Dan Bousfield. Global Networks. Volume 19, Issue 3, July 2019.
In this article, I discuss the role of crypto-coins (CCs) as a social response to the 2008 economic crisis. Drawing on the work of network social movement theory, I examine the notions of regulation and governance that underpin the propagation of CCs and the online and offline communities from which they emerge. I argue that the development of Bitcoin as a cryptographic response to economic and social problems of the financial crisis understates the context from which technology emerges. As Edgerton has argued, the neophyte obsession with technological innovation should be distinguished from technology-in-use and how technology is adopted by members of society (Edgerton 2011: ix).
Consequently, I begin by examining the distinctions between network social movement theory and traditional social movement analysis to outline the diffusion of social authority online. Second, I explore the tension between the idea that markets are ‘flat’ and the persistence of vulnerability stemming from social hierarchy. Third, I apply the social movement framework to explain the emergence and proliferation of ‘altcoins’ through the frameworks of resource mobilization, framing and identity in CCs. I also outline how the persistence of social hierarchy and authority challenge market futurist visions of blockchain technology.
CCs have emerged at a time when the role of the market in society and the relationship of currencies to economic volatility are being debated. Despite ongoing turmoil over the direction of global economic policy and governance, there is overall support for globalization, and economic liberalism remains the mainstay of the global economy. Insofar as the technological tools of globalization are reaching farther than ever before, challenges to global economic regulation are appearing in the space between economic theory and technological innovation. Jeong (2013: 2) argued that the rise of CCs, particularly of Bitcoin, emerged from a distrust of centralization, financial institutions and other transacting parties. In the wake of the 2008 financial crisis, Golumbia (2015: 125–6) pointed out that libertarian thought largely framed CCs, with little regard to the political or economic role of institutional actors in currency regulation. This is a vision of globalization in which technology provides low entry costs, anonymity and cryptographic security, and in which anarcho-capitalism is a horizontal form of governance (Kostakis and Giotitsas 2014: 437). This stems from the individualism of the online communities of the early 1990s, which focused on the need for privacy in an open society in the digital world (Popper 2015). The ‘cypherpunk’ origins of these digital currencies reinforce a strong distrust in centralized authority, and an emphasis on cryptography and anonymity perhaps best illustrated by the unknown identity of Satoshi Nakamoto, the creator of Bitcoin (Narayanan et al. 2016). The promotion of this ‘technocracy’, as Scott (2014) characterized it, is based on the notion that if ‘hard property rights and clear contracting rules are out of place, optimal systems spontaneously emerge’. Many CC users self-identify as libertarians with ‘curiosity, profit and politics’ motivating their interest in using them (Guadamuz and Marsden 2015). Coleman (2013: 116) outlined libertarianism-cum-anarchism as a dominant sensibility in the hacking, coding and software communities, though it remains in constant tension with the need to collaborate with and participate in those same groups. There is a tension between the desire for authoritative responses to the perceived problems of the financial crisis and the need for social support for the technological innovations that underpin CCs. The networked social movements framework can help to explain the persistence of hierarchies in CC communities hoping to fix social problems with technological innovations.
