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Money-games as an analytical framework for understanding
the emergence of crypto-coins
Moritz Hütten, [email protected] frankfurt.de
Johann Wolfgang Goethe-Universität Frankfurt am Main
A contribution to the International Conference on Public Policy, Milan, July 1 - July 4, 2015
Introduction
The recent and still ongoing financial crisis has sparked an increased interest in the topic of
money. Positions that have been taken for granted have become more uncertain, and questions
regarding the nature and functions of money have become more prominent. This interest not only
has fueled an academic body of research regarding the topic, but it also has inspired practical
experiments by various activist groups to establish alternative forms of money. In this paper, I will
explore the emergence of the cryptocurrency Bitcoin as a representative of such an experiment. In
this regard, I will focus on what I believe to be the most controversial aspect of Bitcoin: the idea
that it could indeed be money. While there seems to be little dispute about the underlying
technology being substantial, the same cannot be said about the proposition of Bitcoins being a
form of money.1 To understand how Bitcoin could be money, I will build on the writings of Heiner
Ganssmann and Nigel Dodd. Central to my approach will be a proposition I have found with
Ganssmann to think of money in terms of a money game where money receives its "meaning" from
the rules of the game (see Ganssmann 2002). Ganssmann suggests the idea of a simple money
game. I want to further bolster this concept by including consideration of Nigel Dodd about money
functioning before a social background. To account for this background, Dodd writes of monetary
network of information. This network is supposed to describe the “minimum requirements regarding
the information which must be present to in order for monetary transaction to proceed, even among
the smallest groups.”(Dodd 1994:XXIV). In his description of this network, he names five types of
information which are needed: a standardized accounting system, expectations regarding the future,
1 I will talk of Bitcoin when I mean the technology in a broader sense and of Bitcoins in the plural when I mean Bitcoin
as currency.
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legalistic information in the form of rules, knowledge about the expectation and behavior of others,
and knowledge about the spatial expansion of the network (see Nigel Dodd 1994, XXIV). I believe
the two propositions are complimenting each other, and it could be said that money games are being
played upon the background of monetary networks. For money to facilitate exchange between
strangers, there are basic criteria which have to be fulfilled as they have been proposed in the model
of a simple money game. Yet to give depth to the phenomenon, a richer set of information in the
sense of a monetary network defining the unique landscape of each money game is necessary. I
want to explore Bitcoin as an emerging money game in this sense and to identify some reasons why
anyone could want to take up that money game based on various events in the short history of
Bitcoin.
Money-games as an analytical framework
In this section, I introduce the theoretical approaches which I am utilizing to come to an
understanding of the emergence of Bitcoin. Based on the approach which I develop in this section, I
will then try to answer the question: “Why would someone want to use Bitcoin as money?” in the
upcoming section.
One curious aspect of money is its capacity to bridge distances in time and space. Money
can facilitate transactions between people who might never come into personal contact with each
other or postpone transactions until sometime in the future. The question is, how can money do
this? A centerpiece of the functioning of money is trust. Trust can be based on various reasons.
These reasons can include calculated expectations, confidence, habit, or even faith (see Dodd
1994:XI). For money to be able to function, trust in money is essential. When trust in money is
present, money can achieve a wide variety of things, but when there is a breach of trust it is not
easily repaired and a loss of trust might undermine the function of money altogether. This is all the
more problematic because it is not all that clear what constitutes money. It may not be apparent in
the day to day routines that revolve around money, but the uncertainty about what constitutes
money becomes an increasing problem when new money schemes or money- like schemes emerge.
At present, it is not only Bitcoins alone that challenge what we believe to know about money, but
several thousand of alternative monetary systems (see Dodd 2014:314). The emergence of new
monetary systems does not just concern activist groups which consciously want to change how we
use and think about money, but also commercial enterprises which provide money- like services
from Facebook credits to bonus miles. This again makes it very hard to impose monetary policy on
such schemes, or to decide if it should be imposed to begin with (see Dodd 1994:XIII). We come to
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see an empirical richness which has heightened the conceptual muddle and renders an exhaustive
definition of money unlikely altogether (see Dodd 2005:387). I therefore will not attempt to give
an exhaustive definition of money in this section, but instead offer a certain perspective from which
to think about money. A fundamental prob lem is, as Dodd puts it: “not that nobody knows exactly
what money is, but that monetary theorists have been convinced that they do.”(Dodd 1994:XIV).
