The Crypto Soviets

Many CryptoCats think of themselves as Anarchists or Austrians; but in their view of Law & State, they are eerily Soviet. This presents a viability problem.

This article is a birthday gift to Satoshi Nakamoto on the occasion of the 10th anniversary of the publication of the Bitcoin Whitepaper.

As far as birthday gifts go, it’s like a subscription to National Geographic — you may not have wanted it, but you know that every issue will teach you something new.

In this case, the gift is a subscription to Crypto Law Review (shameless plug, yeah, whatever). And just for you, Satoshi, here’s an analytical piece that goes so far against the crypto mainstream that we even doubted whether to publish it. We know Faketoshis will hate it. But true Bitlievers know that the critiques here are long overdue.

So, happy birthday, Satoshi! On behalf of thousands of crypto developers who were spurred to write their own visions of crypto’s future on top of the Bitcoin Whitepaper — thank you.

Now, let’s talk politics.

1. The Crypto Soviet State

Over at Crypto Law Review, we’re hard at work mapping CryptoLaw and sketching out different crypto legal theories. We’re basically trying to figure out (1) how crypto fits within existing social orders, (2) how crypto seeks to change current social paradigms, etc. As important, we focus on (3) how existing frameworks seek to change crypto.

It doesn’t matter what perspective you start from; inevitably, one’s analytical gaze turns to the role of the State in a given Cryptopia.

Generally speaking, crypto folks don’t like to talk about the State. If they came to crypto “for the ideology,” chances are they want to get away from the State.

That’s understandable.

Outside of crypto, many people want nothing to do with government organs either.

Many crypto people genuinely want to write their own laws, use their own money, and just live their best homo libertarian lives — free from outside control.

But ideology is a curse as much as a blessing. Whatever the ideology may be, strict adherence to it usually dulls criticism, censors dissent, and locks adherents into unsustainable conceptual boxes. It’s not a problem unique to crypto, but it’s a big problem in crypto nonetheless.

Much of crypto-political analysis today is just oversimplified ideological virtue signaling. It’s less politics and politicking, and more brand-identity and marketing.

Thesis 1: When today’s cryptonaires declare that crypto has “achieved decentralization,” it sounds way too much like the Soviet Union’s fiat declaration that it had “achieved communism.” While there’s some truth to both statements, the reality is far off the mark.

2. Crypto Ideological Boxes

Ideological shackles get especially tight once outside observers start pointing out that someone’s stuck in this or that box.

For the person in the box, liking the box then becomes a nearly supernatural article of faith:

“My box, right or wrong.”

We often see crypto folks waving particular ideological flags. And we just wonder — why?

Why would you want to be stuck in a box?

It’s not that we don’t have values or principles or political preferences. We do, and we espouse those values and principles and preferences loudly and proudly.

But labels, badges, pre-packaged ideologies … these seem so limiting. And in a field as rapidly evolving as crypto, they also seem totally unnecessary.

  • “I’m a Crypto-Anarchist!”
  • “Oh yeah, well, I’m a Crypto-Libertarian.”
  • “Pshht, I’m a Crypto-Austrian, eat that!”

Whenever we come across these lines, we try to imagine Satoshi Nakamoto today saying something like “I’m actually a Crypto Liberal-Anarcho-Syndicalist,” or whatever — and yeah, we just don’t see it.

Today, we imagine Satoshi would want to talk about use cases, network security, new material markets & new social paradigms, not the fine distinction between a Crypto-Rothbardian and a Crypto-Paulian.

Thesis 2: On the 10-year anniversary of Bitcoin Whitepaper’s release, the crypto community needs Satoshi Nakamoto to restore some balance by expressly foregrounding cryptonomics over tech; and both over ideology.

3. Desperate Times Call for Vladimir Nakamoto

Short of Satoshi making a spectacular reappearance to announce that crypto should sink development resources into CleanApp (an NGO can be forgiven for hoping), we’ll continue making this argument as we know best — with hard analysis.

On the occasion of the Bitcoin Whitepaper’s 10th-birthday, we think a good way to shake things up — analytically — is to expose some uneasy parallels that Crypto Freedom-loving ideologies have to one of the 20th century’s most-reviled (& worst-understood) major ideology: Sovietism.

Vladimir Ilych Nakamoto

We get it. We’re Liberty-loving, Satoshi-admiring crypto cats too. We know the mere comparison will get some people cranky.

But you know what should make those people even crankier?

  • The fact that today’s crypto transaction volume is in the millions, not billions.
  • The fact that crypto adoption rates are in the millions, not billions.
  • The fact that crypto is not accessible to the masses, even when launched by teams that have the technological chops and financial reserves to reach the masses.

