Capitalism finds itself in a tricky situation. Since the end of the post-war boom in the 70s, despite the restructuring of production, and the attacks on the daily working conditions of millions upon millions of proletarians, it has become more difficult than ever to find profitable reinvestments for capital. This crisis of valorisation of capital is only one of the many symptoms of the more profound crisis of capitalism: the law of the tendency of the rate of profit to fall. This fall in the rate of profit is accompanied by attempts of the capitalists to postpone the crisis, to look elsewhere for short-term methods of making profit, or to save their own skins by any means necessary.
The end of the last cycle of accumulation, brought to the fore by the Second World War, and the ever intensifying crisis of profit were a clear sign of a need for action for international capitalism. New possibilities for quick and easy profit were sought, and found in financial speculation (by which we here mean the creation of fictitious capital). In this way all doors were opened to speculative monetary and financial policies, for example with the abolition of the Bretton Woods system. Of course, financial and currency crises and national bankruptcies followed soon after. According to a working paper from the IMF, these numbered at least 514 between 1970 and 2007, i.e. they were by no means limited to Europe and North America. The financial crisis of 2007/8 and the economic crisis triggered by the Coronavirus are just two more factors backing capitalism into a corner and forcing it to search for ways out.
The effects of all speculation and every crisis have been felt most keenly by the working class. Every time they have had to adjust to cuts to real wages, job losses, the dismantling of social support and generally more precarious lives. Even today the effects of the 2007 crisis are still observable, coupled with the foreseeable (and indeed currently occurring) recession of 2020. The attacks of the capitalists are already in full swing. The proletariat meanwhile is trying to stay alive and searching, in a time of low interest policies, for other means of saving. That speculation and investments are not a real option for the majority of proletarians should go without saying. They must first secure the basic necessities for living, and with rising rents and consumer prices, even that is no longer a given.
Equity funds and real estate are favoured by small-time investors and the upper class alike as stores of value, but cryptocurrencies, often praised by millionaires, have been favoured alongside them for some time now. But what do the capitalist crises have to do with Bitcoin and other cryptocurrencies? As decentralised currencies that are not subject to any bank or any other financial institution, should they not be largely free from price manipulation and speculation? A sort of digital gold? A more secure store of value as an alternative to the risk-addled stock exchange?
When Bitcoin was conjured to life by Satoshi Nakamoto, a faceless phantom who nobody knows anything about, it was as an alternative to the established currency system of the big banks and credit institutes. It was decentrally regulated, i.e. no single institution had the power to limit payments, freeze accounts or to “work” with the money of others. Bitcoins were not, as other currencies, created by printing money and regulating the flow of payment, but through so-called mining or prospecting.
In this process, complex cryptographic tasks are solved which validate a payment from X to Y. As a reward for solving the task and maintaining the system, 6.25 bitcoins are created and given to the miner. The amount of bitcoins created is currently fixed at a maximum value of scarcely 21 million. This is intended to simultaneously prevent inflation and guarantee the constant rise of the price of a Bitcoin. In the early days, the value of a bitcoin was determined by an almost Marxist method. Thus the price in the first transactions for “real money” was fixed at 0.07 dollars, based on the production costs.
After Bitcoin had gained notoriety, primarily in the dark web for buying illegal drugs, the price rose yet further. Investors came along who saw Bitcoin as less of a means of payment than an object of speculation or a store of value. Thus in the course of the intervening years the first crypto-funds and future exchanges offering trade with Bitcoin emerged. At the same time, many hedge funds invested in cryptocurrencies and trading was further professionalised and centralised. These funds are mostly only available in the form of CFDs. In this way, the chance of a total loss of money through excessive fluctuations in exchange rates with too little “stake” for small investors increases. This development of “decentral” Bitcoin into a centralised and professionalised object of speculation has made it clear that Bitcoin and other cryptocurrencies cannot pose any alternative to the dominant monetary and financial system. They act strictly within the logic of capitalism and are thus also subject to all the laws of this mode of production.
The aforementioned “mining”, i.e. the creation of cryptocurrencies, is then the next absurdity. Since the difficulty of the “tasks” to be solved is proportionate to the Bitcoins created, they are becoming increasingly complicated to solve with time. Whereas previously anyone could simply mine a few bitcoins at their own computer, these days this is no longer profitable. Without special machines, so-called ASICS, it is impossible to compete on an international scale. The competition here is in the shape of huge firms with tens of thousands of ASICS in refrigerated storage halls in China, Iceland, Kazakhstan, the USA and Iran. For the capitalists behind these firms, thanks to low electricity prices (whether through subsidised coal and gas energy in Kazakhstan or renewable energy in Iceland), this is a profitable affair. Once again, we can predict that no actual added value is created, and only speculative, fictitious value is simply shifted from A to B.
