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Tokens, ledgers, and rails: the communication of money
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i
TOKENS, LEDGERS, AND RAILS:
THE COMMUNICATION OF MONEY
by
Deja Elana Swartz
A Dissertation Presented to the
FACULTY OF THE USC GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
DOCTOR OF PHILOSOPHY
COMMUNICATION
August 2015
Copyright 2015 Deja Elana Swartz
ii
ACKNOWLEDGMENTS
This research was possible through the support of the Balzan Foundation. In addition, my
study at the University of Southern California was supported by the Wallis Annenberg Chair in
Communication and Society Fellowship and the Annenberg Fellowship.
I will be forever grateful to my advisor and mentor Manuel Castells, who brings order to
the chaos and has offered me unbounded intellectual and personal support and generosity.
Thanks to Manuel for bringing me into an international network of scholars and opening up so
many opportunities for me.
I owe a tremendous intellectual debt to—or at least, have a deep intellectual entanglement
with—my mentor Bill Maurer of the University of California Irvine. Hopefully, we will be
colleagues, friends, and payments geeks for a long time to come. I’m so privileged to have been
able to think, write, and travel with the little group of payments geeks that Bill convened, Taylor
Nelms and Scott Mainwaring.
I am also grateful to have had a fantastic committee: Larry Gross, who has challenged me
to be “interesting” from the beginning of my time at Annenberg, and Mike Ananny, who has
been an incredible resource and invaluable addition to my time at Annenberg. My qualifying
exams committee, which included Sarah Banet-Weiser, Henry Jenkins, Jonathan Aronson, and
Andy Lakoff, helped ground and guide this project. In particular, I would like to thank Jonathan
Aronson, not just for his perspective on political economy, but for giving me the opportunity to
plan the 2014 ARNIC conference, which has had a direct intellectual impact on this dissertation
project. I am very happy that, in the qualifying process, I was able to continue working with
Henry Jenkins, my advisor and mentor at MIT.
iii
I would like to thank other faculty who have influenced my intellectual development,
especially Sharon Hays, Christopher Holmes Smith, Vanessa Schwartz, and Alison Trope. In
addition, the dissertation writing group organized and led by Laura Isabel Serna has an incredible
resource. Beyond USC, I am thankful for the friendship and guidance of Lisa Servon (The New
School for Social Research), Robert Meister (University of California Santa Barbara), Melinda
Cooper and Martijn Konings (University of Sydney), Geert Lovink (Institute of Network
Culture Amsterdam), Nate Tkacz (University of Warwick), Rachel O’Dwyer (Trinity College
Dublin), Ian Bogost (Georgia Institute of Technology), Mic Bowman (Intel), Josh Lauer
(University of New Hampshire), Dave Stearns (Univeristy of Washington), Bernardo Batiz Lazo
(Bangor University), Geoff Bowker (University of California Irvine), Paul Edwards (University
of Michigan), and Margie Avery and Katie Helke (MIT Press). In addition, I am thankful for the
support of Jennifer Chayes, Nancy Baym, Mary L. Gray, Sharon Gillett, Jessa Lingel, Tarleton
Gillespie (Cornell University), and Annette Markham (University of Aarhaus) at Microsoft
Research New England.
I’d like to thank my cohort of fellow students, those who have been writing at the same
time as me, and other collaborators. This list could go on and on, but I want to especially thank
Meryl Alper, Nadya Bair, Dayna Chatman, Sandy Evans, Michelle Forelle, Diana Lee, Lori Kido
Lopez, Melissa Loudon, Nahoi Koo, Josh McVeigh-Schultz, Ritesh Mehta (the soul of my
cohort), Jade Miller, Sarah Myers West (to whom I was happy to pass the torch!), Poong Oh (my
long-time desk buddy), Andrew Schrock, Kelly Song, and Neta Kligler-Vilenchik. I would also
like to thank my “cohort” of scholars, collaborators, and friends beyond USC, Amelia Acker,
Christina Agapakis, Amalia Cardenas, Joana Conill, Morgan Currie, Joan Donovan, Stephanie
iv
Derrick, Jonathan Hutchinson, Lan Le, Xiaochang Li, Sarah O’Brien, Pip Shea, Nick Seaver, and
Whitney Trettien.