Today, it’s not a lack of technological capacity that’s holding crypto back. And it’s certainly not a lack of financial resources.

Today, crypto is held back by the age-old coordination problem — trying to get a bunch of people united around a shared cause. So long as the shared cause is money, crypto coordination will fail because post-Bitcoin, “money” is more contested & contestable than ever.

Aside from primal instincts and enrichment, crypto is trying to solve its global coordination problem with game theory and mathematics.

Our intuition is that crypto developers will solve the biggest global coordination problems much faster by returning to their ancestral genesis blocks. What’s needed is reflection on what the poorest Moscovites, Romanians, Nigerians, and Chicagoans need from crypto, instead of the other way around.

Thesis 3: Today, there is no easy way for a newcomer to easily earn crypto by doing socially useful work. The crypto community must launch an interoperable crypto earning platform — this is the ONLY way that crypto can reopen regulatory runways (which are steadily being narrowed due to crypto’s inability to coordinate global scaling).

4. Cryptoviks v. Blockchainiks

There are many reasons why crypto folks take their eyes off the big prize — truly global public blockchain architectures.

There are legitimate disagreements over tactics. Personalities might not be compatible. There are frequent external threats that force rearrangement of priorities. Others might have lost focus while revising “intergenerational wealth-transfer” plans and choosing a name for a new yacht or stallion.

But that’s precisely why we should think back to 1905 and ask whether today’s Cryptoviks v. Blockchainiks (like Mensheviks v. Bolsheviks) are getting bogged down in too much (1) inter-crypto rivalry, (2) too many secret agendas, and a (3) clear leadership deficit — ?

We’ll be the first to say that in the abstract, the three weaknesses above can be restated as crypto’s core value propositions: (1) competition, (2) tiered code repositories, with hidden and compartmented access to sensitive user-side data, and (3) broadly decentralized democratic protocol control. In the abstract, yes, these are all virtues.

But ten years after the release of the Bitcoin Whitepaper, the fact remains that a normal working person can’t download a crypto wallet app, do an honest day’s labor with that app, and earn enough crypto to buy a loaf of bread to feed her family. And there’s nobody to wag a finger at, except a disembodied “crypto.”

These are major problems; and they are structural problems within the crypto space.

You can buy or borrow crypto easier than you can say “Satoshi Nakamoto,” but there is no crypto earning platform to speak of, no unique crypto-backed material markets to speak of, no identifiable adoption driver to speak of.

Thesis 4: It’s time to end the unproductive Crypto Civil Wars over who runs the more authentic blockchain, Bitcoin or Bitcoin Cash, Ethereum or Ethereum Classic, and so forth. Potential adopters don’t care; they just want to know which chain will let them earn money easier.

5. Material Potential Dwarfs CryptoFinance

Crypto started by trying to fundamentally re-write our socio-legal DNA. Now, many leading crypto figures are downscaling expectations.

Some first-generation crypto advocates think crypto has made an “astronomical improvement in finance,” and now, focus should turn to legitimizing gains.

It’s not clear to what extent this sentiment is shared, but it’s premature for crypto to congratulate itself on a job well done: it’d be like Bolsheviks congratulating themselves for winning “the Revolution” in … 1915.

The crypto revolution has not stalled. But it needs a jolt:

  • Crypto’s full potential is in material assets, not only “digital” or “financial” assets. CryptoKitties, CryptoTitties, CryptoGraffitis and whatnot aren’t material markets; they illustrate distorted so-called digital asset markets.
  • Crypto must deploy global material goods and services markets ASAP to re-open global regulatory runways. Crypto lacks an adoption driver that clearly shows policymakers why they should not interfere with crypto. That’s a big problem; every honest crypto analyst must agree that it’s a problem; then, these same analysts should commit resources to solving this problem. CryptoBooty is cool; CryptoTreasure is cooler.
  • If crypto remains a FinTech bubble, then that’s all it will ever be. In that case, new crypto money markets simply restate the problem, rather than offer any meaningful solution. One ruling oligarchy (e.g., Wall Street), is challenged by another (e.g., Silicon Valley) and is eventually replaced by a third (Crypto). That’s not a good outcome.

Thesis 5: Crypto’s fat cats are some of crypto’s biggest problems. If their primary incentives are (1) legitimizing profits, and/or (2) fanning ideological warfare, and/or (3) bubblenomic profit-taking, it suggests a lost connection with the people whose labor produces the power that drives hungry Antminers. Continued fetishization of finance undermines crypto’s full economic potential.