Networked social movements
Networked social movements approaches explain the horizontal dynamics between the adherents of CCs, the debates between different CC advocates, and the desire to proliferate a certain number and variety of CCs. Della Porta and Mattoni draw on their seminal social movements research to argue that their definition emphasizes the communicative and networked character of these actors. They understand social movements as ‘(a) mostly information networks of interaction, based on (b) shared beliefs and solidarity, mobilized around (c) contentious themes through (d) frequent use of various forms of protest’, with the communicative network a key mobilizing dynamic (Della Porta and Mattoni 2016). As Dodd (2018: 44) argues, Bitcoin and the debates around it seem to function as a social movement because protest nurtures and sustains the communities around the CC. Adherents of Bitcoin and proponents of alternative CCs (altcoins) construct and reconstruct collective identities through the ‘beliefs that nourish solidarity and collective awareness’ and the conflicts around which actors mobilize (Della Porta and Mattoni 2016). ‘Bitcoin evangelists and luminaries’ like Kristov Atlas and Jeff Berwick, and altcoin creators such as Vitalik Buterin (Ethereum) and Roger Ver (a proponent of Bitcoin Cash), engage in deeply contentious debates within and between CC communities (Dodd 2018). Given that these are non-conventional forms of action designed to interrupt daily routines and attract public attention, they function as a kind of ‘bottom–up’ protest (Della Porta and Mattoni 2016). The longstanding ban on discussing criticisms of Bitcoin or altcoins on reddit.com/r/bitcoin has served as a polarizing and mobilizing issue for altcoins. The proliferation of altcoins and the Bitcoin price bubble has led to altcoin ‘pump & dump’ schemes where horizontal communication and hype are used to defraud potential buyers (Dierksmeier and Seele 2018: 2). In Castell’s (2015: 7) framing of networked social movements, communication across networks is integral to their success, where power is organized around key actors in domains of multimedia, communication and society. He argues that ‘programmers’ are actors with the hierarchical ability to impose power on networks, and ‘switchers’ are those who move back and forth between those networks (Castells 2015: 8). The key insight of networked social movements stems from the ease of horizontal communication between relatively autonomous elements, following broadly libertarian sensibilities about organization (Juris 2004: 353–4). Networked social actors in this case differ from traditional social movements in the high level and ease of interaction that stems from their adherence to ‘distributed rightwing extremism’ or the libertarianism-cum-anarchism of the CC networks. This challenges Dodd’s framing of Bitcoin as ‘social’ and instead argues for the persistence of hierarchy and contestation between CC communities.
The methodological limits of non-networked social movement approaches to the study of CCs partly arise from the disciplinary ‘flattening’ that stems from sociological and economic assumptions of shared rationality. This is because the separation of distinct academic disciplines (for example into ‘politics’ and ‘economics’) makes claims about the underlying rationality that binds studied actors together. In the literature on social movements, this ‘underlying structure of rationality’ provides the Weberian basis for separating the social from the political or economic (Daly 2004: 2). This is a common demarcation in the analyses of CCs and Bitcoin in the academic literature. Golumbia (2015: 177) favours seeing Bitcoin as fundamentally political, for digital technologies are socially embedded in power relations that have views about the purposes for which they should be properly used. Others, like Böhme et. al. (2015) and Pilkington (2017), view Bitcoin primarily from an economic perspective; they see CCs within a framework of economic market rationality (White 2015), or one combined with political economy (Hendrickson et al. 2016). The networked social movement analysis proposed here retains political hierarchy in the CC as authoritative network claim, producing anti-social conflict stemming from the different protocols adopted by the currencies. As decentralized computation of data, cryptography and blockchain establish certain protocols about security, privacy, reliability and fairness, as a claim to social rationality within that community is often opposed to others. These dynamics stem from the ‘digital metallism’ of each CC, or how each has a distinct claim to immutability that generates political adherents despite the horizontal assumptions of peer-to-peer networks (Maurer et al. 2013: 262, 266). The mobilization of these adherents in online and offline networks of CC promotion and adoption, allows us to analyse those dynamics as distinct political claims. This political reading of social movement research is to highlight the contingency of these claims (that is Bitcoin is superior to Bitcoin Cash) without flattening them by assuming they share common social sensibilities. When actors are not confined to a single social community or language, as in cyberspace, networks relations connect but do not determine a foundation on which to assess their dynamics (McAdam et al. 2001: 36). Thus, McAdam et al. (2001: 34) argue that ‘contingency dogs our analytic path’ when we try to link shared characteristics of actors who may be in different parts of the globe, on different platforms, in different languages, and utilizing a CC for licit or illicit means. This problem cannot be overcome by simply imposing social rationality where there may be none, instead it involves recognizing the claim-making nature upon which a CC rests. To foreshadow the discussion of altcoins below, when reddit users decide they want to utilize a CC based off a garlic bread meme, they assert an intentionally laughable rationality upon those who participate in adopting the currency. The networked social movement analysis allows us to emphasize the network while highlighting the contingent and contested bases upon which these communities are sustained.
Authoritative actors
The role of technology and its relationship to authority tends to be embedded in simplistic notions of claims made in sovereignty and law. The account of the Bank for International Settlements (BIS) (the central authority for all central banks) of the rise of CCs and their relationship to traditional (sovereign-based) currencies is instructive in defining these problems. According to its Committee on Payments and Market Infrastructures (2015: 14), the tension between CCs as an asset and as the distributed institutional structure (through non-centralized decision-making) is reinforced by the fact that CCs:
do not have intrinsic value but instead depend upon user perceptions of value, are not tied to a sovereign currency, and, in many cases, are not a liability of any person or institution. Therefore, their value is based solely on users’ expectations that they can exchange these units for something else of value, such as goods and services, or sovereign currencies, at a later date. These expectations can change greatly and introduce greater volatility and risk of loss in the value of the units than is typically observed in the value of sovereign currencies in foreign exchange markets.
