1

Student Name: Thomas Whyte

Student ID: 300414672
Paper: INTP441
Date: Friday October 20.

Essay title: Are cryptocurrencies a threat to centralised currencies?

Words: 6,185
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Introduction

In recent years, cryptocurrencies such as Bitcoin have been gaining increasing attention from
financial institutions, governments and the media. While these currencies were often linked
with nefarious activities such as ransomware and drug transactions, awareness is growing as
their usage and acceptance broadens. The reaction to the currencies has been wide-ranging,
with some proclaiming a digital revolution, while others deride them as a ponzi scheme or as
a direct threat to centralised currencies. Such debates have intensified over the past year, as
the cryptocurrency market has increased in scale and reach. However, it will be argued that
their underlying technology, the blockchain, will prove to be the more consequential legacy,
as financial authorities and governments seek to decouple it from cryptocurrencies.

This essay will seek to explore this juncture by analysing the emergence and adoption of
cryptocurrencies within a conceptual framework derived from prominent Marxist scholar
David Harvey’s writings on neoliberalism. This will allow the subject to be situated within a
container that allows analysis from several key perspectives. This is will include the manner
in which powerful actors are attempting to maintain their dominant position and the interplay
between public and private elements of the economy. A secondary focus will be on the
libertarian self-identification of many operating within the cryptocurrency space. While many
have proclaimed with utopian certainly that these decentralised currencies will create
inevitable disruption and benefit, it will be argued that such sentiment reflects either nativity
or guile.

The first section of the essay will focus on the technological basis of cryptocurrencies which
is vital to understanding the broader implications of their increasing usage. Then the essay
will turn to the academic literature, with particular focus given to Harvey’s insights, as a set
of conceptual frames are built from his writings. From here, a qualitative analysis of the
approaches of the primary actors involved with cryptocurrency will take place. These actors
include financial institutions, states, and multinational corporations. Finally, an extensive
conclusions section will analyse these developments within the framework derived from
Harvey’s work.
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Overview of Technology

This essay will primarily focus on Bitcoin due to this cryptocurrency’s market dominance
and its subsequent focus from financial institutions. The intent of this section is to provide the
underlying technological aspects of it and introduce some aspects of the academic literature.

Bitcoin was first defined in a white paper entitled Bitcoin: A Peer-to-Peer Electronic Cash
System in October 2008 by a person or group of people using the name Satoshi Nakamoto.1
The author or authors are still unidentified despite efforts from various media outlets to
location them. Bitcoin is a digital currency that ensures secure peer-to-peer payments that are
authenticated through the decentralised nature of the system. The underlying technology that
enables this is called the blockchain and will be explored in more detail shortly. While the
currency gained little initial attention outside of obscure technological circles, a spike in
prices to over USD$1000 during 2013-14 brought Bitcoin into the focus of governments and
financial institutions for the first time although regulation and reaction was limited.
Following this, there was a lull in prices between 2014-2016 that saw the currency sit below
$500, before rapidly increasing from $920 in early 2017 and then to over $5500 by mid-
October.2 This price instability along with high transaction fees have limited its adoption and
usage as a traditional currency. However, with a set supply of 21 million coins and a highly
secure protocol achieved through cryptographic methods integrated into the blockchain, it has
come to be seen as digital gold – a commodity rather than a currency.

Bitcoin, and the other cryptocurrencies that have followed it, pose several distinct challenges
to governments and financial institutions due to their decentralised nature. While concerns
initially centred about illegal activities such as drug procurement, 3 in an article entitled The
Political Economy of Bitcoin, the authors Hendrickson, Hogan, and Luther focused on the
broader implications of a parallel system including a reduced usage of fiat currency and
avoidance of taxation and capital controls.4 Other issues include that due to its decentralised
nature, “accounts cannot be frozen, transactions cannot be reversed, and account holders
might not be easy to identify.”5 The anonymity of the system has been both a major feature

1
Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System, 2009, https://bitcoin.org/bitcoin.pdf
2
“Bitcoin (BTC),” Coin Market Cap, 17 October, 2017, https://coinmarketcap.com/currencies/bitcoin/.
3
"Bitcoin value tops gold for first time,” BBC, last modified March 3, 2017,
http://www.bbc.com/news/business-39149475.
4
Joshua R. Hendrickson, Thomas L. Hogan and William J. Luther, "The Political Economy of Bitcoin,"
Economic Inquiry 54, no. 2 (April 2016): 930, https://doi.org/10.1111/ecin.12291. See also: O’Halloran, Zhang
and O’Sullivan.
5
Hendrickson, Hogan and Luther, “The Political Economy,” 928.
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and a major concern in debates over the currencies. Hendrickson, Hogan, and Luther
conclude that Bitcoin and cryptocurrencies will be able to exist outside of central control
despite measures to counter it due to its decentralised nature.6 Other authors such as Johnston
have argued that the underlying technology will lead to change in this space and that if
institutions and governments engage then they can in time assert greater control over it.7 It is
this intersection that this essay will focus on.