I would also like to thank Susy Garciasalas, Noelia Diaz-Lopez, and Reanna Martinez.
Go team! For real. THANK YOU!
I am so grateful for my wonderful family: my mother Marilyn Swartz, my sister Kayte
Susse, as well as Roger “Feets” Rebello and Art Noyes, the extended Swartz and Kraskin
families, and my familiar, Special Agent Dale Cooper. Thank you also to Ed and Mary Driscoll,
who welcomed me into their family.
Finally, I would like to thank Kevin Driscoll, for basically everything.
v
TABLE OF CONTENTS
Acknowledgments ii
Abstract vii
Introduction 1
Theoretical Framework 4
Overview of Chapters 18
Methods 23
Chapter One
Histories: Public and Private Visions of Payment 36
Introduction 36
Paper and Rails 39
Telegraphic Money 49
A Membership in the Club 55
Dreams of a Cashless Society and the “Chaordic Age” 59
Virtual Communities and Global Markets 66
Conclusion 72
Chapter Two
Tokens: Interchange and “Competition in the Money Space” 74
Introduction 74
Are Rewards Money? 78
Born of Interchange 85
Money for the Space of Flows 91
“Food Stamps for Truckers” 94
“Frequent Flyer Miles for the Neighborhood” 98
Conclusion 103
Chapter Three
Ledgers: Silicon Valley and the Memory Bank 106
Introduction 106
Money as Memory 108
The Enclosure of the Memory Bank 113
Google Wallet: Online Advertising Everywhere 117
Apple Pay: Privacy as Luxury? 121
Venmo: A Free (way to divide up the cost of) Lunch? 127
Conclusion 132
Chapter Four
Rails: Politics, Pornography, and the Flow of Payment 134
Introduction 134
Getting Paid: How the System Works 137
Managing Risk in Payments 143
Proxy Censorship? Political Pressure and Payment Flows 149
vi
“Whorephobia?”: Payment Risk and Pornography 156
Everyday Payment Flow Instability 169
Conclusion 172
Chapter Five
Futures? Transactional Cryptography as Token, Rail and Ledger 176
Introduction 176
A Short Technical Introduction to Bitcoin 179
A Short Pre-history of Bitcoin 182
Between Digital Metallism and Infrastructural Mutualism 192
Ambitions and Tensions in the Application of Bitcoin 202
Bitcoin’s Future 214
Conclusion 219
Conclusion
Toward a Communication Theory of Money 223
Bubbles of Hope, Bubbles of Money 223
Transactional Communities: Toward a Communication Theory of Money 229
Locating the Public Interest in Transactional Communities 235
Bibliography 238
vii
ABSTRACT
This project engages the study of money—and in particular, payment—as sociotechnical
infrastructure, both in terms of information transmission and as vector of relations, memory, and
culture. Since 2008, economic downturn paired with high penetration of information and
communication technology has led to an explosion of imagination around the money form.
Networked information technology has seemed particularly well-suited to rethinking the tasks
that money has traditionally performed, such as assigning value, keeping account of it, and
transmitting it. Payment—once a siloed and slow-moving sector of banking—is undergoing
tremendous innovation from within the Silicon Valley social media industry. To address these
developments and uncover their longer histories, this project engages historical, ethnographic,
and documentary methodologies. Money can be understood as a communication technology in
three ways: a token that can be used to exchange value, a ledger that we use to collectively
remember allocations, and a set of rails that undergird and make transactions possible. These
analytical categories are used as theoretical entry-points to understanding changes in payment.