6. Crypto Anarchy as Problem, Not Solution

We’re early in our understanding of different schools of “crypto anarchy,” but an easy jumping off point for thinking about crypto-anarchist sensibilities is to quote self-professed crypto-anarchists themselves.

What follows is not an analysis of crypto anarchy as ideology, per se, but analysis of crypto anarchy as a particular crypto sensibility. The focus here is on the crypto in ‘crypto anarchy,’ instead of the supposed anarchy in ‘crypto anarchy.’

Timothy May’s 1988 The Crypto Anarchist Manifesto, coined the term “crypto anarchy.” A few years later, May reflected on the origin of the term:

I devised the term crypto anarchy as a pun on crypto, meaning “hidden,” on the use of “crypto” in combination with political views (as in Gore Vidal’s famous charge to William F. Buckley: “You’re crypto fascist!”) and of course because the technology of crypto makes this form of anarchy possible. The first presentation of this term was in a 1988 “Manifesto,” whimsically patterned after another famous Crypto Anarchy and Virtual Communities manifesto. Perhaps a more popularly understandable term, such as “cyber liberty,” might have some advantages, but crypto anarchy has its own charm, I think.

The meaning of “crypto anarchy” has been stretched ever since. It now includes various communitarian theories of crypto-anarchic social organization (stronger communities = less reliance on government). It includes different hybrid crypto-anarcho-libertarian traditions, and so on.

There’s a certain charm and clear value in going to the fountainhead to understand the basic outlines of a “crypto-anarchic” strategic vision and tactical roadmap. For us, the original emphasis on crypto’s hidden essence is key:

  1. First and foremost, it suggests the centrality of protected, clandestine, truly private networking. Exclusivity and secrecy might have been crypto’s breakout tactic, but the logic behind the value of hidden networks never changed. Hidden/private networks are extremely valuable at global scales. However, hidden/private networks are also extremely vulnerable at global scales.
  2. Second, there’s a time dimension to the term “crypto anarchy” — how long would crypto networks be hidden?
  3. Third, there’s a political dimension: who is hiding what, and from whom?
  4. Fourth, without more context, a “hidden” crypto-anarchist project does not offer a discrete normative vision. Whatever political vision is ascribed to crypto-anarchy at any given time, encrypted ideology is the ultimate form of plausible deniability. The political program can be changed at any moment, and the party changing it can plausibly maintain the change was coded into the program since the start; it was just hidden from view until such time as it needed to be activated.

Just like proto-Bolshevik networks, techno-network anarchy can be hidden in plain sight, coexisting with existing socio-legal frameworks. Or the crypto-anarchist network can be hidden until such time as it attains techno-primacy over existing socio-legal frameworks, at which point the network can reveal itself. Or, a shard of the network can remain hidden.

All networks that start as dark webs will always be anxious that clandestine usurpers are growing in their midst.

Returning to crypto as a system of clandestine socio-economic orders highlights one of the most consequential riddles in all of crypto: What is crypto’s crypto?

In other words, what are the best-hidden and most closely-guarded parts of today’s crypto landscape? How do crypto insiders transfer crypto-capital between one another? What are the organizational structures that crypto insiders use to incentivize best efforts from the most valuable members of their teams? What are the things that crypto folks don’t want to talk about (publicly)?

Consciously or not, here are the main things today’s crypto discourse seems to avoid:

Brazil’s Ambassador to the United Nations (copyright Relex)

Thesis 6: It’s important to identify blockchain’s weakest conceptual links ASAP because they’re precisely what we should be debating publicly.

7. Crypto-Anarchists v. Crypto-Austrians

Crypto-Anarchists are ideological and intellectual cousins to so-called Crypto-Libertarians and Crypto-Austrians. “Cousins” implies infrequent conversation, occasional cross-pollination, and loose affiliation to a bigger free-thinking family tree.

Following convention above, we expressly disclaim that what follows isn’t an endorsement of this or that view. We know that our sketch is a gross generalization.

The point here is to capture a deliberately impressionistic snapshot of Crypto-Austrian thought, like the way a redditor (say, daznez) would describe the philosophy on a rapidly unfolding online thread.

In our experience, when people self-identify with a given ideology, they give a much more honest perspective on that ideology. It may not be complete, but it’s refreshingly frank. Here’s daznez:

central banks (and governments) are the problem. there should be no centralised control of what people want to use when freely exchanging goods and services (or control over anything else for that matter.)
can you tell i’m an austrian?