Inherent volatility and techno-futurism are central to the perceived value of CCs, but as the BIS acknowledges in the accompanying footnote, ‘sovereign currencies face the same issues’, with the key caveat that they have the benefit of a ‘credible’ monetary authority (Committee on Payments and Market Infrastructures 2015: 14). This tautological framing of power (credibility confers power and power comes from credibility) explains the persistence of hierarchy and how support for CCs quickly turns into political struggles as CCs compete for adoption. Decision-making authority, especially when centralized, typifies hierarchical, bounded sovereign power. Recalling Schmitt’s (2005: 5) definition of sovereign power as nothing but ‘he who decides on the exception’ (when the law can be suspended), is useful here because it is not linked to a specific country, place or social rationality; instead, decision-making authority is the efficacy of power. The efficacy of decision-making authority introduces a struggle between those who make authoritative decisions (whether legal or regulatory) because upstart authorities can usurp the ‘right to decide’ by forming a competing decisionmaker.
The longstanding contentious relationship between adherents of the ‘Nakamoto consensus’, the idea of a canonical blockchain, versus those wishing to change inherent restrictions in the proof of work algorithm, function as contentious actors in the broader CC communities (Atik and Gerro 2018: 3). Nakamoto’s original vision of distributed cryptography as a way of usurping traditional state authority has become a persistent source of defence and claims about proper behaviour for those in CC communities. This is not new, for de Goede (2005) has repeatedly demonstrated that currency adoption is a deeply political and contested process. Thus, while money laundering and facilitating illegal transactions by CCs are well known (Campbell-Verduyn and Goguen 2017), the threat that CCs pose to monetary policy is in the way they interfere with ‘monetary aggregates’ (the money supply), which is of primary concern to offline banking regulators and national economists (Committee on Payments and Market Infrastructures 2015: 16). Authoritative decisions represent a hierarchical foundation because networked social actors, unlike most of the offline world, can choose to which authority they wish to submit.
Having established the role of the decision-making authority in the formation of CCs and of competing interests in regulating these currencies, we need also to understand the how markets are framed in the propagation of CCs. Economic theories about money, social good and utility maximization dictate the fragmentation of CCs through the regulation and oversight adopted in their underlying protocols. Standards about rates of inflation, number of transactions and even energy consumption are all built into the source code of CCs. Consequently, there will be tensions between CCs as a currency and the underlying coding decisions that regulate how they are to develop over time. While some have argued that CCs represent a new form of ‘distributed capitalism’, the constraints formed by peer-to-peer horizontal network protocols allow us to examine the assumptions employed by the advocates and critics of CCs (Kostakis and Giotitsas 2014: 437). The use of blockchain and code, which establish the protocol of a CC as an authoritative decision, means that the network establishes the rules of transactions and the processes upon which the market develops (Atzori 2017). For example, Bitcoin’s reward system for miners and validators has a built-in security model based on predictable inflation and individual self-interest towards the final minted Bitcoin of around 2140. As Böhme et al. (2015: 233) note, this is a variant of Milton Friedman’s proposal for a fixed rate of growth of the money supply. Kroll et al. (2013: 11) have argued that this vision of a large number of individual actors in a self-regulating market has resulted in the emergence of mining pools akin to cartels, which can constrain or reject important or necessary changes to a code. A tension emerges as advocates such as Evans (2014) argue that the lack of centralized regulation will lead to greater market volatility and adopt market arguments that Bitcoin mining is not efficient enough. However, Houy’s (2014) critique of the declining returns on Bitcoin mining (inflation towards the final minted coin) is directed at the species character of CCs, as the resources used for mining are increasingly inefficient. Both arguments propose creating an alternative that would produce better outcomes in the sense of enhancing market efficiencies, such as set transaction fees and block size limits. Houy (2014: 3) explains the tension between the market as a flat economic principle and the political implementation of the decisions that govern them as follows.