The dissertation begins with a chapter on the technological and social history of money and
communication, attending in particular to tensions between public and private visions of
transactional infrastructure in the United States in the 19th and 20th centuries. The remaining
chapters engage present and emergent concerns. New ‘‘tokens,’’ such as rewards points and
frequent flyer miles, derived from payment system interchange, have been circulating alongside
traditional currencies. As the tech industry discovers payment, the ‘‘ledger’’ of transactional data
becomes a source of value and a commons undergoing enclosure. Control over the flow of
transactions through ‘‘rails’’ provides greater potential for proxy censorship, political and
otherwise. As we look forward to possible futures of payments, we find new forms of
viii
transactional counter-power, such as the cryptographic transactional systems like Bitcoin, which
can be understood as token, a ledger, and a rail.
1
INTRODUCTION
“The money form is not standing still.”
– Anthropologist Keith Hart, 2001
“Money, all money, contains a utopian strain.”
– Sociologist Nigel Dodd, 2014
In 2011, I attended a panel on “The Past, Present, and Future of Money” in downtown
Los Angeles. The speakers were a fairly diverse group: a screenwriter working on a movie about
a town in Weimar Germany that created a local scrip currency to fight inflation, the founder and
CEO of a “sharing economy” startup, a corporate “futurist,” and the CEO of an online
advertising network who also claimed to be an expert on Bitcoin. The event was sponsored by
similarly motley crew: a local community currency group, a technology start-up incubator, a
green business group, a permaculture group, and a website that described itself as a “a platform
for content, learning, and commerce serving a global community of transformational consumers
seeking optimal states of well-being in mind, body, and spirit.” I walked away from the event
wondering how this seemingly unlikely constituency had come together, and why they had come
together around money.
I have come to see this experience as emblematic of a current landscape. In the aftermath
of the global finance crisis, the money form has become an object of interest and innovation by a
wide variety of groups. Money, in all its dimensions, remains central to public discourse and
continues to seem illusory. There is a growing sense that, far from the totally rational method of
2
exchange we have sometimes imagined it to be, the economy is instead a system of socially
contingent shared meanings and practices. These meanings and practices are being put into play,
opened up to new, strange, utopian, and potentially radical reinterpretations. Although the word
“money” is often used, what these groups are usually talking about is payment, the transmission
of some form of a value from one person to another as a way of conducting exchange.
This interest in payment has emerged from a historical conjuncture marked by three
important trends: financial crisis, high diffusion of networked information and communication
technology, and rapid growth in the payments industry. Indeed, late 2007 and 2008 saw three
important and ultimately interconnected events: the start of a global financial crisis, the release
of the first Apple iPhone, and the launch in Africa of the M-Pesa, the world’s most successful
mobile payment system to date.
1
Economic crisis undermined trust in and the legitimacy of the
global financial system and the state’s monopoly on the means of exchange. Although
alternatives to state currency have a long history, networked information and communication
technologies are particularly well-suited to many of the things money has been used for—
assigning value, keeping account of it, and transmitting it—and their democratization has led to
an attempt to democratize the money form, as well. It is crucial now to understand the promises
and perils of this democratization and, crucially, re-privatization of payment.
Payment is not just one of the important social functions of money, but an industry.
According to industry reports, in 2013, payments businesses generated $425 billion in
transaction revenues alone, not even counting another $584 billion in account-related revenues,
interest, and other fees.
2
To put that into perspective, only the largest 15 countries in the world
1
I am indebted to Bill Maurer for this point.
2
https://www.bcgperspectives.com/content/articles/financial_institutions_pricing_global_payments_2014_
capturing_next_level_value/
3
had a Gross Domestic Product greater than $1 trillion in 2013. The transaction revenues alone
are larger than global film entertainment or the global pharmaceutical market.
3
Payment is, as
Maurer puts it, the “plumbing of modern economies” (Maurer, 2012a). We use its systems
multiple times a day, every day. And yet it has largely unnoticed, both in everyday life and by
scholars. Despite their important social and economic role, little has been written about payment
systems.