Instead of focusing on the properties of certain objects, a valuable contribution to the understanding
of money can come from considering the social relations which make monetary transactions
possible (see Dodd 1994:XV). Heiner Ganssmann takes a similar approach to money. For him,
money is a social fact that comes about when a group coordinates in a certain wa y and develops
what can be called a collective intentionality regarding a money object (see Ganssmann 2002:22-
24, Ganssmann 2012:23). In this sense, a certain regularity in action defines money. What is
important about social facts is that they involve social action, and social action involves uncertainty
(see Ganssmann 2012:XV). Accordingly, we have reciprocal expectations of what the other one will
do, but such expectations are formed on the background of the knowledge that we can deviate from
these expectations (see Ganssmann 2012:137). We can surprise each other positively with a creative
solution, or we can surprise each other negatively with opportunistic actions (see ibid.). Although
this uncertainty bears more risk of failed interaction, it also reveals something about the actors
involved: they can handle uncertainty to some degree. Our actions surrounding money are not an
inescapable fate, but they are shaped within this uncertainty, which leads Ganssmann to say that we
are in fact “doing money” (ibid.). By "doing money," he means that the money game is defined by
its very performance through which the money object receives meaning. When money is "done"
successfully, it absorbs some of that uncertainty, but it still plays out in front of that background of
uncertainty which is part of social actions (see Ganssmann 2012:138). In this sense, money replaces
many uncertainties, yet the certainty that just about everybody is going to need money is created in
the process (see Ganssmann 2012:3). Money is something that has to be produced and reproduced
in a social setting (see Ganssmann 2012:1). Both authors are on to a similar question. Ganssmann
wants to know how we can overcome that uncertainty and become able to “do” money; Dodd wants
to know what the social conditions are which allow us to place trust into money thus rendering it
capable of fulfilling its function. Ganssmann is closer to the field of economics through his
considerations about individual actors dealing with uncertainty, while Dodd brings in a more
sociological perspective by using overarching structures to understand how trust is constituted. In
my opinion, these two approaches complement each other. The starting point for me is Ganssmann's
reading of Wittgenstein. He points to an interesting statement of Wittgenstein about Frege's
thoughts regarding arithmetic. According to Wittgenstein, Frege is considering one of two
alternatives: either a sign has meaning because it represents an object, or it is just a shape drawn on
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paper. Wittgenstein does propose a third solution and illustrates it with an example from a game of
chess:
“There is, as the game of chess shows, a third possibility: The pawn in chess neither has
meaning in the sense of representing something, of being a sign of something, nor is it just the piece carved out of wood. What the pawn is, is determined by the rules of chess.”
(Wittgenstein 1984a:150 in Ganssmann 2012:20)
Unlike the first two options, this solution states that the meaning of a sign is derived from the rules
of the game in which it is used. Gansmann applies the same solution to money. He questions
whether we can understand money similarly by saying that a banknote, for example, does not have
meaning in the sense of representing a good or utility, but it has meaning within a money game (see
Ganssmann 2012:20). This again would lead to the conclusion that the meaning of money can only
be understood in reference to the money game in which it is being used (see Ganssmann 2012:28).
Ganssmann himself proposes a simple money game which stems from the writings of Catelier. For
him, a simple money game would have to consist of three rule complexes. There has to be a shared
unit of account, a regulated mode of accessing new funds, and a form of settlement (see Ganssmann
2002:42-43). An exemplary money game would consist of players expressing their economic goals
in terms of the unit of account, then access funds according to the rules of doing so, make their
moves, and go through with some sort of settlement for players with a negative balance from
accessing a players reserves, extending credit, or defaulting (see Ganssmann 2002:43). Bitcoin
fulfills all three conditions. Bitcoin has a unit of account with a clear metric, though often
merchants calculate their prices in a established currency (see Casey and Vigna 2015:39), also
referred to as BTC. The modus of accessing funds is regulated. One may receive Bitcoins as
rewards for contributing to the process of maintaining the ledger or purchase those funds with other
currencies in one of the many exchange platforms. Bitcoin also has a form of settlement since it
runs a public, decentralized ledger in the form of the Blockchain. The role of uncertainty which
Ganssmann heightens in his later writings seems, however, underappreciated. It also lacks depth in
the form of a simple money game. In this regard, Bitcoin would pass the test of being a s imple
money game, but that seems to leave many questions unanswered. Mostly it tells us that Bitcoin
could be money, but the gap from coming to understand this and a money game that actually is
being played is significant and cannot be resolved through those abstract properties. Instead of just
looking at money games in the sense of games, I also want to look at the role of play in accordance
with the underscored role of uncertainty. In doing so, I want to emphasize the capacity of the actors
to dynamically develop new moves in the game as the game unfolds. To understand this, it helps to
envision a basic learning situation regarding the use of money. Ganssmann suggests a situation like
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this:
"Almost everybody uses money almost everyday. As children, we were sent to the corner store, counted coins in hand, to buy bread or milk, perhaps we were allowed to add some
candy. We learned the ritual of buying: You ask for the good, it is put on the counter. The price is named. You hand over the coins. You can take home the good. Much later, perhaps we learn the ritual of selling. You display what you want to sell and look for a customer. You
may already have put a label on your goods, stating your asking price. A customer comes, there may or may not be a bit of negotiating, there may be an agreement. If both parties
agree, money and good change hands."(Ganssmann 2012:34)
It might seem trivial to think of money in such a way and it certainly is a simplistic example, but it
does help us to become more aware of what defines the way in which we become proficient players
of a money game and it has some merit for the game metaphor altogether. Much of our use of
money is concealed by its familiarity. Instead of just becoming familiar with a money object, the
process of learning money entails a variety of social situations in which the debutant is being taught
by proficient money users. In this sense, teaching money to a child is much like gradually teaching
a game. As Wittgenstein states, we could even imagine someone learning a game just from
observation without being given reasons or explicit rules at all (see Wittgenstein 2006:255). What
basically happens is that we go through a money career in which we become familiar with certain
money games which then may seem natural to us but represent a contingent selection and could
have been acted out differently. From such a learning perspective, it seems less outlandish that
someone could propose an alternative money game. We must then observe the use of money in
markets rather than develop an analysis based on abstract properties of money (see Ganssmann
2012:20). This resonates with a consideration of Dodd about the understanding of money: “ It
follows that to understand what is distinctive about money requires reference to the network of
social relationships which makes its transaction possible, not to the object exchanged or the
exchange relationship itself.” (Dodd 1994:XXIII). Another consideration of Wittgenstein clarifies
and expounds on Dodd's point concerning the problem of trying to view money in abstraction
without taking into consideration the lives of those who use it (see McGinn 2013:48). When
Wittgenstein introduces his concept of language games, he underscores the importance of language
games being interwoven with activities (see Wittgenstein 2006:241). I believe that we can come to
an analogous conclusion regarding the use of money and this will be a central point when I later
discuss the development of Bitcoin. A money game is and has to be interwoven with activities.