Blockchain

The central technological feature and innovation of Bitcoin is the blockchain, which are data
structures that store information on a digital ledger that cannot be altered.8 This is achieved
by the ledger being distributed to validators who check the information against each other.
Once the validators check a ‘block’ of new information (such as financial transactions) it is
added to the ‘chain’. As the record of the chain is widely distributed and verified it cannot be
retroactively altered. The validators are then rewarded with a digital currency for maintaining
the integrity of the data and for checking the new information. While the initial focus was on
Bitcoin and its ability to ensure secure financial transactions, recent focus has shifted to other
information being recorded and stored on the blockchain. Initial moves in this space include
the blockchain being used for land registry purposes in Sweden 9 and currently there are
various trials underway globally.

A World Economic Report from September 2015 listed both ‘blockchain and currency’ and
‘blockchain and government’ as a technology that has the potential to create “momentous
societal shifts” over the coming decades.10 The report saw great possibility for government to
benefit through gains in efficiency and the prevention of corruption. 11 There was again a
notable focus on the blockchain as opposed to cryptocurrency and this aspect has been
increasing promoted by a range of institutional and governmental actors.

6
Hendrickson, Hogan and Luther, “The Political Economy,” 937.
7
Johnson, 30.
8
Nir Kshetri, “Will blockchain emerge as a tool to break the poverty chain in the Global South?,” Third World
Quarterly 38, no. 8 (August 2017): 1710.
9
Eeva Haaramo, "Sweden trials blockchain for land registry management," Computer Weekly, July 5, 2017,
http://www.computerweekly.com/news/450421958/Sweden-trials-blockchain-for-land-registry-management.
10
Derek O’Halloran, Roger Yong Zhang and Domhnall O’Sullivan, "Deep Shift Technology Tipping Points and
Societal Impact," World Economic Forum (September 2015): 3
http://www3.weforum.org/docs/WEF_GAC15_Technological_Tipping_Points_report_2015.pdf.
11
Ibid., 26.
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Other Cryptocurrencies and Blockchain 2.0

The success of Bitcoin has led to various other cryptocurrencies emerging. All have utilised
the blockchain technology of Bitcoin, however, some have added various other features. Of
particular note is Ethereum which has risen alongside Bitcoin in importance and as it allows
dapps or decentralised applications to be built on top of the platform using smart contracts.
This has provoked a surge in interest in the space, as developers are able to easily create
applications using these smart contracts, which allow the execution of instructions of
concerning other information. This development has been cited in some media outlets as
blockchain 2.012 and as being the primary reason for the surge in the cryptocurrency markets
as it has led to expansion of initial coin offerings (ICOs), which will be covered shortly.13
This development, along with the increasing acceptance of Bitcoin in certain markets has
seen the market cap of cryptocurrencies undergo extensive growth from $22b in March 2017
to $169b in October 2017. 14 The rise of Ethereum and its associated dapps has also led to a
notable shift in market dominance. While in 2013, Bitcoin market dominance was above
95%, it had declined to 86.74% in February 2017, and then to 53.79% in mid-October 2017.
Ethereum currently captures 18.4% of the market cap although this amount excludes a
number of dapps that also hold substantial market positions, although none of these has more
than 5% of market dominance.

Initial Coin Offerings (ICOs)

Initial coin offerings are the use of a cryptocurrency platform such as Ethereum as a way of
raising capital for new cryptocurrencies and dapps. Participants will pay in major
cryptocurrency such as Bitcoin or Ether and receive an amount of currency or dapp token in
return, in what essentially amounts to a form of crowdsourcing.15 By holding these currencies
or tokens, holders hope to gain financial benefit through either the use of the currency or
token or through speculation over future demand and use. They can be seen as a potentially
disruptive force to venture capital markets or initial public offerings as they are faster and
cheaper in raising capital. However, their highly speculative and unregulated nature has
brought increasing attention from centralised authorities as unscrupulous projects have

12
For an excellent overview, see: https://www.wired.com/insights/2015/01/block-chain-2-0/
13
Bryan Harris and Edward White, “South Korea joins global backlash against initial coin offerings,” The
Financial Times, September 30, 2017, https://www.ft.com/content/c245372a-a4e0-11e7-9e4f-
14
“Global Charts,” Coin Market Cap, 17 October, 2017, https://coinmarketcap.com/charts/.
15
For an overview see: http://fortune.com/2017/10/18/ico-cryptocurrency-coin-market-blockchain/
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proliferated. The Financial Times have identified ICOs as raising some $1.8b over the course
of 2017 16 and various countries have reacted to this aspect of the space which will be
covered comprehensively in the empirical analysis section of the essay.