In recent years, the payments industry has become an object of entrepreneurial
innovation. The industrial locus of the payments industry is shifting from Wall Street to Silicon
Valley, from financial services to social media. What was once a slow-moving and siloed sector
of banking is becoming one of the hottest areas of the tech industry. Some entrepreneurs’ visions
for new payment systems are influenced by a kind of libertarian communitarianism described by
Fred Turner as “digital utopianism,” and they see payment as an important locus for social
change (Turner, 2006). Many are hoping to harness the promise of transactional “big data” and
put it into conversation with other “social” datasets. Others see in these datasets an opportunity
to create new forms of value: niche “currencies” based on reputation, relations, and behavior.
They seek to develop interoperabilities between these new forms, older systems like airline miles
(which have been called “the world’s largest alternative currency”), and indeed, good old-
fashioned state-issued money. These new systems are governed according to practices native to
Silicon Valley, such as terms of service. They are organized according to economic
arrangements also native to Silicon Valley, such as venture capitalism.
Payments innovation has extended beyond business ventures, as well. Other systems have
emerged in response to this democratization and privatization of payment infrastructure. Bitcoin,
3
http://www.pwc.com/gx/en/global-entertainment-media-outlook/segment-insights/filmed-entertainment.jhtml;
http://www.who.int/trade/glossary/story073/en/
4
an electronic cryptographic cash system that uses decentralized networking to enable
pseudonymous irreversible payments, has survived multiple bubbles of attention and value, and
even spawned second generation versions of its blockchain technology. There has also been a
resurgence of interest in community and local currency systems, driven by new networked
accounting and exchange platforms.
This dissertation offers a cultural and technical history of payment and, in more detail,
tracks its encounter with Silicon Valley. Money has always been social, and now it is becoming a
form of social media. The examination of historical, present, and emergent forms are synthesized
to situate payment as a communication technology.
Theoretical Framework
Throughout this dissertation, I assume and develop the following theoretical framework:
Communication is the transmission of information that produces shared meaning, as well as the
media, infrastructure, and practices that support that sharing. Money is information that is
socially guaranteed to be valuable. Payment is the communication of money. Payment can best
be understood as systems of tokens, ledgers, and rails. The follow sections elaborate this
framework.
1. Communication is the transmission of information that produces shared meaning, as well as
the media, infrastructure, and practices that support that sharing.
In order to advance this perspective, I use James Carey’s “symbolic culture” view of
communication (Carey, 1989). Carey makes a distinction between “transmission” and “ritual”
views of communication. By taking the former view, scholars align “communication” with
“transportation,” a term with which it was once used interchangeably. By taking the latter view,
5
scholars align “communication” with words like “community” and “communion.” He argues that
a “ritual view of communication is directed not toward the extension of messages in space but
toward the maintenance of society in time; not the act of imparting information but the
representation of shared beliefs” (ibid., p. 18). He explains, “if the archetypal case of
communication under a transmission view is the extension of messages across geography for the
purpose of control, the archetypal case under a ritual view is the sacred ceremony that draws
persons together in fellowship” (ibid.).
Although he developed a dialectic between ritual and transmission views, Carey
ultimately describes them as not mutually exclusive, but as embedded in each other. To begin to
understand money as a form of communication, it is useful to examine its “transmission” and
“ritual” dimensions, and perhaps, as Carey suggests, to begin to synthesize them. In his study of
the telegraph, Carey synthesized the ritual and transmission approaches as “symbolic culture.”
He showed that the informational function of the telegraph—divorcing information
communication from physical transportation, but also allowing information communication to
direct physical transportation—had cultural effects: reconfiguring the relationship of space and
time, changing styles of speech and literary writing.
Armand Mattelart shows that, while the idea of communication originated in early
modern statist systems of transportation, these systems did more than “transmit” goods, people,
and material information; they also brought people together under a shared rationalized sense of
space and of circulation through that space (Mattelart, 1996). For Mattelart, the result of this
collective rationalization was authoritarian control, but this control was predicated not just on a
centralized command and control communication infrastructure for the transmission of
information, but on the way that infrastructure produced a shared sense of reality, within which
6
that information could be sent. The study of communication can be considered the study of the
ways in which large-scale technological systems touch down in everyday life, drawing people
together in communities of shared meaning, shared bases of communication power and
counterpower.