However, this example also reveals an important feature of global capitalism: the centralisation and monopolisation of production and trade. But let’s return to electricity consumption, because it is immense. The Bitcoin farm of one Iranian-Chinese investor in the city of Rafsandjan, in Iran, consumes roughly as much energy as 50,000 households. The whole network of miners around the world now already consumes as much energy per year as Sweden. A study from the University of Cambridge also shows that barely 39% of the electricity used for mining comes from renewable energy sources, while Bitcoin emits around 64 megatonnes of CO2 a year. That equates to the carbon footprint of Serbia. A single transaction is equivalent, in terms of CO2 emissions, to around 1.7 million Visa transactions, or the energy consumption of an average household in the US over two months. What must also be considered is that even if renewable energy is used, this is often subject to fluctuations and needs to be balanced by gas and carbon electricity. This is not helped by the fact that regions with “green electricity” like parts of Norway have stopped subsidising Bitcoin mining, or that China (which operates several hydroelectric power stations in Sichuan and Yunnan) has largely forbidden the mining.
The consequence? The search for new warehouses in new areas. In particular, Kazakhstan and the US are being viewed as new targets, with both countries mainly getting their energy from fossil fuels. For the capitalists, the constant increase in difficulty of creating a Bitcoin means the constant adaptation of their machinery. 6.3 kilotonnes of old ASICS are thrown away as electronic waste. Their built-in resources are the same as in other computer chips: gold, palladium, neodymium, cobalt, gallium etc. In complete harmony with the logic of capital, these are produced at the greatest possible profit in countries like the DRC under horrendous conditions, then processed further in China or Russia. It’s absurd. The exploitation of thousands of workers is accepted, the environment is destroyed, resources are wasted and climate change accelerated, all for the sake of an object of speculation. But that’s precisely the reality that capitalism has to offer us. The only alternative is, and remains, smashing the capitalist mode of production and transforming it into production based on need in a communist society.
The insanity of this financialised and speculative capitalism is reflected in the exchange rates of Bitcoin, which can rise or fall by several percent in the course of minutes due to the tiniest occurrence. The best example of this is Elon Musk. When he merely mentioned the word on Twitter in January 2021, its exchange rates exploded and its value rose by 14%. After a further tweet, in which Musk announced that Tesla wanted to accept Bitcoin as currency and the company had converted 1.5 billion dollars into Bitcoin, it reached its highest value to date. The bubble grew and grew, and finally burst. And this happened all over again when Musk announced that he would be selling some of his Bitcoins and converting them into another cryptocurrency. This is an age-old tactic of big investors: driving up an “undervalued stock”, in this case Bitcoin, building up a bubble and then selling their own obviously much more expensive stocks and letting the bubble burst.
The workers who were encouraged to invest in it themselves often lose vast amounts of money or get themselves into lifelong debt for loans they have taken out. The winner is and remains the capitalist; for the proletariat there is no chance to profit from it. The playing field of the stock exchange attempts in this way to maintain the illusion that here, with a bit of luck, anyone can get rich if they just work hard, and make the right decisions. After all, anyone with a bit of money can play along with the greats and obtain profits from others. The historical examples of the speculative bubble of 1929 and the dotcom bubble of 2000 show that this is not the case, regardless of cryptocurrencies.
Even the companies responsible for the sale and exchange of cryptocurrencies take on a special role in this. Thus in the few years since it has come into existence, there have already been several scams in which such “crypto stock exchanges” have made millions or even billions of dollars out of dust. An example of this was when 750,000 Bitcoins (at the time barely 800 million US dollars) were simply lost (or indeed stolen) from the “MtGox” trading centre. Or when the “PlusToken” app managed to encourage unfamiliar investors, particularly in China and Korea, to invest. After nearly 3 billion US dollars were collected in a pyramid system, the operators disappeared with the money without ever delivering the promised cryptocurrency. We can only guess at the losses of the people who invest in such a system with the hope of a shot at wealth. The most recent example of the “Theodex” firm in Turkey paints a good picture of this. After the years long downward spiral of the Turkish Lira, a depreciation of nearly 24% and an extreme inflation following the Corona crisis, more and more people attempted to transform their savings into safer assets and hoarded gold or dollars. But even Bitcoin was increasingly bought up. And so the sales platform, “Theodex”, saw the chance for big profits. After the Bitcoin price spike in Turkey, following the rush to cryptocurrency, access to many accounts was locked and the money disappeared. Some of the swindlers were later arrested but the damage was already done. Several small investors trying to secure their money through Bitcoin lost several tens of thousands, some hundreds of thousands, of euros, and can hardly expect to see it secured again. The dream of making easy money through cryptocurrency or on the stock exchange is a false one.
As workers and revolutionaries, we cannot rely on individualist tricks or systems that find themselves within the capitalist logic. We must endeavour to rediscover our collective framework and power in class struggle and thus forge our proletarian weapons against an ever desperate and openly aggressive capitalism. This struggle in and with the class can only be conducted in an international, and internationalist, organisation which understands the communist programme and brings together the historical knowledge of two hundred years of class struggle in itself, to fight against the growing injustice, poverty and frustration, which for a generation of new workers has almost become normality, lurching from crisis to crisis, on our own class terrain.