Exchanges

A further aspect to note is that of cryptocurrency exchanges. These provide a platform for fiat
currency to be converted into cryptocurrencies and also for trading between cryptocurrencies.
Many of these exchanges are highly unregulated and therefore have also come to the attention
of central authorities.17 The lack of regulation has meant that practices as “pump and dumps,”
where the coin is purchased in large quantities by a group of buyers, which then attracts the
attention of other buyers and therefore increases the price. At this point a co-ordinated selloff
by the group of pumpers occurs. There have also been other issues such as hackings of the
exchanges and owners absconding with funds.

Conceptual Framework

The essay will be situated in the literature of prominent Marxist theorist David Harvey.
Following a review of his writings on neoliberalism, a series of useful conceptual frames
have been identified and articulated below. These frames will be used to gain insight into two
central aspects of the cryptocurrency space. Firstly, there is a distinct gap in the literature
around the current underlying economic processes within the space. Secondly, while much of
the political literature on Bitcoin and cryptocurrencies has focused on the libertarian
identification of the cryptocurrency community, there can be further insight gained from
Harvey’s conceptual base.

The first element is the underlying economic processes of capitalism which are present in the
cryptocurrency space. Harvey’s primary conceptual contribution is that Marx’s primitive
accumulation has been refined in the current neoliberal environment to produce a process of
“accumulation by dispossession.” Central to this has been privatisation and financialisation
within the current economic system. Privatisation has seen the transfer of public assets into
the private sector in the belief that the market operates most efficiently. The belief has
become deeply ingrained in neoliberal society through the process of naturalisation which

16
Bryan Harris and Edward White, “South Korea joins global backlash against initial coin offerings,” The
Financial Times, September 30, 2017, https://www.ft.com/content/c245372a-a4e0-11e7-9e4f-
17
For an excellent overview, see this report from Reuters: https://www.reuters.com/investigates/special-
report/bitcoin-exchanges-risks/
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will be covered shortly. However, Harvey also makes clear that the system also relies on
centralised authorities to maintain the “the quality and integrity of money.”18 This distinction
is vitally important as it shows the manner in which the state and its institutions are an
integral part of maintaining economic power and control for the bourgeoisie. Therefore, the
separation of public and private is malleable as “[s]tate power and the institutions of
governance cannot stay on the sidelines” in ensuring optimal conditions for the pursuit of
accumulation. 19 Meanwhile, financialisation has seen led to the finance system becoming
“major levers of predation, fraud, and thievery.” 20 Harvey goes on to list the various
predatory practices such as Ponzi schemes, asset stripping, corporate fraud and market
manipulation.21 That many of these practices are also present in cryptocurrency markets is
notable, as the fact that they occur in a space outside of the permissive, centralised system has
opened them to virulent criticism.

A further aspect of note in Harvey’s engagement with Marx’s views on technology that was
extensively explored in a 2003 article The Fetish of Technology: Causes and Consequences.
Harvey highlights Marx’s insight that capitalism would favour the role that technology as it
increases productivity while removing labour from the equation and can drive forward
economic expansion into new and diverse markets.22 However, this apparent approval and
‘unleashing’ of technology under capitalism also has its limits where existing capitalist power
structures exist. The increasingly monopolistic behaviour of technology giants such as
Google, Facebook and Amazon is evidence of the manner in which capitalism centralises and
integrates new forms of technology and creators of capital, with existing elements of the
bourgeoise often retaining extensive economic control. In doing so it has corralled and
subdued any serious ‘revolutionary’ aspects that many of these companies initially held and
often continue to convey in their outwardly idealistic branding. The co-option of this ‘techno-
libertarian’ segment of the bourgeoisie is important in pointing towards the possible end-
point or end-points of the cryptocurrency space.