Wittgenstein makes an example about word being similar to levers in a driver's cab; depending on
the apparatus, both set different activities in motion (see Wittgenstein 2006:243). To work, money
has to be linked to various activities, but the variety of those activities is obscured by the
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homogeneity of the money object. Ganssmann gives an example in this direction when he points
out that there is a variety of activities which can be performed with money such as buying, lending,
borrowing, wasting, hoarding, investing, stealing, and destroying (see Ganssmann 2002:45) which
look similar at first when grouped together but involve widely different activities. Another effort to
account for this variety in a different way has been made by Vivian A. Zelizer. She points out how
there is a plurality of different kinds of monies which are being shaped by a particular set of cultural
and social factors, even when the same money object is in use. This leads her to conclude that the
assumption of an general-purpose money is unsuitably narrow (see Zelizer 1989:351). I believe this
strongly resonates with a particular statement of Wittgenstein about language and its connection to a
variety of activities. He says that imagining a language means imagining a form of life (see
Wittgenstein 2006:246). Once again, this can be taken to be analogous for the use of money. To
imagine a money game means to imagine a form of life, how it will be used, accessed, validated,
distributed, controlled, and many more aspects which we have to decide upon; it will be shaped by
the activities to which it is linked. There certainly is a tendency towards centralization, as with the
Euro or the U.S. dollar expanding its reach, but also a vast diversity exists which should be taken
seriously.
Structured money-games as an analytical framework
What money needs to function is a suspension of disbelief (Ganssmann 2012a:1). The
following question is: how does this suspension come about? To come to a better understanding of
this, I will now focus on the concept of a monetary network as it has been proposed by Dodd. The
suspension of disbelief takes the form of trust. Trust does not just result from successful past
interaction. To trust means to overstretch past information and to risk a determination of the future.
Trust thus is not derived from absolute certainty, but neither can it come about in the absence of
information (see Luhmann 2014:24). In the case of money information about the future re-use,
acceptance by other members of a society and the maintenance of value over time of a money form
are needed (see Dodd 1994:XXIII). In addition, Dodd discusses the “sociological conditions in
which the network is established” (see Dodd 1994:XXIV). To explain how money can facilitate
fleeting and conclusive transactions, he identifies a particular need for information (see ibid.). In
this sense I want to talk of structured money games to give more depth to the proposition of a
simple money game. The money game is structured twofold. One part of the structure comes from
the activities with which it is linked and which shape the money game, the other part is the stock of
information which is being described by Dodd. To describe the necessary information, Dodd uses
the term monetary network. While he continuous to talk of monetary networks and not of money
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games, I will readjust his statements to the context of the money game. He continues to identify five
factors which he deems important. The first factor is a standardized accounting system which
enables the exchange with anything priced in terms of the money game. The second factor is
information regarding expectations about the future of the money game, which relates to the
expectation of the future re-use of money. The third factor is information regarding the spatial
characteristics of the money game concerning such questions as: How far is the reach of the money
game? How does it relate to territorial boundaries? Who participates in this money game? Is it
hindered from being played somewhere by external ruling? The fourth factor regards legalistic
information. What are the rules affecting this money game? What rules govern contractua l
relationships conducted in this money game? What legal restrictions apply to this money game? The
fifth factor is information about the behavior and expectations of others. This resonates with what I
have said before. To decide about the state of a money game, we need information about what
others are doing; the future of a money game is very much dependant on the expectations of others
regarding this future (see Dodd 1994:XXIV). These are the factors that Dodd deems vital for the
generating of trust in money, and trust is vital for the function of money altogether. Players of a
money game must consider these factors if they want to estimate the state of a game which has a
reach which goes beyond what they can personally verify. Personal trust cannot scale to such a size
and thus players have to resort to a method of inference which builds on the above factors that bind
the money game together. An understanding of the relevant factors and information should then
lead to a better understanding of the money game (see Dodd 1994:XXV). However, actors are also
likely to make inference based on the size and the persistence of a money game. Both size and
persistence can indicate the reliability of the money game and decrease the need for further
information. The expansion of a money game strengthens rather than strains the trust in it (see
ibid.). The remaining uncertainty then would regard inflation, rates of exchange, or rates of interest,
but not the fundamental aspects of the monetary network (see Dodd 1994:XXVI). However, it will
be the basal information of the monetary network which I examine in this paper. This is not meant
to pose as an exhaustive model, but rather as a framework of investigation into the development of
Bitcoin. I believe it is plausible to refuse the idea that there can be a mere deduction from an
perspective of efficacy regarding this development. Rather, we should be willing to take a variety of
motives into consideration when investigating into alternative money games.