Bitcoin mining is an activity with a strong positive externality (securing the network for other users) and economists know that, in this case, free markets are not efficient. Imposing a transaction fee implies tax revenues for miners and imposing a maximum block size creates a monopoly rent for miners. In both cases, it boils down to correcting a market inefficiency by introducing another one.
More simply, the assumption of market rationality and self-interest as a self-regulating solution depends on rational actors pursuing perfect information and producing efficient market outcomes. Yet, the crypto-anarchist social values of CCs are in constant tension with that goal (Groshoff 2014: 499). Nakamoto based his justification for creating Bitcoin on a mistrust of centralized institutions and regulations, so used the blockchain and Bitcoin to make users ‘vote with their CPU power’ where rules and incentives were enforced by consensus (Nakamoto 2008: 8). In this sense, Bitcoin conflates market and network as a challenge to centralized authority by believing that the network serves as an intersection point for the purposes of buying and selling. In this regard, critics have argued that CCs are not innovative; they simply give network users a different form of social protection, the true value of which is the ability to facilitate exchange (Kaminska 2016). Creating a CC is as easy as creating any virtual or local currency (like Air Miles, World of Warcraft gold or Sam’s Club points); the use and exchange of those currencies can be widespread or specific. By conflating markets and networks, contestation emerges endogenously within networks as users wrest for authoritative control of protocols (attaining decision-making authority) and exogenously between competing CCs seeking bystander participation.
Nakamoto, Bitcoin, and altcoins
As encrypted sequences of transaction histories or strings of numbers, blockchain and CCs have been largely framed as challenging the notion of centralized authorities for network transactions or monetary regulations. Some of these debates stem back to longstanding controversies over bank debt, double entry bookkeeping, and fiat currency in general (Hütten and Thiemann 2017; Kim 2013). The economic framing of Nakamoto’s justification for developing Bitcoin as a response to the economic crisis reflects the sensibilities of a disruptive and radical technology. As he argued, the trustbased model of existing banking and the need to prevent fraud through reversible payments reinforces the need for a strong centralized authority with ever-increasing information about its users (Nakamoto 2008: 1). Utilizing a network model of incentives and verification, the Bitcoin proposal emphasized the role of privacy combined with the security of cryptographic protocols to substitute for the problem of trust (Hütten and Thiemann 2017). The peer-to-peer and cryptographic foundation of Bitcoin has the benefit of decentralization in an attempt to bypass banks, centralized payment systems and governments while providing security and privacy for users. As Maurer et al. (2013: 262) state, this ‘privatization’ of currency uses the secrecy of users and the decentralized network to reinforce the relative autonomy of Bitcoin as a currency. In this regard, Bitcoin’s conception follows the horizontal model of the ‘sharing economy’ where private benefit accumulates through the propagation of notions that technology and online peer-to-peer networks change how we should think about traditional practices (Hamari et al. 2016). However, as many commentators have argued, and I shall discuss below, the promotion of CCs as a challenge to centralized decision-making authority underestimated the dynamics of interaction within and between CC communities.
Network vulnerability
The idea of distributed networking as a form of non-centralized governance in CCs follows the inspiration of the peer-to-peer foundation of the Internet. As Miles Townes (2012) noted, the promotion of Transmission Control Protocol/Internet Protocol (TCP/ IP) as the backbone of the contemporary Internet was not based on the frequently reported military redundancy of a nuclear strategy but rather was an academic attempt to allow access to the network, even from unauthorized users. The network model of Internet governance valued open access; it preferred to accept the security risks over a more secure model because of the perceived benefits of decentralization, technological progress and a liberal belief in the free exchange of ideas. As CCs use distributed networks (in many forms) as a model of governance, this prototype mirrors the debates on how Internet governance and regulation should happen (Mueller 2010). There is an inherent tension between the cryptographic foundation of blockchain and the network model of regulation, for they imply different visions of risk and security to the community. CCs represent the tension between the anarcho-cryptic hacker ethos of open access and the simple node-connection model of network regulation. Networks governance develops through both endogenous and exogenous events and, as Bird (1983) argued, the path of transactions is integrally important to the success of a network.