18
David Harvey, “Neoliberalism as Creative Destruction,” The Annals of the American Academy of Political
and Social Science Vol. 610, 1 (2007): 22.
19
David Harvey, "The Fetish of Technology: Causes and Consequences," Macalester International Vol. 13
(2003): 26.
20
David Harvey, The New Imperialism, (Oxford: Oxford University Press, 2013): 123.
21
Ibid., 124.
22
Harvey, "The Fetish of Technology,” 18.
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The second major element derived from Harvey has been the “naturalisation” of
neoliberalism. For several years there has been criticism within both academic literature 23
and increasingly, mainstream media 24 about the perceived techno-libertarianism of the
technology elites. This has likewise been identified within the cryptocurrency community as
the decentralised and peer-to-peer nature of the technology has been expounded as
profoundly libertarian. In late 2016, David Golumbia of Virginia Commonwealth University
sparked a heated reaction within parts of the community with his book The Politics of Bitcoin:
Software as Right-Wing Extremism. The book details the manner in which some in the
cryptocurrency community reflect radical ‘right-wing’ views towards structures such as the
Federal Reserve and opposition to other major financial institutions and centralised political
25
power. This has resulted in trenchant criticism from many within cryptocurrency
communities, with writers such as Giulio Prisco of influential Bitcoin Magazine, finding fault
in much of his florid argumentation that attempted to paint their views in the context of rising
populist and anti-elitist sentiment.26 Indeed, Golumbia’s curious conflation of libertarianism
with “right-wing” thinking has the effect of diluting many of his pertinent observations about
the apparent ‘internalisation’ of the central neoliberal tenets within the cryptocurrency
community.

Therefore, in returning once more to Harvey we can identify with his statement that “political
ideals of individual liberty and freedom as sacrosanct—as the central values of
civilization.”27 The internalisation of these “commonsense understandings”28 has spurred the
development of a generation who see the central state and ‘centralised’ groupings such as
trade unions as dangerous and negative. It can be argued that this process and its idealistic
certainty – which is a danger in any form – is central to the naivety and ahistoricism of many,
if not most in the cryptocurrency space. Therefore, while Golumbia is correct in identifying
the strands of this libertarian thought in his work, his overreach dilutes his insight and it is
hoped that this essay will be to rectify this at least in part.

23
See for example: Henrik Karlstrøm, “Do libertarians dream of electric coins? The material embeddedness of
Bitcoin,” Scandinavian Journal of Social Theory 14, no. 1 (2014), 23-36.
24
See for example: https://www.vox.com/2016/2/19/11057836/silicon-valley-democrat-explained
25
David Golumbia, The Politics of Bitcoin: Software as Right-wing Extremism. (Minneapolis: University of
Minnesota Press, 2016), 7-8.
26
Giulio Prisco, “Review: "The Politics of Bitcoin" Offers a Flawed and Misleading Partisan View,” Bitcoin
Magazine, October 17, 2017, https://bitcoinmagazine.com/articles/review-the-politics-of-bitcoin-offers-a-
flawed-and-misleading-partisan-view-1476819084/.
27
Harvey, “Neoliberalism as Creative Destruction,” 24.
28
Ibid., 25.
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Engagement with Harvey can also help to contextualise some assumptions made in other
literature in the cryptocurrency area. In a PhD thesis entitled Blockchain Technology and
Decentralized Governance: Is the State Still Necessary?, Marcella Atzori argues that
cryptocurrencies and blockchain technology can be seen within a broader shift in power from
the public to private sector.29 While this is apparent, it is the manner in which this process is
taking place is of greater significance. The underlying economic system with its firm control
of the monetary system is still very much in place and this aspect will be returned to later in
the conclusions section.

Empirical Analysis

This section will draw from both media articles and academic literature to chart the response
of centralised actors to cryptocurrencies since the beginning of 2017. This date reflects the
period in which there has been an intensification in the engagement with the technology as
shown in the previous sections. While this will focus on Bitcoin, it will also cover other
cryptocurrencies and blockchain technologies that are relevant.

The analysis will be divided into three main sections. Developed and developing economies
will be covered, with particular emphasis on the United States and the People’s Republic of
China (PRC). They have been selected due to their dominant positions within the global
economic system and parallels will be drawn between their responses. Then there will be
shorter sections covering the involvement of major businesses and a class of cryptocurrency
‘cheerleaders’. However, first we will turn to the influence of international financial
institutions.

Financial Institutions

The announcements, viewpoints and signalling of international financial institutions are

particularly important in setting and shaping reactions from state actors. Over the past year,
there has been both an increasing awareness of, and an increasing circumspection towards the
cryptocurrency space. In September 2017, the Bank for International Settlements, an
institution which coordinates central bank cooperation, released a report which clearly

*It should be noted that the terminology is currently not standardised and that this essay refers to decentralised
currencies as cryptocurrencies and future centralised currencies as ‘centralised digital currencies’.
29
Marcella Atzori. Blockchain Technology and Decentralized Governance: Is the State Still Necessary? PhD
Thesis. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2709713.
 10

signalled the intentions of banking institutions.30 The authors Morten Linnemann Bech and
Rodney Garratt created a new class of currency called central bank cryptocurrencies
(CBCCs)* which essentially take the underlying blockchain technology and apply it to
traditional currencies in both consumer-facing and internal (for example, debt swaps)
orientations. Of central importance to the authors is around the issuer of the currency, which
they make clear would be retained by central banks.