A communication perspective also offers a way of understanding power and meaning
through mediation and infrastructure, both symbolic and material. This is aligned with what
Roger Silverstone described as the “the double articulation” of communication technologies, in
that they are at once tools for conveying meaning and meaningful things unto themselves
(Silverstone, 1994). As Lievrouw puts it, drawing from Latour’s 1991 description of technology
as “society made durable,” technology can perhaps better be understood as “communication
made durable” (Lievrouw, 2014, p. 50). Through media, communication is also made portable.
As Harold Innis put it, communication media can either be time-biased and concerned with
durability, or space-biased and concerned with portability (Innis, 1951). The study of
communication, as approached here, is the study of the technologies for remembering and
imagining, producing discourse through maintenance and carrying across of information.
This approach is aligned with what scholars working in Science, Technology, and Society
(STS) refer to as “infrastructure studies,” which attends to the importance of infrastructures and
the classifications and standards that produce and are produced by them (Bowker, Edwards,
Jackson, & Knobel, 2010; Bowker & Star, 1999; Star, 1999). Communication scholars have
produced studies of the infrastructures of important communication technologies—see, for
example, studies on electricity (Marvin, 1988), radio (Douglas, 1987), telephone (Fischer, 1992),
internet (Abbate, 1999)—but, as Gillespie, Boczkowski, and Foot (2014) point out, STS scholars
have largely ignored communication technologies. The STS perspective also helps trace the
7
mechanisms through which technology is socially constructed by a variety of forces and
stakeholders, moving through “interpretative flexibility” to “rhetorical closure” (Pinch & Bijker,
1984).
2. Money is information that is socially guaranteed to be valuable.
I take this definition of money from one of the unsung great 20th century lay theorists of
money, Dee Hock, the founder of and—for lack of better word—visionary behind what would be
renamed as the VISA card network. Hock, an iconoclast working at the margins of branch
banking in the 1970s, envisioned VISA as way to send “standardized messages” that would
create “open loop” payment; that is, allow merchants to accept payment cards issued by banks
with which they did not hold accounts, without the need for a centralized clearing house. To
Hock, VISA was not in the business of credit, but in the business of “electronic value exchange”:
sending standardized messages that moved the information known as money. For Hock, there
was no reason that this information had to be money, as it has traditionally been conceived. For
Hock, the VISA system proved that any information that could be exchanged as money, could be
money. In the information age, he predicted, control over money would not belong to states or to
banks, but to whomever was “most adept” at “handling and guaranteeing alphanumeric value
data” (Hock, 1999).
Money, then, is a creature of information technology. Hock, writing in the 1990s about
his experiences in the 1970s, was thinking about networked computers, but historically, money
has been tied to whatever information technology was useful and available. Tally sticks kept
records of obligations in medieval England, as did khipu in the Incan empire. Money-ness has
been described as having certain functions, all of which can be understood as informational
functions. In his 1875 treatise Money and the Mechanism of Exchange, polymath William
8
Stanley Jevons argued that money has four essential functions: a medium of exchange, a store of
value, a unit of account, and a standard of deferred payment (ibid.). Indeed, to Hock’s point,
these functions were precisely what the VISA system could provide.
Other, more formal theorists of money agree with Hock that money is information. Kant
found money to be “the greatest and most useable for all the means of human communication
through things” (Kant, 1877). Talcott Parsons described it as a “generalized symbolic medium”
(Dodd, 1994; Parsons, 1968). It is a “semantic system similar to speech, writing or weights and
measures” (Polanyi, 1968, p. 175). Indeed, Thomas Jefferson, insisted that the money of the
American colonies would map to a rational, scientific decimal system, not the complicated
British system.
