On August 8th 2022 I debated the nature of digital assets and how value theory can be expanded to the domain of digital commodities. The full recording is available in Portuguese on YouTube. The debate took place between myself and Edemílson Paraná, and was moderated and hosted by André Roncaglia on his YouTube channel.

Edemílson Paraná and I made the following points during the debate:

(i) Bitcoin is not money because it is not a general equivalent of the value of goods and services (as any form of money must be), and also because Bitcoin does not fulfill some of the core functions of money such as general unit of account and stable store of value;

(ii) Bitcoin is not money but rather a digital commodity that has a very high level of liquidity at the global level. This high level of global liquidity creates the illusion that Bitcoin is money;

(iii) When people buy and sell stuff with Bitcoin, they are not buying and selling stuff with a cryptocurrency. They are in fact exchanging a digital commodity with high liquidity for other commodities;

(iv) Bitcoin mining implies no financial liability to the issuer, and thus Bitcoin is not a financial asset upon its issuance. Bitcoin can become a financial asset later on, but it is not a financial asset when it is mined for the first time. The issuance of new financial assets necessarily entails the creation of a financial liability to the issuer. But in the case of Bitcoin, there is no financial liability to the Bitcoin miners;

(v) Money is issued as a financial liability by central banks and also by commercial banks, which then becomes a financial asset to other economic agents;

(vi) Bitcoin has value but no value added. The value of Bitcoin is the value transferred from its means of productions such as the depreciation of computer hardware, utilization of warehouses, expenditure of electricity to power up the computers, and the cooling systems to keep the temperature of the computers down. But Bitcoin uses zero or very close to zero direct human labor to be re-produced. Virtually zero direct labor is needed to mine new Bitcoins. The validation of transactions if fully automated and requires negligible inputs from human labor. According to the labor theory of value, the only source of new value added is direct human labor in productive activities. If there is no direct labor in the reproduction of the commodity, be this commodity digital or not, there cannot be value added. If zero direct labor is required to mine new Bitcoins, then Bitcoin has value but no value added;

(vii) Bitcoin mining creates no value added and hence all the profits made with Bitcoin mining and trading at the micro level are in fact reallocations of value added at the macro level;

(viii) Bitcoin mining does not represent the creation of new purchasing power, it is a mere reallocation of already existing purchasing power in the global economy;

(ix) GDP measures the flow of value added created in the economy. But because Bitcoin mining does not create value added, it should not be included in the computation of GDP;

(x) The labor theory of value can be expanded to the growing domain of digital commodities such as crypto assets, NFTs, and smart contracts;

(xi) The subjectivist value theory based on utility, known as “utility theory of value”, is not really a theory of value in any substantial way and it thus cannot offer much insight into the world of digital commodities as the labor theory of value can;

(xii) Societies change as both institutions (the explicit and implicit rules of the game) and technology change. Hence, it would be naïve to think that technology alone (such as Bitcoin and blockchains) could leads us to a post-capitalist world;

(xiii) Unproductive activities, such as Bitcoin mining, do not create new value added and thus directly draw value added from productive activities. But unproductive activities can still have an indirect positive effect that is either larger or smaller than the direct negative effect. The actual net effect of unproductive activities on productive activities, which takes into account both the negative direct and positive indirect effects, needs to be estimated using real-world data;

(xiv) The real revolution that Bitcoin achieved is that it effectively instituted the private property over a digital commodity, which by its nature can be reproduced at zero marginal cost, without state enforcement of property rights. This feature had never been achieved before Bitcoin. By their own nature, digital commodities can be copied indefinitely and thus reproduced at virtually zero marginal cost. Without the enforcement of property rights by the state via patents and copyrights, digital commodities would not be produced for profit. The private property over digital commodities and digital assets could not be guaranteed without the legal enforcement of the state. In this regard, Bitcoin achieved something that had never been done before: it prevented the free reproduction of a digital commodity and it achieved this feature without resorting to any legal apparatus, law, patents, or copyrights. The “proof of work” and the blockchain together ensure that the same unit of Bitcoin cannot be duplicated, albeit this unit is a digital commodity that in principle could be reproduced indefinitely at zero marginal cost. The “proof of work” and the blockchain thus institutionalize the private property over a digital asset with no resort to state enforcement of property rights. This particular feature is the real Bitcoin revolution, for it expanded private property to the digital domain and thus paved the way for the proliferation of several digital assets such as NFTs and smart contracts.

The debate was a follow-up on my recently published paper “Bitcoin as a Digital Commodity”, co-authored with Edemílson Paraná, which is available open access in the New Political Economy journal.

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