In this manner, the traditional banking system and its centralised control of money would be
preserved, while the increased security and faster transaction times of the decentralised nature
of the system would be achieved. The speed of the transactions is particularly important as
payments between different jurisdictions can currently take hours or days to process. These
security concerns have been particularly strong due to the increasing amount of cyberattacks
targeting banking infrastructure such as a recent series of hacking attacks on the SWIFT
banking system. 31 Interestingly, the authors give considerable focus to preserving the
anonymity of the current system – in terms of cash - which as the authors note is also “peer-
to-peer.”32 They state that while it is unclear if consumers actually value anonymity, that this
feature would be provided if necessary. This point and its possible implications will be
returned to in the analysis section of the essay.

Evidence of a growing ‘institutional’ consensus can also be seen through recent statements
from Christine Lagarde, the Managing Director of the International Monetary Fund. In a
speech to a Bank of England conference in September 2017, Lagarde stated that digital
currencies currently suffered from a lack of viability, lack of scalability* and security
issues.33 She pointedly stated that: “[i]f privately issued virtual currencies remain risky and
unstable, citizens may even call on central banks to provide digital forms of legal tender.” 34
This statement once more points to the observations raised by Bech and Garrett that
centralised control of currency in needed. Other prominent figures of financial institutions

30
Morten Linnemann Bech and Rodney Garratt, “Central bank cryptocurrencies,” Bank for International
Settlements, September 17, 2017, https://www.bis.org/publ/qtrpdf/r_qt1709f.htm.
*This has been a frequent concern. Current blockchain technology is unable to process large amounts of
transactions concurrently.
31
“North Korea hacking group likely behind Taiwan SWIFT cyber heist: BAE,” Straits Times, October 17,
2017, http://www.straitstimes.com/asia/east-asia/north-korea-hacking-group-likely-behind-taiwan-swift-cyber-
heist-bae.
32
Morten Linnemann Bech and Rodney Garratt, “Central bank cryptocurrencies,” Bank for International
Settlements, September 17, 2017, https://www.bis.org/publ/qtrpdf/r_qt1709f.htm.
33
Christine Lagarde, “Central Banking and Fintech—A Brave New World?,” International Monetary Fund
(Speech), September 27, 2017. https://www.imf.org/en/News/Articles/2017/09/28/sp092917-central-banking-
and-fintech-a-brave-new-world.
34
Ibid.
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have likewise taken increasing aggressive stances towards cryptocurrencies. Vítor Constâncio,
the vice-president of the European Central Bank compared it to the tulip mania and described
it as an “instrument of speculation.”35 The emotive invocation of tulip mania has also been
adopted by figures in the private sector such as Jamie Dimon of JPMorgan who stated that
Bitcoin was "worse than tulip bulbs,"36 and similar notes of caution have been made towards
ICOs. This points to evidence of a co-ordinated effort (and co-ordinated usage of talking
points) to retain centralised control over the monetary system and the supply of money.

There have already been signs that a transition to CBCCs is underway. In an agreement
announced on October 2017, IBM and the digital token Stellar Lumens began using their
digital currency to move central bank currencies between 12 ‘currency corridors’ in the South
Pacific.37 While the Lumen token as the method of transfer, the report noted that within a
year, “central banks will begin issuing digital currencies of their own and that these will
become an integral part of blockchain-based money transfers.” Meanwhile, The Financial
Times reported that a group of six major banks including Barclays and HSBC were working
on their own digital currency which would facilitate the trade in securities such as bonds and
equities between the banks.38 This “utility settlement coin” would drastically reduce costs as
the conversion between central currencies could be concluded immediately thereby avoiding
clearing costs. The emergence of these quasi-central bank digital currencies points towards a
transitionary period as the decoupling of the blockchain from cryptocurrency takes place and
the limitation of private issuers is curtailed.

Developed Economies

These responses from the major financial institutions have likewise begun to filter down to
bank institutions at a state level. The countries have been selected on the basis of their size
and influence, as in the case of the United States and the PRC, or if their response has been
distinctly anomalous as in the case of Japan.