Understanding the money game of Bitcoin and the situation of an alternative money game
In this section, I apply a theoretical approach towards an investigation into the development
of Bitcoin. In doing so, I apply the game metaphor of the money game towards Bitcoin and then try
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to identify a couple of events which redefined how this money game is being played and
significantly changed the perception and capabilities of Bitcoin.2 In addition to that, there are a few
general points about alternative monetary forms which contribute to an understanding of the
situation. The first important point concerns the competition an alternative money game faces. This
might seem obvious, but a money game only has to compete with the other money games to which
the actors have access because not using money at all is rarely an option. If, for example, someone
who is excluded from access to U.S. dollars evaluates the state of the Bitcoin money game, the state
of the U.S. dollar money game might be of limited relevance. Even a troubled alternative money
game can look attractive in a weak field. The second vital aspect of alternative money games is that
they are coming from a minority position. Since they are incapable of coercing potential users into
adapting this money game, they have to convince potential users. In this sense, they do have to
justify their position and how they deviate from the established money games. This brings me back
to the variation of Wittgenstein's position which I proposed earlier. To imagine a form of money
means imagining a form of life, and alternative money games have to outline the vision which they
propose. There usually will be a point where the money game has to be proposed and initiated.
Bitcoin was proposed in a paper from 2008 published on a cryptography mailing list by an author
under the pseudonym Satoshi Nakamoto. While Nakamoto's paper focused on the technical
realization of Bitcoin, it also took a stance on the convictions proposed with Bitcoin. Through
Bitcoin, the proposition of an alternative money game is made to proficient money users.
Prospective Bitcoin users are not starting at zero. The proposition of such a money game is being
made on the assumption that actors already have learned much about money and they do not have
to relearn this to participate in a new money game (see Ganssmann 2012:29). They also can learn
the new money game gradually, and also gradually experience success or failure rather than having
to come to accept the entire money game suddenly.
Identifying the vision which is presented in the original proposition does not mean that all
players have to follow it or execute it in the spirit of the creator of that proposition. In accordance
with the previous assumptions about the uncertainty in social interaction, they might execute it in
unforeseen, creative, or even destructive ways. Depending on what safeguards the proposers of the
money game have implemented, the actors might act it out very differently from the original
intention. In this sense, playing such a new money game means p laying a game which rules are yet
to be established. The original proposition has to be viewed as something that set the events which
2 I use the term capabilities in a broad sense here. What defines the capabilities of Bitcoin to me is not just a matter of
technical properties, but rather relies on the activities and services it is linked to. If someone was to change a part of
the programming that certainly would change the capabilities of Bitcoin but making Bitcoin more accessible by
establishing an online exchange which trades in this currency just as much redefines its capabilit ies.
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we come to look at in motion, but did not determine them. However, as we come to a better
understanding of how Bitcoin developed we will see frequent references to the propositions which
can be found in this seed of the money game.
Why would someone want to pick up on the Bitcoin money game?
The founding stage of the Bitcoin money game and the reasoning for getting players interested
Here I will discuss the founding stage of Bitcoin and what reasons could be given at the time
for new players to enter the money game of Bitcoin. When I talk of stages, it should always be kept
in mind that this is not meant to insist that there are clear cuts between stages, but rather meant to
be an orientation to develop a perspective from which it can be understood what changed about this
money game throughout time. I also will focus on a few selected actors which have been promine nt
around certain stages of the Bitcoin money game, but sometimes they might just be exemplary for a
more general development. Although this approach is meant to offer a perspective on why someone
would want to use Bitcoin, it would require further empirical investigation into the field to know for
certain which reasons did catch on. In part we can find such research with Glaser et al. (see Glaser
et al. 2014).
At the forefront of Satoshi Nakamoto's initial 2008 paper introducing Bitcoin is an
explanation of the technical realization of Bitcoin, but it also addresses issues such as trust in the
banking system, privacy, and the protection from disruptive monetary policy. 3 In the paper itself,
many arguments are not being developed in depth, but the points which are being raised support the
idea that imagining such a form of money means imagining a way of life as in the conception of
Wittgenstein. Instead of trusting in the banking system, the players of this money game are meant to
trust in the strength of the algorithm of Bitcoin. Bitcoin can be viewed in the spirit of the Austrian
School of Economics and it does strongly resonate with libertarian ideas (see EZB 2012:22). What
is innovative about Bitcoin is the merger of public-key cryptography and peer-to-peer networks.
Through this merger, Bitcoin maintains a public ledger based on a proof-of-work system which is
capable of avoiding the problem of double spending without resorting to a central authority (see
Nakamoto 2008:8). While at first it might seem like a technical necessity, it also is a choice about
how money should be handled and managed. This is the initial proposition of the alternative money
game of Bitcoin. It therefore is important to understand that Bitcoin is not just proposed as a
3 Interestingly enough, the London Goldsmith bankers did g ive similar reasons when they sought to restrain inte rference
by Crown and Parliament throughout the eighteenth century (see Kim 2011)
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payment system, but also as a money object. Transactions are being conducted in Bitcoins.
However, the proposition of Bitcoin should not be viewed in isolation but should be
considered in the context of the ongoing financial crisis and the interventions that came with it. To
think about this in terms of the money game: Bitcoin emerged in a situation where there was a
breach of trust in many established money games or, so to say, a re-emergence of uncertainty.
Bitcoin did enter a situation in which central institutions resorted to “quantitative easing” with the
proposition of an almost zealous protection of its value (see Dodd 2014:362) by permanently
limiting its supply without a central organization to interfere with that. Bitcoin was not necessarily
perceived as a safe haven,4 but a troubled money game heightened the willingness of actors to listen
to alternative propositions. This has been shown in examples by William J. Luther and Josiah
Olson. They have evaluated download rankings of various EU-Nations before and after Cyprus was
offered a $10 billion bailout on the condition of a one-time levy of all domestic bank accounts (see
Luther and Olson 2015:28). They observed a significant rise of interest in Bitcoin related apps
especially in countries suspected to have a troubled banking sector (see Luther and Olson 2015:29).