4
Today, money may be the most “modern” information system Americans use in
our daily lives.
Anthropologist Keith Hart and economist Narayana Kocherlakota both argue that, as the
latter put it, “money is a technological equivalent to a primitive form of memory,” because it is a
way of keeping track of past interactions (Hart, 2001; Kocherlakota, 1998). Money is a way of
producing shared quantification, a “social process of commensuration” (Maurer, 2007, p. 126). A
useful terminological intervention toward this end comes from Dodd (2005), who describes
money as a consisting of two properties: a unit of account, by which prices are calculated; and
monetary media, the objects that we use as money, which might be electronic or otherwise
abstract. In this way, money is one of the most fundamental human informational forms.
But “guaranteeing,” to use Hock’s terminology, the information known as money is more
complicated than “handling” it. In order for money to have any value, to function as money at
all, it must be socially guaranteed. Most theorists of money agree, as Simmel put it, that money
4
http://www.metricationmatters.com/docs/USAMetricSystemHistory.pdf
9
is, in some way, a “claim upon society,” but it is less settled exactly what that claim is made
upon.
The source of this guarantee is an important question in any theory of money. In 1892,
economist Carl Menger argued that money emerged in order to “overcome the double
coincidence of wants” inherent in barter (Menger, 2009). He argued that, in barter economies,
people began to exchange not only for what they needed, but also for goods more widely desired
and therefore easier to trade. Eventually, people settled on valuable commodities like gold as the
most “salable” goods, and these commodities became money. Money’s origins, to Menger, are
found in markets. Menger is known as the founder of the Austrian school of economics, and he is
popular today among libertarians who see the warrant for the value of money as beyond states,
beyond even society.
Many theorists of money disagree with Menger, and point to a historical and
anthropological record that shows that money, in fact, did not emerge from barter at all. Instead,
people used it to keep records of credits and debts, of obligations. Money is a system of making
these credits and debts transferable. For chartalists Randall Wray and Geoffrey Ingham, money
is authorized by a recognized authority, namely, the state, which transcends individual
obligations and extends them into a larger network of inter-obligation and, therefore,
governance. As Ingham puts it, money is “a form of sovereignty, and as such, it cannot be
understood without reference to an authority” (in Innes, 2004). Wray, therefore, defines money
as “TWINTOPT,” or “that which is necessary to pay taxes” (Wray, 1998). Behind the cute
acronym is a deeper implication: In order to have a state—a collective, democratic liberal
government—we must have a sufficiently universal system of transferable obligations. Legal
scholar Christine Desan shows how, in the liberal Western tradition, money emerged as a
10
coordination between the sovereign and the populace, between public and private interests, and
is thus a legal institution (2010; 2015).
A variety of scholars across fields agree that money is an informational system of
transferable obligations, but don’t agree that the state has been or can be the only vector of its
guarantee. Desan argues that money is collectively made, engineered by a given community in a
given context (Desan, 2010). While this process is always embedded in power relations, there is
no need to assume that it relies upon any inherent characteristic, such as its link to a particular
commodity or relationship to a particular kind of authorizing state. As sociologist Nigel Dodd
(2014) points out, using Simmel, if money is a “claim upon society,” why should “society” and
the “nation state” be synonymous? Anthropologist David Graeber argues that the state
transformed money from a system of relations and trust to a system of violence and domination,
from a “human economy” to a “commercial economy” (Graeber, 2011). Similarly, Hart argues
that money can be authorized by the nation-state or by something else, such as a community,
and, like Hock, he sees the democratization of information technology as essential for the
democratization of what kind of information can be socially guaranteed as money.
3. Payment is the communication of money.
Like other forms of communication, this is not just the transmission of information, in the
case of money, socially guaranteed to be valuable, but the sharing of meaning, as well as the
media, infrastructures, and practices that support these processes. Payment is an interface
between dichotomous spaces that define identities: the economy and the individual, the market
and the home, the state and the community. It is communicative, both in terms of information
transmission and as vector of relations, memory, and culture. As a communicative process,
11
monetary transactions depend on infrastructures, which are always instantiations of power
relations.
