Introducing Aleph-Bits, a new feature for The Scroll by the writer, software engineer, and critic David Auerbach, exploring the human dimensions and ethical questions of digital life.Is it possible that the notorious volatility of bitcoin is not caused by any quality inherent to the financial instrument or technology involved but is, rather, a function of its rejection of human society and the possibility of trust?Wouldn’t the bitcoin speculators like to know, shaken as they are by the arrival of a bitcoin winter that has seen its value, along with other similar cryptocurrencies, fall sharply in recent months. The drop has pleased naysayers while putting crypto-enthusiasts on the defensive but, in truth, little will be resolved by the recent crash. All assets suffer crashes from time to time, and the rather evident fact of a cryptocurrency bubble doesn’t necessarily mean that cryptocurrencies won’t be with us in some form for quite a while, even if they never come close to fulfilling their proponents’ dreams. It is, however, rare for an entire asset class to reach an $800 billion market cap—and then fall to $200 billion within months—while remaining so little understood.The fundamental question which we must address to understand, not only the crash itself but its relationship to human affairs, still remains unanswered 10 years after bitcoin’s debut is: What is bitcoin? It’s still not clear whether we should understand bitcoin as a currency, a virtual gold, or a sui generis asset class and economics is less than helpful when economists cannot agree on the nature of an asset in the first place.The answer is found in a different question: What is money?The German sociologist Georg Simmel (1858-1918) had a great deal to say, not about economics, but about the nature of money itself. Of the three great sociologists of fin-de-siecle, Simmel is less known than Max Weber and Emile Durkheim, in part because his work is more interdisciplinary and in part because German anti-Semitism harmed his career and hindered his influence. Simmel’s magnum opus isThe Philosophy of Money (1900), an extensive treatment of money, not as an economic phenomenon, but as a societal force. His observations from the turn of the last century, bear closely on the role of cryptocurrencies today.The core function of money, Simmel wrote, is to collapse all value systems, particularly rivals, into a single column where all values can be measured against one another in purely numerical terms. For Simmel, money is all form and no content. Unlike the material traded in a barter system, Simmel argued, money has no intrinsic value: “Money is really that form of property that most effectively liberates the individual from the unifying bonds that extend from other objects of possession,” he wrote. Whether we are dealing in food, drugs, or human beings, money abstracts away from the particularities of commodity, buyer, and seller to make all transactions and all commodities commensurable.We all know that everyone needs money, even though we have little idea what any particular person wants it for. The familiar tautology is summed up by a memorable line in the David Mamet film, Heist: “Everybody needs money! That’s why they call it money!” The power of money’s value-neutral nature is evident in the way it lends itself to antithetical interpretations. Bitcoin detractors cast it as a sinister vehicle for the proliferation of drugs, child pornography and assassination markets. Meanwhile, at the same time, bitcoin champions valorize its revolutionary potential to liberate commerce and social interaction from the censorious eyes and grasping hands of states and central banks.For money to take on this ubiquitous, value-neutral quality, Simmel stresses that it must interact with as many competing value systems as possible:A certain quantity of money, however, is important only in relation to other values. Hence, in order to attain a stable and just valuation, money has to be confronted with as many other values as possible. This is the reason why not only ‘everything presses for gold’–men as well as things–but also why money itself presses for ‘everything.’ It seeks to come together with other money, with all possible kinds of values and their owners.In other words, for money to function as money, it must serve as the glue between myriad communities and forms of economic life, something that most fiat currencies do with ease, backed both by numbers and by the force and legal system of a government. To paraphrase the famous anonymous student of sociolinguist Max Weinreich who said, “אַ שפראַך איז אַ דיאַלעקט מיט אַן אַרמײ און פֿלאָט” (“A language is a dialect with an army and navy”), we can say that a currency is an IOU with an army and navy.Bitcoin has no army or navy, but in compensation, it is one hell of an IOU. Bitcoin’s first goal, as stated in Satoshi Nakamoto’s original white paper, was to eliminate the need for trust and middlemen in financial transactions by making them unmediated and irreversible. It works through an ingenious distributed, cryptographic mechanism broadly labeled as “blockchain,” which produces an authoritative and (mostly) indisputable single record of bitcoin transactions, without a central authority.The genius of bitcoin was to quantify the labor of establishing trust relationships in wholly inhuman and objective terms: that is, in computing useless tasks. Those nodes who do the computationally expensive work of validating such transactions are termed “miners,” who are incentivized in various ways to do such work. Whether the system is based on proof-of-work (like bitcoin) or proof-of-stake (like rival cryptocurrency EOS), the cost of protecting the network from bad actors and fraud lies in the “mining” work of solving meaningless cryptographic problems in order to validate transactions in the blockchain. Bitcoin does not allow for the possibility of good-faith trust between human beings; its users always pay the mining tax to secure their transaction.The impersonal trust relationships that fuel regular, state-backed currencies nonetheless signify some sort of bond between currency holders and their surrounding polities and citizenries. The surplus costs of transacting with fiat money like the dollar are paid to middlemen like creditors, and governments, and, as onerous as we may find these institutions, they can represent a form of community belonging and institutional obligation. On the other hand, the surplus mining costs of bitcoin—the computational expenditures required simply to process transactions—do not represent any personal or human bonds whatsoever, positive or negative.Bitcoin’s original goal of a decentralized peer-to-peer financial network is no longer its sole or even primary objective. AuthorsHasufly and Nic Carter explain that one of the dominant views of bitcoin today is as primarily a reserve currency for other cryptocurrencies, bitcoin being too unwieldy and too “pure” to function as a practical currency for most uses. Under this view, bitcoin is less money than meta-money, and a very restricted meta-money at that, touching only other cryptocurrencies at a significant remove from human financial transactions.With the insights provided by Simmel’s work into the nature of money and, by extension, the nature of bitcoin, we have some clues to answer our original question about the costs that come with taking the human element out of a value system—in this case, finance.Any cryptocurrency must broadly reach agreement or consensus in the absence of any explicit community or trust relationship. But as Simmel (and others since) have stressed, the absence of trust demands a premium, and bitcoin’s transaction premiums are notoriously high: a guarantee of indisputably performed useless computation. Via Simmel, I speculate this is less a design flaw than an inevitability. Bitcoin emancipated itself from any possible societal or governmental stricture at the cost of an expensive but wholly mechanical autonomous trust network. Instead of the community of humans, bitcoin embraces the community of machines.