Various problems of established money games have been frequent topics over the last years and this
should always be kept in mind when thinking about Bitcoin. In the terms of a structured money
game, this means it is not clear what others do, there is uncertainty about the rules, future
acceptance, and about the spatial expansion of money games where entire nations might drop out
in time, and so on. In short: Bitcoin was the proposition of a new money game in a disrupted field
and its attraction must be measured against that situation.
Another perspective can be developed from looking at the development of the Bitcoin
money game itself and not just by contrasting it with its competitors. Nakamoto himself mined the
first 50 Bitcoins on January 3, 2009 (see Wallace 2011). 5 Initially Bitcoin took place in a small
group of early adopters. The atmosphere of the money game at this point could have been described
as the “communitarian spirit of an open source project”(ibid.). This made for a rather close knit
community in which the infant stage of the money game played out. It is hard to say if the early
stage should even be called a money game or perhaps rather a blueprint for a money game. There
were already a variety of focal points from which expectations about the future could be developed,
such as the available code of the project or the interaction with its creator. It did not really work as
money yet since there was very little that it could buy. Nakamoto himself at this stage suggested to
4 As Kristoufek comes to conclude, there are no signs of Bitcoin being used as a safe haven to begin with (see
Kristoufek 2014). 5 The term mining is actually misleading. The process rather describes the confirmation of transactions and the updating
of the public ledger by computers solving complex puzzles. The first computer to solve the puzzle is rewarded with
a fixed amount of Bitcoins (see Casey and Vigna 2015:44)
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just “get some” in case it “catches on” (see Casey and Vigna 2015:46).6 This stage overall seems to
have been closer to the notion of play, or exploration, and mostly drew in people who also had an
interest in experiencing a technological novelty. Circularity is one of the core problems of
proposing a new money game. If every individual can only play the money game when the group is
playing, how does the group begin to play it? Part of the solution is that new players can be drawn
into the way of life that is envisioned by this game, and another part is the curiosity about a smart
technical solution. Most important might be the fact that, at this stage, Nakamoto didn't ask for
much. There was no entry fee as such except for the energy costs of hardware to partake in an
interesting new project.
Bitcoin gained some traction throughout the year and grew further. Among the first to accept
donations in Bitcoin was the Electronic Frontier Foundation. This stage reflected that beginning of a
money game now played out of conviction and Bitcoin began to be accepted by organizations for
this reason but was yet hardly linked to any activities. However, the further development of the
money game came to deviate from the intentions of its creator when some members of the
community started to call for Wikileaks to accept donations in Bitcoin (see ibid.). Nakamoto was
clearly against this association and opted for having Bitcoin grow gradually, calling it a “small beta
community in its infancy”(ibid.). In the wake of the increased attention which was directed at
Bitcoin, Nakamoto came to pass the project on to Gavin Andresen and vanished unrecognized. His
creation took on a life of its own (see ibid.) and the players started to redefine the money game of
Bitcoin. The departure of founder Nakamoto concluded the initial stage of Bitcoin.
The second stage of the Bitcoin money game - Increasing the utility of Bitcoin
The second stage of the Bitcoin game explored the emerging new reason which d rew
potential players into its money game. First, there was an increased interest of the public which was
sparked through publications of Forbes and Gawkers, including the acceptance of Bitcoins through
Wordpress. Second, a variety of services emerge which altered how Bitcoin could be used,
accessed, and traded. In this section, I address three types of services that have emerged from 2011
onwards: online exchanges, illicit drug platforms, and online gambling. In terms of information
about the money game, the second stage represents a heightened interest in the finite supply of
Bitcoins drawing in an increasing amount of speculation. The first price estimate I came ac ross has
6 As it turned out, the role of speculation has been one of the prime topics surrounding Bitcoin and this proposition
already entails that.
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been 1309,03 BTC for $1.7 In the years that followed the estimate, the price of Bitcoins changed
significantly. From 2010 to 2011, the price rose to $1.06 before settling at $0.87 (see Wallace 2011).
Throughout 2011, a much-linked Forbes story led to a price increase to $8.89 before a story
published by Gawker on the popularity of Bitcoin among online drug dealers pushed the price
towards $27 per Bitcoin (see ibid.). The question then is twofold: what are the activities that altered
the money game throughout this time, and how can we frame the changes to the money game in
terms of Dodd's concept of the monetary network? I will discuss the two cases which caused the
most turmoil around that time. There have been others supplying similar services, but these two
stand out because of their size and because of the media resonance they caused. The first case is that
of the online exchange Mt.Gox.8 y 2011, Mt.Gox had become the world's most popular Bitcoin
online exchange and handled up to 90% of all Bitcoin exchange transactions (see Wallace 2011).
Despite Mt.Gox losing an equivalent of $8.75 million through a hacking attack in June 2011, the
website stayed in business. The hacking attack on Mt.Gox was only one of several hacking attacks
on Bitcoin exchanges at the time which often caused the exchanges to fold. The fact that Mt.Gox
did not fold heightened its reputation as a honest player (see ibid.). Despite its resilience to the
attack, Mt.Gox was facing a variety of organizational and technical problems of which most can be
attributed to shortcomings of Mt.Gox itself and not to the programming of Bitcoin. The
shortcomings eventually led to the loss of 850,000 BTC and in Mt.Gox filing for bankruptcy in
2014. By the time of the fall of Mt.Gox, other exchange services had already taken over major
shares of the Bitcoin trade volume. From the perspective of the money game, other things
nevertheless are more important. The focus is not the failing of Mt.Gox, but instead on how this and
similar platforms have altered the money game of Bitcoin. Establishing a service like that is not just
a surface phenomenon, but instead a serious change of the game. It redefines the requisite
knowledge players must have in order to utilize Bitcoin, the activities that have to be conducted to
access Bitcoin, how it can be traded, and what time frame has to be taken into consideration for
beneficial prices changes.