Expanding the aperture, here are a few additional broad tenets of Crypto-Austrian faith:

  1. the role of the Blockchain/State is to clearly define property and contract rights, and to defend those rights;
  2. parties have limitless Blockchain power to “write their own law”
  3. parties can take legal enforcement into their own hands (“self-enforcing smart contracts.”)
  4. it’s a lot easier to replicate and adopt existing legal forms (rules, processes, institutions) than it is to devise them from scratch (Hayek).
  5. […]

Thesis 7: Crypto’s purportedly Hayekian process of legal form appropriation is eerily Soviet; crypto legal theorists claim they can use existing legal mechanisms to change the system from within. In so doing, crypto theorists seem to overlook the fact that legal institutions design and refine legal mechanisms to accomplish multiple tasks, principal of which is to uphold the centrality of … legal institutions.

8. (Crypto v. Law) = (Soviet v. Law)

With the context more or less in place, we can narrow our focus: if getting rid of particular State structures was/is crypto’s goal, why did crypto use utterly conventional legal forms (like “contract,” “constitution,” etc.) when creating “alternative” models of socio-economic organization? Is that possible? Is it strategically wise?

As theoretical and empirical matter, Crypto’s attempt to repudiate “wet law” and fundamentally restructure the DNA of the modern State is remarkably similar to Soviet repudiation of “Western/bourgeois law.”

To the Soviets, the Western central banks (and Western governments) were the problem. The Soviets claimed there should be no centralized control of what people want to use when freely exchanging goods and services — captured in the early Soviet mantra of “all power to the Soviets.” Theoretically, daznez would have felt right at home.

Here are some other similarities between Cryptonians & the Soviets:

  1. the role of the Soviet State is to clearly define property and contract rights — including individual, personal and private rights — and to defend those rights (so long as they are being channeled towards broadly-defined state-building efforts);
  2. The Party has limitless power to “write their own law” & the parties (Soviets, enterprises, cooperatives) have power to write their own laws (so long as they are adding to Soviet network effects.
  3. The Soviets were all about “sound money” and especially gold, particularly when raising capital for post-war reconstruction (post-WWI, Russian Civil War; Soviet repayment of Tsarist debt; Soviet gold reserve policies);
  4. The Soviets tightly controlled money supply;
  5. […]

To accomplish their objectives, the Soviets employed what’s now considered a classic Hayekian/Austrian move: instead of “reinventing the wheel,” legally speaking, the Soviets decided they would employ existing Western legal forms in their anti-Western project of state construction. According to Soviets, their smart property, smart contract, smart constitutions, and so on, could never be exploitative because they were explicitly channeled towards emancipatory aims.

Within a few years of the Soviet revolution that supposedly repudiated the “corrupt and exploitative bourgeois legality,” the Soviets were using “bourgeois legal forms” and “bourgeois legal institutions” like the best Manhattan and Parisian lawyers of the day.

The story the Soviets told themselves was that they were appropriating these forms in a transition stage to communism (aka “crypto-anarchy”). At that point there would no longer be a need for any legality whatsoever. Everyone would be full-performance-incentivized; breach would be a thing of the past; all assets would belong to the chain.

During the transition phase, using existing legal forms was just a form of ‘smart marketing,’ designed to show the attractiveness of the Soviet blockchain to the rest of the world.

You see, we’re not so different after all. Come to our side, where you can have all the things you currently have, except you can feel more secure, and more free — simultaneously! Just open your wallet & we’ll AirDrop the communism.

The Soviets claimed they were legal innovators. They were making smart property and smart contracts that were better, faster, cheaper, and more fair. All this was done in express opposition to the exploitative, unpredictable, status-quo-favoring “dumb Law” of the day.

Today’s crypto legal theorists are saying more-or-less the same thing:

Soviets claimed their smart property and smart contracts could not be exploitative per se because they were being done in the interest of the working class. Crypto claims smart contracts cannot be exploitative per se because they will “incentivize performance,” which serves the interests of the parties who freely enter into these contracts.

Thesis 8: There are more similarities than dissimilarities between SovietLaw & CryptoLaw. Sadly, the main commonality between Soviets and Cryptonians is immediate censorship of anyone who has the audacity to ask — “ok, but how does the system actually work?”

9. Crypto-Soviet Authoritarianism

The Soviet attitude towards law sounds familiar because the rhetoric is a mirror image of CryptoLaw: smart property & smart contracts cannot be exploitative per se because they are decentralized, trustless, self-enforcing, and disintermediated.

At this point, crypto theorists may respond:

Look, even if there are some superficial similarities, the Soviet state was ruthlessly authoritarian and centralized. Crypto is decentralized and Liberty-focused by design so as to avoid precisely what the Soviet state represents.