When, as I discuss below, a blockchain-based community of miners decides to adopt a hard fork, its implementation requires consensus, which means that a portion of the community has to adopt the new protocol. Thus, in network governance, the links between different nodes are defined primarily in terms of number of transactions; the number of connections that pass through them will determine which ones become important (Bird 1983: 34). Atik and Gerro (2018: 9) argue that controversies in the Bitcoin blockchain – the Segwit/block size episodes are exercises in political claims and expressions of horizontal voice – occur because blogs, tweets and podcasts amplify discussion and debate. The network’s dynamics allow a range of expert and non-expert voices to amplify and challenge decision-making. As Craggs and Rashid (2018) found, the network character of information about CC investing has been perceived to produce a conformity bias – everyone wants to jump on the bandwagon – when in fact it largely produces a distrust of others’ expertise and a belief in one’s own ability to assess information accurately. Consequently, trusted information tends to be partisan, and individuals reinforce their interest in CC communities without deferring to experts about the veracity of the claims being made. Colloquially, this has been used to deride Bitcoin as ‘Dunning-Krugerrands’, for a belief in one’s own expertise allows for the fervent defence of individual choices. In terms of networked social movements, this reinforces the likelihood of protest between CCs because expertise is spread and claimed throughout and between networks.
The network model of social movements is important in establishing the anarchic tensions between nodes, networks and users, following the idea of organization from below, rather than centralized command (Juris 2004: 353). This reinforces hierarchical authority within networks, for some actors establish and reinforce the network’s goals, even as the users assume their own autonomy. In the examples discussed below, this network model of governance involves actors trying to establish new forms of authority over ‘switchers’ on the network. In the case of Ethereum and Ethereum Classic, the inability of any group to impose a consensus resulted in the creation of two separate CCs based on a disagreement over the fork (Hertig 2016). Confronting the idealization of the blockchain as an equitable, flat network of peer verification is a consensus that allows authoritative nodes and key decision-making actors onto the network. The use of cryptography in blockchain-based currencies amplifies atomism, which reinforces conflict and the need for authority because user privacy and public ledgers embedded in CCs divide proponents and detractors. The proliferation of ‘pump and dump’ schemes exemplifies this tension, for data on the inflation of a CC’s price remain publicly available and the actors involved are often hidden or difficult to track (Kamps and Kleinberg 2018). The lack of a traditional central regulatory actor was heralded as the strength of blockchain’s innovation; however, debates on the provision of security, anonymity and exchange remain central to the technology’s supporters and critics (Reid and Harrigan 2013).
To turn to the subject of trust (Campbell-Verduyn and Goguen 2017), CCs have encountered ongoing issues over the idea that decentralized private networks can be self-regulating. In part, this stems from the valorization of the horizontal character of markets and is a utopian view of the self-governing market. In the failure of the Mt Gox exchange and the DAO hack of June 2016, this faith in markets encountered the limitations of the network intermediaries. In both cases, the underlying CC was not responsible for the subsequent problem; the desire for strong authoritative intermediaries of pooled CCs (large actors that the users could trust) was what introduced vulnerability into the network. The popularity of Mt Gox meant that up to 70 per cent of all Bitcoin trades were taking place on its exchange, making it the target of security exploits and hacks (Decker and Wattenhofer 2014). Much like the way in which a bank’s security determines the location of the funds it is presumed to be holding (an open safe is hardly effective), Mt Gox’s popularity made it a source of network vulnerability rather than a problem of the underlying CC. In a similar way, the DAO – a contract exchange for Ethereum – experienced a loss of funds after a software vulnerability allowed attackers to drain the funds from the exchange. In both cases, the pooling of resources led to the success of the exchanges but introduced a level of complexity and security that became the target of exploits (Kiffer et al. 2017). When Nakamoto proposed Bitcoin as an answer to the problem of trust through decentralized horizontal encryption, he assumed that the network would supplant the need for authoritative centralized decision-making. In this way, at the utopian moment when he ‘proposed a system for electronic transactions without relying on trust’, he adopted the fantasy of the horizontal self-regulating market as the basis for exchange but discounted the persistence of hierarchy (Nakamoto 2008). The desire for authoritative decision-making increases as the networks expand, which they do through incorporating and appealing to bystanders.