The second development is that of SilkRoad, which was addressed in the aforementioned
Gawker article. SilkRoad was a website within the TOR network where a vast variety of drugs
could be bought online and could be paid only with Bitcoins. It was originally founded in January
7 This estimate was quoted by New Liberty Standard, an early Bitcoin exchange, and was based on the estimated price
of the energy that is needed to mine one Bitcoin (see Casey and Vigna 2015: 67). 8 The domain Mtgox.com was originally reg istered by Jed McCaleb in 2007 with the intention to create an online
exchange for Magic:The Gathering game cards, yet was never used as such. In 2010, McCaleb turned the website
into an Bitcoin online exchange where buyers and sellers of Bitcoins could be matched (see McMillan 2014).
Confronted with the tremendously fast growth of his platform, McCaleb decided he was “in over his head”(ib id.)
and sold the platform to Mark Karpeles.
13
2011 by Ross Ulbricht. Ulbricht got started by selling 10 pounds of self-grown psychedelic
mushrooms. Soon thereafter, other vendors started to join and sold drugs through his website and
delivered them by mail (see Bearman 2014). The site was modeled on sites like Amazon or Ebay
presenting a well organized community marketplace including profiles, listings, and transaction
reviews. The review system in combination with community standards provided for a drug hub that
clearly exceeded the available information and accessibility of buying drugs on the street (see ibid.).
What is notable about this case is that Ulbricht explicitly identifies with libertarian ideas and
considered SilkRoad to be a political project (see ibid.). Besides the technical advantages of Bitcoin
and the initially low regulation, I believe Ulbricht's political intentions toward founding SilkRoad
support the idea that the money game includes the proposition of a way of life. However, I do not
intend to imply that everyone interpreted this proposition in the same way nor that everyone
involved in Bitcoin viewed SilkRoad positively, but the values which were present in the founding
stage of Bitcoin attracted others with similar leanings. Even with money, actors can take values into
consideration. In terms of the money game this makes for a new activity to which Bitcoin becomes
linked. Describing this activity by resorting to a dichotomy of legal and illegal might fall short in
some ways. SilkRoad was not just the performance of an illegal activity within the money game of
Bitcoin, but rather a unique service altogether. Beyond being simply the online version of a street
deal, it was a different environment with different rules and different modes of transferring the
goods. In addition to that, purchases on SilkRoad could only be conducted with Bitcoins. The
model of SilkRoad redefined the utility of the Bitcoin money game for many of its actors who were
interested in such a trade. Aside from that, the Gawker article actually heighten the traffic of
SilkRoad tremendously (see ibid.). Legal prosecution eventually caught up with SilkRoad, which
led to the arrest of Ulbricht in 2013 and the closure of the platform, but various imitators have
followed in his footsteps ever since.
The third contribution to this stage came from the development of online gambling services
such as SatoshiDice.9 For SatoshiDice and other online gambling services, Bitcoin has a variety of
technical benefits. SatoshiDice relies on the continuous creation of random values by the mining
process of Bitcoin and allows its customers to take bets based on these numbers. At times,
SatoshiDice made up 50% of the transaction traffic of the Bitcoin network (vgl. Matonis 2013). Two
other services that can be named for that time where bitZino and Seals With Clubs, offering games
like roulette and blackjack. The attraction of Bitcoin stemmed from its technical properties such as
9 „SatoshiDice reported first year earn ings from wagering at an impressive 33,310[bitcoins, ed. Note]. During the year,
players bet a total of 1,787,470 in 2,349,882 individual bets at an average monthly growth rate o f 78%. Earnings
were calculated from eight months of data covering May to December, 2012.“ (Matonis 2013).
14
privacy, payment irreversibility, and cost savings which lead Matonis to call it the ideal digital
casino chip (see Matonis 2013). Furthermore, those services benefitted from the cost savings of
Bitcoin and the low legal regulation.
These are the three exemplary cases which I want to present as significant for the second
stage of the Bitcoin money game. Unlike the first stage, the second stage was driven less by
curiosity about the technology and more by the utility of Bitcoin. The emergence of online
exchanges made this money game more open to a broader range of possible players. The
continuous matching of buyers and sellers on Mt.Gox gave information about the expectations of
others and thus the state of the game and it also gave a better impression of the reach of the game.
In this stage, a variety of new moves were introduced to the money game, ranging from more
refined monetary activities on online exchanges to drug trafficking and gambling. It is certainly not
coincidental that some of the early adopters of Bitcoin such as SilkRoad supplied services which
are usually deemed illegal and thus face higher barriers in other money games. This resonates with
the idea that money games have to be evaluated in comparison to the games which are available to
the player. Even if the Bitcoin money game was yet flawed, the hurdles for such activities present
in other money games heightened its attraction. Over time we do however see a decrease of the
impact of sites such as SilkRoad on the Bitcoin economy (see "Analysis of Silk Road‟s Historical
Impact on Bitcoin" 2013) towards more law abiding merchants. This might shed some insight in
part on how Bitcoin could overcome the problem of the network effect. Merchants participate in a
money game when there are customers who deal in it, and customers become attracted by being
able to make purchases from merchants (see Luther and Olson 2015:25). Here we then come to see
a gradual shift where actors for whom there is more pressure in other money games become early
adopters of an alternative scheme and then broaden the user base which again makes it more
attractive to merchants who face a lower hurdle in the money game in which they do business
already. However, as a result Bitcoin was left with a shady image for some time.