When Hock was designing the VISA network, he was principally concerned with how to
most effectively transmit messages that moved money. Money’s informational functions are,
indeed, issues of transmission. As I demonstrate in Chapter 2, the technology of payment maps
very closely to technologies of transportation and communication broadly: post, print, telegraph,
mainframe computer, internetworking, mobile phone. Payment is literal conveyance of
information that is socially guaranteed to valuable. Payment is a technology of mobility, a
portfolio that tethers us to the network of relations that help us move: credit cards that connect
via magnetic tape to an account; dollar bills that are backed by state authority; documents of
identity, affiliation, and access.
Neoclassical economics can be understood as recognizing money’s functions in their
purest transmission forms. Money is conceived of as information alone. As a medium of
exchange, money functions to overcoming the “double coincidence of wants” inherent to barter
by communicating prices and transferring value from one party to another. As a unit of account,
it functions as standardized, divisible, and fungible numeraire for measuring and recording value.
As a store of value, it allows perishable assets to be converted into money, a permanent,
accessible form. Neoclassical economics envisions an idealized homo economicus who receives
information and rationally acts according to self-interest. Money, in this scenario, is calculative
and somehow beyond culture.
Similarly, though with opposite goals, in classical social and cultural theory, money is
treated as antithetical to meaning. Marx saw money as a “radical leveler” that “extinguished all
distinctions” (Marx, 1867/1993). Similarly, Simmel saw money as reducing quality to quantity,
12
encouraging quantification and rationalization of all aspects of life, but he also saw it as
renegotiating social ties and loosening them, such that “everyone has the choice of deciding
when and where he wants to assert his claim,” a process that was both depersonalizing and
liberatory (Simmel, 1900, p. 342). Karl Polanyi argues that, while pre-modern money may have
reflected specific cultural needs, modern money is universalizing and marketizing.
But payment, like other forms of communication, must be understood as both the
transmission of information and the sharing of meaning. Payment is not just the conveyance of
money, but the networks of inter-obligation, formed by the sharing of this information. It
connects individuals and yokes them to institutions of practice and systems of meaning. For
Viviana Zelizer (1994, 2011), even within highly rationalized economic cultures, forms of
money “multiply” for different purposes: “foods stamps for the poor, supermarket coupons for
the ordinary customer, prison scrip for inmates, therapeutic tokens for the mentally ill, military
currency for soldiers, chips for gamblers, lunch tickets for institutional canteens, gift certificates
for celebration” (Zelizer, 1994, p. 4). Each new medium of exchange accommodates a new social
purpose. Even when state currency is used, in Zelizer’s view, it can be “earmarked” with
meaning that differentiates it according to a particular social protocol. To name a few of her
examples, money can be used to create or dissolve social ties, as in courtship expenses and
alimony, respectively, to manage and limit intimacy, and as in payments to therapists and sex
workers, or to establish or maintain inequality, as in “women’s wages” (ibid., p. 26).
Zelizer (2011) further describes money as circulating within “circuits,” which are characterized
by shared economic activities that are marked by shared meaning and carried on by means of
shared social relations. Circuits are overlapping and of vastly different sizes and scales. An
alternative currency, then, is formed to demarcate a circuit that seeks to explicitly express values
13
or create social relations that are in some way “alternative” through an alternative monetary
token. A piece of national currency circulates within a large circuit that could be called the
national imaginary. Within that circuit, it can be used to enter into a large variety of social
relations and express a large variety of meanings.
