictional, and thus one sovereign cannot shut it down”, notes the paper. “Miners can move elsewhere and people can use it elsewhere. Additionally, if Bitcoin proves to be popular and widely used, its advocates will make it difficult for governments to shut down even within personal jurisdictions”.
Competition to State Issued Currencies
The paper surmises that, in certain nations, bitcoin could function as competition to fiat currencies.
“Central banks have often proven incapable of binding themselves to their redemption promises”, the authors suggest. “Their public law monopoly status gives them immunity from the legal and marketplace sanctions that ordinarily prevent commercial banks from reneging on their commitments”.
Additionally, central banks do not need to fear losing customers. Central banks can thus pursue policies that are not in the best interest of the public. Thanks to Bitcoin, citizens who have little trust in their nation’s currency regime are free to consider bitcoin. However, as reported first by Bitcoin.com, hyper-inflationary Venezuela has seen instances of government crackdown on Bitcoin users, lending credence to the claims made in the academic paper.
“Bitcoin’s greatest advantage over such state-issued currencies is that it has no political master to serve”, the paper reads. “Bitcoin grants an option to citizens of monetarily oppressive regimes to transact in something other than their state-issued currencies. In fact, we are already seeing Bitcoin gaining market share in transactions in nations such as Cyprus, Argentina, and China, where citizens have reason to doubt the value of the national currency”.
Bitcoin, the cyberpunk underground and not the product of legal institutions, is historically unique in this respect.
“Until recently, there has been no widespread currency that has been the creation of something other than legal regimes”, according to the authors.
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