The emergence of hierarchies is most visible in discussions related to the underlying technological aspects of CCs and the health and maintenance of the networks. Despite their being networks of actors, broad coalitions reflecting different underlying interests have formed in CC communities over time. Mining pools – the large coordinated combinations of the CCs’ minters, exchanges, wallets and businesses – have increasingly been caught up in debates on the impact of technical limitations on the Bitcoin network’s performance (Narayanan et al. 2016). Due to the distributed nature of the network, to ensure compliance and adoption, a majority of the community has to accept significant changes (forks) (Atik and Gerro 2018). The SegWit/block size controversies stem from structural limitations in network capacity calling for forks with which to ease network congestion; however, key miners resist these changes for fear of investor panic, relative decline or increased competition (Moorman 2016). Debates within Bitcoin communities over block size (the number of transactions that can be handled in a single block of data) have been deeply divisive and have led to price volatility, hedging and speculation, as well as the proliferation of altcoins to address ongoing complaints. In other words, the notion that a CC, as a combination of horizontal technology and markets, could somehow bypass the tensions of proliferating authoritative actors without producing new hierarchies and decision-makers, is untenable. The inability to resolve network problems endogenously and exogenously (both on and offline) has led to the proliferation of alternatives that seek to challenge the Bitcoin network by framing those CCs as distinct and superior.
Altcoins as network contestants
While Bitcoin remains the most popular CC, alternatives have been created to supplement the needs of different communities both on and offline. The proliferation of altcoins has emerged from the interests and perspectives of the communities that adopt them. Guadamuz and Marsden (2015) argue that altcoins do not emerge for any standard reason, but rather because developers fork their own version of a CC to improve code, change security settings, modify parameters, turn the altcoin into other currencies, or simply as a joke. Controversies leading to forks in the underlying code is a common reason an altcoin to emerge (Musiani et al. 2017). To return to the contested nature of CC networks, in this section I examine altcoins through three dynamics that are common in CC actions – resource mobilization, framing, and identity-based mobilization. Each of these analyses helps to explain the dynamics between competing groups in a way that recognizes the contestation over authority on the network (Little 2012).
Resource mobilization is a way of understanding how social movement actors emerge to develop the common good for a community. McCarthy and Zald (1977) argue that resource mobilization helps people understand how best to support, approach and relate to the broader community in ways that allow them to influence its growth. Although resource mobilization theory waned in the 1990s, the use of online social networks has led to calls for its modification and reimplementation (Eltantawy and Wiest 2011). Social media and social networking allow otherwise ‘resource poor’ actors to generate and transmit forms of collective identity across disparate locations (Eltantawy and Wiest 2011: 1208–18). In particular, the emergence of Ethereum as a competitor to Bitcoin demonstrates how altcoins are taking advantage of the horizontal nature of network mobilization and low cost of entry to develop alternative CCs. Vitalik Buterin took advantage of his position as an early writer for Bitcoin Magazine to produce his own white paper on Ethereum (De Filippi 2014). Unlike Bitcoin, Ethereum utilizes the distributed blockchain to execute programs (contracts) that allow transactions and a token (ether) but that have both public and private elements (Bartoletti et al. 2017: 4). These ‘smart contracts’ not only allow the blockchain to provide more than a currency or transactions, but also provide the foundation for financial transactions and applications on the blockchain (Luu et al. 2016). In this way, Ethereum expanded the ‘support base’ of the CC, both by extending the role of the network and by making it possible for contract users and organizations to benefit from the blockchain beyond a currency (McCarthy and Zald 1977: 1215). Besides initial venture capital funding and the DAO hack, in October 2018 Ethereum became the CC with the second largest market capitalization after Bitcoin. The benefits of Ethereum in terms of public perception and network utilization thus increase the resources available to challenge Bitcoin’s supremacy. This competition both expands the CC’s resource mobilization and draws in other actors to compete. Moreover, by leveraging authority from the Bitcoin network, Ethereum was able to mobilize resources to propose alternatives and contest the supremacy of Bitcoin in the CC space. While market capitalization is not a proxy for future success, it shows how switching between networks provides needed resources to challenge and contest the authority and legitimacy of the main actor.