35
Claire Jones and Patrick Jenkins, “Bitcoin is like Tulipmania, says ECB vice-president.” The Financial Times,
September 23, 2017, https://www.ft.com/content/18507a26-9fb4-11e7-8cd4-932067fbf946?mhq5j=e7.
36
Laura Noonan, “JPMorgan’s Jamie Dimon calls bitcoin ‘a fraud’, ‘worse than tulip bulbs’,” September 13,
2017, https://www.ft.com/content/b1ee6c14-2cd0-3ad5-a9db-c8e82d993987
37
Jeff John Roberts, “IBM and Stellar Are Launching Blockchain Banking Across Multiple Countries,” Fortune,
October 16, 2017, http://fortune.com/2017/10/16/ibm-blockchain-stellar/.
38
Martin Arnold, “Six global banks join forces to create digital currency,” The Financial Times, August 31,
2007, https://www.ft.com/content/20c10d58-8d9c-11e7-a352-e46f43c5825d
 12

The response to Bitcoin and cryptocurrency within the United States over the past year has
seen a clear trend towards greater regulatory control after previous ambiguity. The Securities
and Exchange Commission (SEC) has been at the forefront of this movement and in July
2017, they moved to heavily control Initial Coin Offerings (ICOs) although they did not
make them illegal. 39 Furthermore, in September 2017, an attempt to list the Bitcoin
Investment Trust on the New York Stock Exchange was denied by the SEC.40 The integration
of such a fund would have signalled to major investment funds that the space was beginning
to open and would have led to large amounts of capital entering the market. Both of these
decisions point towards an increasingly hostile environment in which Bitcoin and other
cryptocurrencies are increasingly restricted.

This trend has been seen across many other developed countries with particular attention on
ICOs. In a move which jolted the cryptocurrency markets in late September, South Korea,
which had previously shown a more open stance, decided to ban ICOs.41 This was based on
the fact that that “money has been flooding in an unproductive and speculative direction,”
according to Kim Yong-beom, vice-chairman of the South Korean regulatory body.42 Also
in September, Switzerland’s financial supervisor, Finma took similar steps and began
investigating ICOs for financial irregularities and more broadly cautioned about the
cryptocurrency space.43 Meanwhile, Australian and UK authorities have voiced caution about
recent developments which may be a foreshadowing of greater regulation.44 The targeting of
these areas points to an acceptance that the cryptocurrencies themselves cannot be controlled
but that the capital gateways leading towards major investment funds and ICOs can be.

These trends have also been evident in New Zealand, where an uncertain regulatory
environment currently exists. In an article for Newsroom, Richard MacManus described
the strong resistance of the banking sector to the industry in New Zealand. 45 This
included bank accounts trading in Bitcoins being closed down on the basis of identity
concerns. Interestingly, the author noted that if New Zealand does not accept

39
Richard Waters, “SEC looks to deflate bubble in ‘Initial Coin Offerings’,” The Financial Times, July 17, 2017,
https://www.ft.com/content/4470a89c-718d-11e7-aca6-c6bd07df1a3c?mhq5j=e5.
40
Chloe Cornish, “Bitcoin fund pulls listing plan after hitting SEC roadblock,” The Financial Times, September
29, 2017, https://www.ft.com/content/ace852ae-a486-11e7-9e4f-7f5e6a7c98a2?mhq5j=e7.
41
Ibid.
42
Ibid.
43
Ibid.
44
Ibid..
45
Richard MacManus. “Bitcoin startups stalled by banks.” Newsroom, June 28, 2017.
https://www.newsroom.co.nz/2017/06/18/34731/bitcoin-startups-stalled-by-banks.
 13

cryptocurrency trading then it may slow the nascent fintech sector. This however fails to
make the crucial distinction between fiat-based digital currencies and the deregulated
cryptocurrency markets that are currently under pressure.

A notable exception to this pattern has been in Japan where Bitcoin and cryptocurrencies
have been embraced. According to The Financial Times, this has largely been due to the
moribund state of the Japanese economy more broadly, and its fintech sector more
specifically. 46 The article goes on to note that there are internal tensions within the
bourgeoise, as those in the banking sector are seeking to forestall the growth of the
sector by taking over start-ups. This notable exception to the broader trend will likely
prove to be an outlier, as centralised digital currencies emerge in the coming years.

Developing Economies

There has been some speculation that cryptocurrencies may find greater acceptance in the
developing world where economic instability and distrust of the banking sector is widespread.
Following the 2013 Cyprus banking crisis, for example, Bitcoin saw a surge in prices as it
was seen as safe haven. 47 This aspect was covered in report by Garrick Hileman of the
Cambridge Centre for Alternative Finance in October 2016 in which he stated that Bitcoin
and other cryptocurrencies are particularly useful for remittances and avoiding high
transaction costs that are often more than 10%.48 However, he cautioned that the technology
was still in an emerging state and that cryptocurrencies’ own instability was a major issue.
However, despite such speculation, the response in these markets has become increasingly
cautious of late which reflects the broader trends emanating from the major financial
institutions. Indeed, much as in the developed countries, there has been a general trend to
separate cryptocurrencies from their underlying technology which is particularly attractive
due to the various systemic issues in corruption, counterfeiting and so on that the benefits of
blockchain technology could be applied to and towards the development of centralised digital
currencies.