Ok, let’s analyze. First, the similarities are not superficial, but deeply structural. The similarities are in the socio-legal genesis blocks: the very idea of individual legal personality, ideas like property, contract, right, constitutionalism, private v. public law, and so forth.

Beyond just rights, the key point of the homology between SovietLaw & CryptoLaw is to show that the Soviets claimed to be far more decentralized & disintermediated than even crypto in its wildest dreams: “All power to the Soviets” meant hyper-local adherence to a single consensus protocol (communism) — even without wires and Chinese miners.

Context is everything. Because they largely preceded the Internet age, Soviet institutions were arguably far more decentralized in practice than even the most ‘decentralized’ and ‘trustless’ crypto instruments today — including ‘ultra-secure’ cyphers like Bitcoin & Monero.
Nellie Bowles, Making a Crypto Utopia in Puerto Rico (NY Times). Photo by José Jiménez-Tirado.

The point is that decentralization is relative; when crypto theorists invoke an “authoritarian state” as a contrast to everything crypto will be, crypto theorists should take time to understand how authoritarian states actually practiced governance. For many crypto theorists, this should be like looking in the mirror.

Take a look at this mirror image:

Our stereotypes of Soviet legality in 1938 (or 1968 or 1988) include things like “telephone justice” — Stalin or a later party apparatchik calling a lower level functionary and ordering them to execute this or that command. That command would then be … “self-executing & self-enforcing.” Everyone’s rights in this Soviet system of justice were ‘respected’ because everyone had constitutionally-protected Liberty-rights to live in this system. The system was immutable, except when there was near-unanimous ‘consensus.’ If you didn’t like the system, you had three choices: (1) you could try to leave it, like refuseniks or Mikhail Baryshnikov in White Nights (1985); (2) you could try to change it from within; and/or (3) you could be classified as an attacker node.

In 2018, Crypto legality includes things like “algorithmic justice” — Szabo or some coder can call a low level function and order it to execute this or that command. That command would then be … “self-executing & self-enforcing.” Everyone’s rights in this Crypto system of justice were respected because everyone has Civil-constitutionally-protected Liberty-rights to live in the Civil ecosystem. The system is immutable, except when it’s not. If you don’t like it, you have three choices: (1) leave; (2) change it; and/or (3) be classified as an attacker.

If you’re a true Bitliever, you hate this Crypto-Soviet comparison. Every fiber of your being rejects it. You want to un-think these thoughts; you want to un-see these comparisons. But if you’re a true Bitliever and you read this far, then you know the comparison checks out.

The on-the-ground *potential* effects of runaway crypto authoritarianism and malicious blockchain code will make the worst excesses of Soviet authoritarianism seem cute by comparison.

Just consider on-chain “smart contract self-enforcement” — RoboCop knocking on your door to collect an outstanding Coinbase CryptoLoan balance.

At that point, the dystopian totalitarian comparison won’t seem that far-fetched.

As RoboCop’s infrared sensors scan the inside of your apartment for objects of value that can be repossessed and sold to your neighbors, RoboCop’s humanoid AI-optimized eyelashes will be flapping at you, analyzing the likelihood that you will attack. With your family heirloom silver in hand, RoboCop will sell it all over your neighborhood … because RoboCop is smart … and route optimization, and, well, … the New Internet.

Thesis 9: Crypto Authoritarianism will suck. We must do everything we can to prevent it.

10. Same Inputs = Same Outputs

We’ve come to the end of the birthday gift that keeps on giving. Here’s the wrap-up:

The Soviets tried to repudiate law. The Soviets tried to repudiate Tsarist debts. The Soviets tried to repudiate capitalism. Soviets even claimed to repudiate individualism. Then history repudiated the Soviets.

Soviets aped Western legal forms, rebranding them as Soviet versions of “smart contracts,” with unique enforcement mechanisms — all in the name of socialist legality and steady improvements in the standard of living of the proletarian class. Adopting existing off-the-shelf legal forms and institutions was initially cheaper. But all this did was hide capitalist, individualist preferences under a flimsy veneer of socialism.

The only question left is how the Soviet transition to “communism” is coming along?


We all know the received wisdom that insanity is doing the same thing over and over and expecting different results.
So too here. Using conventional legal forms to structure revolutionary modes of production = “radically changing the system from within.”

Thesis 10: It can be done. It has been done. And good luck.

PS — We know that many of you are still not at all convinced that CryptoLaw & SovietLaw are the same thing.

We think they are closer than you suspect, but other than offering a few warnings about building complicated solutions to solve self-imposed problems we will gladly step aside and give you the opportunity to make the same mistakes we did.

Happy Bitcoin Birthday, Satoshi!