The third stage of the Bitcoin money game – Reaching recognition by sizeable actors
Throughout the third stage of the Bitcoin money game, Bitcoin came to be recognized by
some sizeable actors. This greatly heightened the exposure of Bitcoin and led to notable changes in
the Bitcoin landscape. In part, these events were strongly linked to the second stage of the money
game because legislators found themselves bound to address these events. The consequence of the
events of the third stage will be a reshaping of the ongoing uncertainty surrounding Bitcoin and an
increased mainstream recognition. Three cases exemplify what was happening in this stage. The
15
cases will be the recognition of Bitcoin through Baidu and eBay, the hearing by the Senate
Committee on Homeland Security and Governmental Affairs to gauge the risks and prospects of
Bitcoin, and the adaption of Bitcoin through Overstock.com. Out of the selection, the first to take a
stand on Bitcoin was Baidu, a Chinese internet giant with a market cap of $53 Billion, which
declared on the 14th of October 2013 that it would accept Bitcoin payments for its services. This
decision was in part motivated by Baidu wanting to associate itself with Bitcoin as a “trendy”
technology (see Spaven 2013). Shortly thereafter, eBay president John Donahoe declared that
Bitcoin would become a “very powerful thing” (see Spaven 2013a). While he made clear that eBay,
respectively Paypal, had no current interest of implementing Bitcoin he did make clear that they are
closely monitoring its development. With two actors of this size taking a stand on Bitcoin the
consequence was a notable exposure of Bitcoin and along with this an increasing demand for buying
Bitcoins. In terms of the money game, this led to an increase of information about the expectations
of others knowing that many observers would take the views of eBay and Baidu seriously. It also
might strengthen expectations about Bitcoin's future re-usability. Aside from those demand shocks
which were driven by such announcements, it made for a bit of a self-perpetuating buzz which again
attracted the interest of new players.10
Another factor might be Bitcoin's properties as a technology. While many actors were
uncertain about its quality and lack the knowledge to form an estimate of their own, they trusted a
company like Baidu or eBay to form a reliable opinion on these properties. In this sense, deference
to Bitcoin reduced the uncertainty about its quality as a technological innovation. As Joel M.
Podolny pointed out, in an environment of high uncertainty, actors rely on the estimates of high
status actors to form an opinion of the underlying qualities of a newcomer (see Podolny 2008).
However, the association can also work the other way around as we see with Baidu. Baidu does--
and this is an important aspect of overcoming the network effects of a new money game-- present
itself through Bitcoin as a tech-savvy organization capable of recognizing upcoming trends. Both
the vision of a money game and the buzz that surrounds it can bleed through to the organization
which associates with it. Martin Gauss, the chief of Air Baltic, made this explicit in an interview
where he attributed his decision to implement Bitcoin in part to the media attention that came with it
and made for an advertisement which a company of this size could otherwise not afford. All Bitcoin
payments however were immediately exchanged into Euro to minimize the exposure to the volatility
of Bitcoin (see Koenen 2015).
10
After the interv iew with Donahoe, the price rose from $225 to $478$ throughout the next days. There has been an
upwards trend before that however so it remains unclear how much of that rise should be attributed to that
Interview d irect ly.
16
This was followed by the second and possibly most important moment in the young history
of Bitcoin. This was the hearing by the Senate Committee on Homeland Security and Governmental
Affairs. Throughout the hearing, it became clear the various agencies of the U.S. government were
willing to acknowledge the technical benefits of Bitcoin but were concerned about some of the
illegal activities which had been conducted with it (see Raskin and Pui-Wing 2013). While the
criminal use of Bitcoin was a prominent topic of the hearing, the outcome of the hearing was
considered to be a positive signal for Bitcoin.11 This relates to the topic of knowing the rules of a
money game. Throughout the short history of Bitcoin, there has been much uncertainty regarding
the legal status of Bitcoin. Resolving this uncertainty was not just in the interest of legal
prosecutors, but also desired by many merchants who found themselves often to be unclear to what
laws they have to take into consideration for certain business models (see McMillan 2013). While
the hearing did not clarify the rules of Bitcoin, it was taken as a signal for an amenable regulatory
environment (see Hileman 2013).12 The longing for more legal clarity on transactions conducted in
Bitcoin might already be viewed as contrasting with some aspects of the original vision. For many
merchants, privacy or an exclusion of the state are of limited interest and associating with activities
that could be viewed as tax avoidance or money laundering are highly unwelcome. The role of
privacy or the exclusion of the state have probably rather delayed the mainstream adoption of
Bitcoin. While these propositions were attractive to some of the early adopters such as SilkRoad,
many merchants have no interest in being linked to a situation that could be viewed as problematic
by legislators. Clarity about how to tax earnings in Bitcoin or how to declare earnings in Bitcoin are
more important to many merchants than some of the more adventurous propositions of it. For the
money game of Bitcoin, being recognized by such a sizable actor did strengthen the expectations
about the future acceptance of Bitcoins. Most importantly it seemed to indicate that there will be
more refined legal rules for the money game of Bitcoin in the future. While this might have made
Bitcoin less attractive to some of the actors who pushed it in the second stage, it redefined the
money game in a way that would cater to a different type of player. Of course, once again, a hearing
of this size makes for a notable exposure of Bitcoin and might have drawn actors who at that time
had not yet noticed Bitcoin.