46
Emiko Terazono, “Bitcoin gets official blessing in Japan,” The Financial Times, October 18, 2017,
https://www.ft.com/content/b8360e86-aceb-11e7-aab9-abaa44b1e130?mhq5j=e5
47
Jeff Cox, “Bitcoin Bonanza: Cyprus Crisis Boosts Digital Dollars,” CNBC, March 27, 2013,
https://www.cnbc.com/id/100597242.
48
Garrick Hileman, “Could cryptocurrency help the ‘bottom billion’?," University of Cambridge Research,
October 17, 2016, http://www.cam.ac.uk/research/features/could-cryptocurrency-help-the-bottom-billion.
 14

The People’s Republic of China is a particularly notable state actor in regards to Bitcoin. It
has recently moved to tighten regulation around Bitcoin and other cryptocurrencies after
previously taking a more permissive stance. This has been complicated by the fact that
around 70 per cent of the miners of Bitcoin reside in China.49 However, in September 2017,
aggressive moves were made to control the market. This covered both the banning of ICOs
and the closure of the country’s cryptocurrency exchanges.50 The South China Morning Post
noted that this may be due to broader capital restrictions that put in place over the course of
the previous year in order to avoid capital flight and stabilise the renminbi. The paper went
on to convey industry concerns that the move could dampen not just the cryptocurrency space
but the parallel development of other blockchain technologies. The interdependent nature of
these two areas and the attempts to separate it will be another area returned to in the analysis
section.

Meanwhile, the development of centralised digital currencies has shown notable progress in
developing world countries. In environments where there are fewer entrenched institutional
structures a transition to ‘true’ central bank digital currencies may emerge sooner. An
example of this is in Russia where the central bank has been researching such a project since
at least June of this year. 51 Olga Skorobogatova of the Russian Central Bank stated that
“[r]egulators of all countries agree that it’s essential to develop a national digital currency,
that it is the future.” With the aforementioned issues in such economies, the central banks are
given further incentive to hasten this development.

Business

Meanwhile, there has been a mixed response to cryptocurrencies from major companies
based on their risk assessment. While some businesses have long accepted Bitcoin and other
cryptocurrencies, the recent expansion in the market has both caused increased consternation.
As indicated throughout the essay, it is the ICO component which has provoked this change.
While most major corporations have taken a cautious approach towards ICOs, a prominent

49
Sidney Leng, “How one big bang sent China to the fringes of the bitcoin universe,” South China Morning
Post, October 14, 2017. http://www.scmp.com/news/china/economy/article/2115276/how-one-big-bang-sent-
china-fringes-bitcoin-universe.
50
Sidney Leng, “How one big bang sent China to the fringes of the bitcoin universe,” South China Morning
Post, October 14, 2017. http://www.scmp.com/news/china/economy/article/2115276/how-one-big-bang-sent-
china-fringes-bitcoin-universe.
51
"Russian central bank piloting digital currency schemes: TASS," June 2, 2017, Reuters,
http://www.reuters.com/article/us-russia-economic-forum/russian-central-bank-piloting-digital-currency-
schemes-tass-idUSKBN18T12C.
 15

exception is the messaging app company Kik which is highly popular among teenagers. In
their September 2017 ICO, they raised some $97.5m in order to fund development of their
‘kin’ token which would be used for payments across their messaging platform. 52 However,
currently the ICO space is mainly dominated by smaller projects which often have limited
substance behind them. This has led to even figures who have been prominent within the
market offering caution. Dan Morehead of Tiger Capital argued that the ICO “craze” was
even more speculative than the Dotcom bubble in the late 1990s.53 However, it is clear that
method of raising capital itself as energised the venture capital space with numerous major
conferences such as TechCrunch’s Disrupt conference in September 2017 focusing on such
developments. 54 If the proper regulatory safeguards can be put in place such as formal
identification procedures it is likely that this would be widely adopted.

Cheerleaders

A further group of interested participants - which is present in all emerging capitalist

spaces - is that of the ‘cheerleaders’. They have been particularly notable in this sector
due to their comfort in using technology to communicate effectively and the large capital
funds that many have available either due to appreciation of their holdings in
cryptocurrencies or through ICOs. A notable proponent has been Tim Draper, who while
coming from the venture capital scene has come to support the spread of cryptocurrency
and ICOs. He has been quoted in the mainstream media frequently with enthusiastic
sentiment such as: “Society is being transformed by this — we’re going to have a more
affluent and fairer world when the dust settles here.”55 The frequent invocation of such
utopian, redistributive sentiments from those who are ensconced in the capitalist
infrastructure is troubling and one that is rarely raised in cryptocurrency or mainstream
media.

