The recent Greek referendum returned a resounding ‘no’. But this wasn’t the only way Greek citizens voted. In the preceding month there was clear trend in the price of bitcoin (see below). My proposition is that this appreciation can (at least somewhat) be explained through cryptosecession in the context of positive political anarchy.
I propose Greek citizens are revealing their institutional choice between an inefficient state-run financial system or the increasingly efficient anarchist crypto-institution (i.e. bitcoin). My aim here is not to fully explicate the current bitcoin trend (nor the complex Euro-zone and Greek situation). Rather it is to introduce some comparative institutional conjectures.
Clearly some of the bitcoin appreciation is the result of speculation. And we will never be able to tease out what portion of the appreciation is a result of Greek buy orders. However on anecdotal evidence (e.g. tweets by bitcoin exchanges) there has been a particularly sharp increase in bitcoin interest from Greece. This increase in interest is clearly from a low base, but let’s assume that that’s actually a result of the current political context.The interesting question is about why individuals would secede from state-run institutions to anarchistic institutions.
Positive political anarchy is a research program stemming largely from of George Mason University. Scholars in this field profess positive comparative institutional analysis between governance forms. Two of the best examples are Pete Leeson’s Anarchy Unbound and James C Scott’s The Art of Not Being Governed: An Anarchist History of Upland Southeast Asia. This is distinct from old-school normative anarchy. These scholars intentionally step away from normative arguments for anarchy and focus on new-style ‘positive’ explorations. That is, can anarchy present an efficient solution to particular problems? This is an empirical endeavor that seeks to discover where and when anarchic forms of governance outperform state-enforced regulation.
The underlying logic of positive (or analytical) anarchists is fairly simple: we too often compare perfect forms of government (i.e. omnipotent and benevolent states) with chaotic anarchy (i.e. violence and disorderly individuals). Beginning with these assumptions will always yield the same outcome: governments outperform individuals. However if we assume we are somewhere in the middle—a much more accurate representation of reality—then anarchy may outperform state coercion in efficiency terms.
Cryptosecession is a term coined by my colleague Trent MacDonald (see here). It is the phenomenon of individuals seceding from state-run institutions (and thus jurisdictions) not by physically leaving, but by virtually choosing crypto-technologies such as bitcoin. This has only recently been a possibility — for much of history individuals who wished to escape government-run institutions were forced to physically leave. The costs to physically leave a nation state clearly very high (often prohibitively high). But recently, as Trent proposes, we have seen the rise of crypto-technologies (such as bitcoin) enabling citizens to virtually escape governments while physically remaining within the same jurisdictional borders. This is an effective decrease in the transaction costs of changing institutions.
My proposition is that the current Greece situation is partially explained by cryptosecession in the context of citizen choice over efficient institutions. That is, Greek citizens are seceding from the Greek financial system to the blockchain and bitcoin. From the perspective of positive political anarchy, Greek citzens have a choice between a terribly inefficient government-run financial system and an alternative ‘anarchic’ system of bitcoin. For a rational Greek citizen they will choose the comparatively efficient one. And if bitcoin exchanges are an indication of this choice, then Greeks have chosen to cryptoseceed.
It is important to understand when cryptosecession would be expected to emerge. Cryptosecession becomes a more attractive option for institution-choosing individuals (i.e. more likely) as either: (1) state based institutions become more costly and inefficient; or (2) as alternative crypto-technologies become more efficient. It is the interaction between the efficacy of the institutions that determines the individual choice.
What is interesting about the Greek financial situation is that both sides of this are clear: (1) the financial system is Greece is all but broken and currencies are presenting an ever-uncertain store of value; and (2) as individuals move towards bitcoin it becomes increasingly efficient (it is well known that currencies become more efficient through network and liquidity effects).
My suggestion here is that Greek citizens are effectively performing calculus over potential efficiency losses in their currency choice. And as the Eurozone becomes more politically and economically uncertain—and states become less trustworthy through debasing a currency or defaulting on debt—the possibility of cryptosecession becomes comparatively attractive. Greeks are weighing up the various costs and benefits of remaining in the current financial system against placing their trust in the underlying cryptography and mathematics of bitcoin.
The surge in interest and price for bitcoin is a revealing changing preferences of Greek citizens. Bitcoin may seem a little crazy within a sound financial system and stable currency, but it is a legitimate institutional choice in the Euro-zone.
While this is exiting it is not particularly surprising. We have seen similar dynamics before following the cyclical hyperinflation through the debasing of currency in Argentina. In the words of James C. Scott what we’re witnessing here is a crypto ‘shatter zone’. A place where individuals secede from state power. The shatter zone may not be perfect, but it represents an attractive alternative to the corrupt and coercive governments. This was recently suggested by Jason Potts here.
What is most interesting about this dynamic is that bitcoin (and the blockchain more generally) becomes seemingly more efficient the more individuals join. That is, as individuals escape the Greek financial system in favour of bitcoin, the ‘shatter zone’ only becomes more shiny and attractive as network effects and liquidity take hold.
As new market applications for bitcoin continue to be discovered (e.g. smart contracts and micro payments — see Bitnation) the ability of individuals to escape inefficient state institutions only become more attractive. These are exciting times for crypto-technologies. They are worrying times for the scrambling heavy hands of state power. They’re losing their grip.
My RMIT colleagues, including Jason Potts and Trent MacDonald, are currently working on a project titled the positive political economy of cryptoanarchism. Please feel free to contact me at email@example.com.