The third example on that list is the acceptance of Bitcoins through Overstock.com.13 On the
11
In addition to that, it lead to a price jump from 478$ to 744$ per Bitcoin within a day. 12
This is a situation that has also been described by Milhaupt and Pistor: "A signal often can be sent by important actors
taking measures that fall short of legally enforceable statutes or regulations - what legal scholars somewhat
ambiguously call ‚soft law„." (Milhaupt and Pistor 2010, 34). 13
Overstock is an major online retailer which offers goods ranging from electronics over cloths to furniture achieving $
17
September 1, 2014 Overstock officially started accepting payments in Bitcoin for its entire range of
goods. Once again, it is interesting to note that Overstocks CEO and chairman Patrick Byrne is an
outspoken Bitcoin enthusiast for whom Bitcoin is also a political statement in a effort to overcome
the control of the big banks (see Metz 2014). His decision for implementing Bitcoin also comes
from his libertarian convictions and this once again resonates with the idea that envisioning a money
game also means envisioning a way of life. The adaption of Bitcoin through Overstock is a huge
step towards the mainstream, even thought incoming Bitcoin payments are few and the risk of the
volatility is put off to Coinbase, which instantly converts incoming Bitcoin payments into regular
currencies. Bitcoin does currently offer cost benefits to Overstock with the fees which are being
paid towards Coinbase being much lower than what Overstock pays otherwise, but for Byrnes it
also means a step towards freedom from bank self- interest and government interference (see ibid.).
The question then is, what does this mean for Bitcoin as a money game? Thro ughout the third stage
of this money game some sizable actors start to recognize Bitcoin. In this stage of the money game,
we come the see an reduction of uncertainty about the technology of Bitcoin and movement towards
a more concrete definition of the legalistic rules which will govern Bitcoin in the future. In this
sense, the game has become more stable and more refined. All the described events mark a move
towards the mainstream of payment options and push Bitcoin in a less adventurous direction. With
this change comes a departure from some of the stronger convictions of the founding stage. While
Byrne does make a clear reference to those convictions, it increasingly becomes evident that
Bitcoin, unlike other regional alternative money games, has few safeguards against being drawn in
by large scale investors or being redefined by entrepreneurs. While the move towards the
mainstream of payment systems is often considered a sign of Bitcoin's success, becoming more
streamlined in this regard also means that it loses some of the edge of the original proposition.
Conclusion and outlook
The question with which I started work on this paper was to understand what could
motivates someone to want to use Bitcoin. I listed various reasons for why someone would want to
use or associate with Bitcoin. There is some speculation involved in this which would require
further empirical investigation, but I do think this provides for a first idea what to look for. I do
think it makes sense to think of money in the sense of a money game, and it takes away some of the
oddness from the proposition of new money games. I described various stages which offered
differing reasons for players to enter the money game of Bitcoin. Starting from a more enthusiastic
1,3 billion dollars a year (see Metz 2014)
18
field of early adopters, the game became more accessible and came to offer unique and "trendy"
services until it reached large scale recognition and drew in an increasing amount of speculation,
venture capital, and sizable vendors. At a closer look other factors than cost savings or utility
become relevant for some actors as can be seen by some key actors naming political and ideological
reasons for picking up the Bitcoin money game. The value of positioning oneself and one's
company by associating with an alternative money game, either because of its values or because of
its media coverage, was discussed. However, from the very beginning speculation has been a major
factor in the story of Bitcoin, and even Nakamoto points to that with the advice to get some
Bitcoins "in case it catches on." Ever since the buzz around Bitcoin, the large volatility has hindered
its use as currency and, as Glaser et. al. come to conclude for the timeframe from 2010 to 2013,
many new Bitcoin users are less interested in an alternative money game than in the view of Bitcoin
as an asset which they hold in the hope of further price gains (see Glaser et. al 2014).
Various actors have come to accept Bitcoin, such as Dell, Expedia, Shopify (see "What Can
You Buy with Bitcoin?" 2014), Wordpress, Reddit, and Mega (Dodd 2014: 365), but the question
remains as to what such acceptance says about Bitcoin as money since many companies benefit
from its low transaction costs and payment system but shield themselves from holding Bitcoins to
reduce risk. Bitcoin as a money game is not about to supersede national currencies, but it has appeal
within its niche. Moving towards the mainstream has pushed back some of the more political
aspects of Bitcoin. While Bitcoin began with a political vision, there are hardly any safeguards in
place to enforce that vision. Bitcoin might even contribute to events which are directly opposed to
that vision. While the illicit use of Bitcoin and financial privacy have been prominent topics,
Bitcoin also makes for a tightly monitored monetary system. It is often claimed that critics of
Bitcoin overlook that cash is the prime exchange medium to purchase illegal goods and services,
but my impression is that this is hardly overlooked at all. Instead, we see scholars like Kenneth
Rogoff dreaming of a cashless society altogether to prevent all forms of payments which are being
deemed illicit (see Rogoff 2014). While Bitcoin enthusiasts frequently advocate individual
freedoms, the technology itself could just as well be used for strongly monitored monetary systems
and, in this day and age, perfect financial monitoring would make for a strong disciplinary tool.
19
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