Beyond resource mobilization, Ethereum provided a template for other altcoins to utilize the success of Bitcoin to develop alternative network capacity and proponents. While Bitcoin was the first, other altcoins have emerged to provide faster transactions (DASH, Ripple), trustless privacy (Monero, Zcash) and less blockchain inflation (Litecoin) to compete as actors with distinct strategies for utilizing blockchain-based currency. As one of the Ethereum project managers was quoted as saying, ‘currency alone doesn’t buy you the ability to create new social structures’ (Hackett 2016). As discussed below, the DAO hack symbolized a key crisis for the Ethereum strategy, providing an opportunity to break with the immutable vision of a decentralized blockchain for one that was more flexible, so the financial service industry could utilize it (Kiffer et al. 2017). Thus, when the DAO was hacked in 2016, the hierarchical decision to make a hard fork to adjust the blockchain ledger exemplified key differences in social attitudes towards authority on the network. While some adherents maintained a commitment to the immutability of the original Ethereum blockchain, the dominant 90 per cent of the network forked created a subgroup of network users to defend and promote the authoritative decision made by the majority of Ethereum miners (Kiffer et al. 2017). Recalling that Della Porta and Diani’s original definition of a social movement highlighted shared belief and solidarity mobilized around contentious themes as integral to a networked social movement, in this case, the dominant group moved on, leaving original adherents to splinter away with Ethereum ‘classic’. Faith in the anarcho-cryptic origins of the blockchain directly conflicted with the hierarchical network effects of expanded resource mobilization and the explicit desire for authoritative decision makers. While Ethereum was created to court the interest of financial clients and the banking sectors, it resulted in a demand for the ability to make centralized changes in the blockchain ledger in the event of theft, hacking or error. Vitalik Buterin explicitly recognized this tension: ‘the main advantage of blockchain technology is supposed to be that it’s more secure, but new technologies are generally hard for people to trust, and this paradox can’t really be avoided’ (Hackett 2016). Common to networked social movement actors are dilemmas based on the choice of tactics and increased network competition and cooperation (McCarthy and Zald 1977: 1215). Actors who felt more comfortable about allowing strong hierarchical decisionmaking in the best interest of adherents challenged the early immutability of the ‘digital metallism’ of Bitcoin.
Framing is a key way in which altcoins can establish authority by appealing to the benefits of blockchain while distinguishing themselves as distinct from other networked social actors. Framing emerged from the idea that social movements have to compete alongside the state, media and governments over the ‘politics of signification’ (Benford and Snow 2000). Unlike resource mobilization, developing collective action frames can draw on the actions of others to propose diagnostic, prognostic or motivational foundations to bystanders (Benford and Snow 2000: 615). Given the extent to which CCs rely on the distribution of information across non-traditional information networks (twitter, YouTube, blogs, forums) framing solutions to existing problems allow these actors to leverage (and cannibalize) existing forms of hierarchical authority. This is perhaps best exemplified by Litecoin, a relatively similar CC to Bitcoin, seeking to address perceived speed issues and technical limitations. Developed as another open source alternative to Bitcoin with decreased block generation time, faster block processing, and four times as many coins to be produced as Bitcoin, Litecoin was framed in terms of fairness and transparency (Dawei 2016). Litecoin has been characterized as silver to Bitcoin’s gold, in part because Litecoin mining is memory intensive rather than processing intensive, which has restricted its ability to be co-opted by mining pools (Dawei 2016). With an emphasis on transparency, Litecoin utilizes belief in the need for greater speed and transparency to challenge issues with the Bitcoin network, framing this alternative as productive. However, the network lost popular favour in 2015 when an influx of demand drove the price of the currency by over 200 per cent only to have the bubble collapse in what was speculated to be a Chinese pyramid scheme (Hayes 2015). The idea that these frames are being directed at public audiences also means that other offline social networks can coopt those frames (transparency and access to information) in a way that turns them into vulnerabilities. The persistence of Ponzi schemes in the CC market increases interest in a centralized regulatory authority trying to gain legitimacy and users (Bartoletti et al. 2017). The Financial Times used the persistence of blockchain Ponzi schemes to argue in favour the continued role of centralized, authoritative actors. As Kaminska (2017) put it:
Decentralisation also undermines professional and corporate accountability. If no-one is prepared to take credit for building an organisation which adds value to society, it implies there’s either an unheard scale of altruism at play or the organisation in question is probably not adding value to society because there’s no real credit to claim.