Other such figures include Mark Pascall of BlockchainLabs.NZ who uses similar points
in arguing that the current technology elites such as Facebook and Google have

52
Jon Russel, "Kik raises nearly $100M in highest profile ICO to date", Tech Crunch, September 26, 2017,
https://techcrunch.com/2017/09/26/kik-ico-100-million/.
53
Connie Loizos, "While investment firms ponder ICOs, this team is barreling ahead with a $100 million ICO
fund," Tech Crunch, June 28, 2017, https://techcrunch.com/2017/06/28/while-investment-firms-ponder-icos-
this-team-is-barreling-ahead-with-a-100-million-ico-fund/.
54
See: https://techcrunch.com/event-info/disrupt-sf-2017/
55
Richard Waters, “SEC looks to deflate bubble in ‘Initial Coin Offerings’,” The Financial Times, July 17, 2017,
https://www.ft.com/content/4470a89c-718d-11e7-aca6-c6bd07df1a3c?mhq5j=e5.
 16

centralised the internet space and created dangerous monopolies. 56 While there is clear
self-interest in such ventures there also seems to be a lack of general awareness of the
broader patterns and it is here than conceptual frameworks such as the one derived from
Harvey can help illuminate. As an aside, it should also be noted that Pascall’s company
was involved in the $100m ICO of Status, a previously unknown company whose market
cap peaked at $307m in July 2017 before declining to $92m in mid-October.57

Conclusions

In returning to David Harvey’s conceptual framework, we can now integrate the dominant
trends from the empirical analysis and seek to explore various avenues of insight.

One of the central observations of this research essay has been the manner in which the
financial institutions have reacted to the threat posed by the bitcoin and other emerging
cryptocurrencies. Their response has been to attempt to decouple the cryptocurrencies from
the underlying technology and move towards digital currencies where the issuer is a central
bank. In doing so, they are able to benefit from the technological efficiencies of the
blockchain while also retaining complete control of the money supply. As Harvey noted, one
of the few ‘core’ functions that the state must retain control over is “the quality and integrity
of money.” The preservation of this system is vital to continuing trend of accumulation by
dispossession. Therefore, while there have may been be a trend towards the private sector
which was identified by authors such as Atzori in 2015, the institutional resistance and
response is now being fully engaged.

It is also notable that the surge in the cryptocurrencies markets has been identified as being
due to the advent of ICOs. This disruptive innovation has clear potential and there are
currently attempts to integrate it just as with blockchain. As Harvey argues, all new economic
power will be centralised over time as capitalism’s ‘creative destruction’ marches on. It is
important to stress that while cryptocurrencies were seen as problematic by financial
institutions from 2013 onwards, that it was really this development that prompted the
institutions to react with alacrity.

The Bank for International Settlements report points strongly towards this future decoupling
of the technological innovations as it foresees a transition towards centralised digital

56
“The Blockchain - Redefining Organisations,” https://www.meetup.com/AgileWelly/events/243636945/
57
“Status (SNT),” Coin Market Cap, https://coinmarketcap.com/currencies/status/.
 17

currencies. It is likely that in parallel, decentralised cryptocurrencies will be increasingly

corralled and contained. The financial institutions are fully aware that cryptocurrencies
cannot be eliminated, and they are also aware that they do not need to be. Rather they can be
cauterised and quarantined with fiat pathways curtailed and the benefits of their own
currencies presented to consumers.

The second major element that was taken from Harvey’s writing was that of the
‘naturalisation’ of neoliberalism. From the empirical analysis, Golumbia’s work and further
background reading it is apparent that the ideals of “individual liberty and freedom” have
come to embed themselves firmly within the collective consciousness of the cryptocurrency
communities. Their utopian quest for ‘freedom’ from government and centralised institutions
in the development of cryptocurrencies may have in fact unleashed a bitter irony.

While the authors of the Bank for International Settlements signalled that autonomy would be
an essential component, it is apparent that this could be easily discarded. While clearly
having some positive benefits in terms of tax collection and corruption preventing, it also has
major implications in terms of personal privacy violations from both government and
business as every transaction of information (both monetary and otherwise) would be
recorded. In an era when government monitoring and surveillance has become increasingly
pervasive, this is a truly concerning thought. These libertarians may well have inadvertently
provided the perfect tool for the ruling elites in which to broaden their control over society in
coming decades. There is historical precedent in this as the idealism of many of the Dotcom
era such as Google was soon eroded as the pecuniary enticements and the force of
governmental strictures became clear.

Therefore, in time cryptocurrencies will likely become increasingly irrelevant and contained
as central banks begin to issue their own digital currencies. It is likely that this is a minor,
transitionary phase that that will be responsible for giving us the blockchain which - like all
technology - can be used for both good and bad purposes. In short, centralised currencies are
not threatened by cryptocurrencies and its underlying technology - but we may well be.
 18

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