The tensions between the horizontal anarcho-cryptic visions of CCs persistently run into the hierarchical restraints on innovation and neophyte solutions to crises. Framing Litecoin in terms of transparency and fairness is challenged as those principles have an impact on both network ‘switchers’ and bystander communities. Moreover, to the extent that events on the blockchain spill into other networks, markets and offline, the more exogenous actors can assert regulatory claims in those spaces (such as the BIS). Given the bubble and collapse of all CC prices in 2017/18, each community must identify of key problems, the inclusivity or exclusivity of solutions, and how those solutions resonate to other networks (Benford and Snow 2000: 618–20). To the extent that the development of new altcoins attempts to resolve problems with existing experiments, they continue to have to compete with the regulatory expectations of existing network and offline regulatory actors.
Not all altcoins exist to challenge existing structures and markets directly. Recalling that some are created simply as a joke, the role of identity is also important in the emergence of alterative CCs. Developing distinct identities gives actors an opportunity to reformulate and rethink their spaces in relation to existing ones (Melucci 1994: 112). In this sense, altcoins also produce new forms of factionalism, identity and tribalism between one another and the offline world. Part of the anarchic intent of CCs has been to disrupt the vision of a single vision of what CCs represent. In the context of new actors and technology, Melucci (1994: 113) argues that resistance emerges when groups try to establish dominance over one another – ‘to be effective, power must shift its basis and take control of codes. Codes becomes formal rules, the organizers of knowledge and the new foundation of power.’ Recalling the discussion of sovereignty, these decisions create adherents who tie their online and offline identities to these CCs. An example of this is Dogecoin, a CC created as a joke currency based on the ‘Doge’ internet meme in the likeness of a Shiba Inu dog. Created deliberately to distance CCs from the controversies surrounding Bitcoin and the online marketplace Silkroad, Dogecoin became popular as an online tipping system (McGuire 2013). With the explicit goal of remaining a satirical altcoin rather than a market leader, Dogecoins are a CC with an intentionally absurd level of inflation, resulting in the creation of 5.2 billion new Dogecoins a year (McGuire 2013). Like the idea behind the currency, the use of Dogecoin is irreverent and mocking; while forming its distinct identity, its creators admitted that the currency’s success was due to it being funny – a simple cloning of the Litecoin technology and marketing to the public at large (McGuire 2013). Here, foregrounding an identity through a meme allowed Dogecoin adherents to invite bystanders to reimagine the purpose of CCs and how they could be used online. Like other CCs, Dogecoin has been subject to security exploits and theft, but the community response was merely to donate money to cover the losses (Couts 2013). Here we can see the role of identity beyond simply criticizing that of other CC communities, and the ways in which identity can serve to challenge the atomism and notions of self-regulation.
The persistence of hierarchical and authoritative decision-making is typified in the proliferation of altcoins and the rejection of neophyte tendencies to view the blockchain as a radical technology. In the right-wing extremism, or libertarianism-cum-anarchism, of blockchain-based currencies, opposition to centralized authority, surveillance and control of financial transactions has been overstated (Popper 2015). The use of a network social movement model demonstrated how CCs are founded on conflicting and contested visions of the technological standards that create fundamental schisms between networked actors. Drawing on Schmidt’s understanding of hierarchical power as stemming from an authoritative actor, it was argued that framing CCs as social movements underestimated the schisms between them and the ongoing and persistent conflict between adherents. As Hütten and Thiemann (2017) characterized it, these confrontations are produced by the network structure combined with the protocols that shape different decision-making authorities in each CC community. As a reaction to the 2008 financial crisis, Nakamoto’s network-as-trust use of the blockchain conflated horizontal forms of decision-making markets with networks that omitted the ongoing impact of hierarchical decision-makers. Subsequent crashes, bubbles and Ponzi scheme network vulnerabilities speak to the extent to which the ethos of anarchocryptic, technocratic governance continues to employ authoritative actors who engage endogenously and exogenously across networks. Resource mobilization, framing and identity formation are networked social movement dynamics present throughout the altcoin network structure. The role of resource mobilization in Ethereum’s rise helps demonstrate the persistent desire for authoritative centralized decision-makers and how authority is useful in mobilizing resources for growth and expansion. In the case of Dogecoin, altcoin identity as a form of protest can manifest in fundamentally different relationships between the community and bystanders. By adopting a networked social movement analysis, in this article I have argued that despite claims to the contrary, the technological innovations of CCs remain wedded to hierarchies of power and to the need for authoritative decision-making across these networks.