Money is public-making and, as Desan (2015) argues, legally constitutional. State
currencies are, as Eric Helleiner (1998) puts it, a “common economic language” for those united
by a nation-state, an economic territory, identity, and sense of value. Mattelart (1996) describes
how channels of transportation and communication acted as a circulatory system that drew
together regions into the domain of a centralized authority, and were frequently described as the
“blood” of the “body politic.” Desan (2008) similarly demonstrates that early modern money was
also frequently described using the same terms. She quotes two 18th-century American
pamphleteers as describing money was “the vital spirit and blood of the body politick” and “the
blood of life, which circulates from member to member, throughout the whole body of all living
creatures” (Desan, 2008, p. 26). Mattelart (1996) also notes a meaningful conflation not just
between the terms “communication” and “transportation,” but between “communication” and
“commerce.” He quotes the 18th-century French Encylopédie, “By commerce we mean in a
general sense a reciprocal communication” (ibid., p. 32). The means of communication—of the
moving of ideas, of people, and of goods, but crucially, also of money—serve as the connective
apparatus of a national imaginary.
Payment, as a communication technology, not only transports value and meaning
across space, it also projects it across time. To use Innis’s (1951) terms, as a media technology, it
is both time-biased and space-biased. Innis describes how time-biased media, like stone tablets
and ceremonial monuments and objects, are intended to endure over centuries and uphold
14
religious, transcendental order; whereas space-biased media, like papyrus scrolls and
alphanumeric writing, were intended to be portable and uphold administrative order, both
colonial and commercial. While different payment forms may operate according to different
priorities, money seems to, like the ancient Egyptian calendar, which Innis describes as allowing
rulers to exert control over the space of their empire by asserting mastery over time through the
prediction of the flooding of the Nile River, draw authorization from time while operating over
space. For example, commodity currency, highly durable and thought by supporters to be imbued
with “natural” value, was preferred for international trade precisely because it was thought to
transcend national authority. Its intended function was to draw authority from its affordances as a
time-biased medium while functioning across borders as a global space-biased medium. On the
flip side, national print currency is, like other forms of print media, highly portable, but it draws
its authority from time-bias of national authority—and is covered with iconography of a nation’s
monuments, monoliths, and other aspirations of endurance over time—so that it might draw
territory together as a unified whole.
If the consolidation of paper currency had been a nationalist project, its digitization
represents the deterritorialization of money and the global information. Just as mass media
systems have fragmented in the networked era, new and emergent payment systems are
attempting to forge niche circuits of value that run on private infrastructures. Although
standardized currency was a nation-building project, and many new systems take advantage of
public systems like the Federal Reserve-managed Automated Clearing House (ACH), most
financial infrastructures in the United States are privately controlled. Today’s new “digital
utopians” often make calls for extra-national global payment and value systems.
15
Payment is a vector of identity. Modern payment systems also depend on underlying
infrastructures that knit the financial to the personal, producing interoperabilities with other
information systems that manage the self: There is a reason that payment card fraud is more
commonly referred to as “identity theft.” Payment produces transactional identities.
Transactional identities are networks of relations between people, institutions, and discourses.
They are performed at the moment of transaction, and they authorize who can pay and be paid by
whom and where. These identities are also constituted by transactional records and influence
how those records are marshalled, how they are able to count.
Money is a tool used to perform and determine identity. It is one of what Michel
Foucault called “technologies of the self,” those techniques through which “selves” are
performed and policed according to available discourses (Foucault, 1988). The way people pay
marks them and the nature of their economic agency in everyday life. Particular payment
instruments construct particular social relations. Crucially, payment tools produce difference.
Paying with a jar of pennies, or a debit card that benefits the Sierra Club, or a large wad of cash,
or a black American Express Centurion—each of these produce distinction and meaning. This
process is reciprocal: Payment forms are also marked by those who use them, and by the context
in which they are used.
4. Payment can best be understood as systems of tokens, ledgers, and rails.
Money can be understood as a communication technology in three ways: a token that can
be used to exchange value, a ledger that we use to collectively remember allocations, and a set of
rails that undergird and make transactions possible. These analytical categories are used as
theoretical entry-points to understanding changes in payment. These terms refer not just to the
material organization of payment systems, but to distinct, interrelated analytical viewpoints.
16
They also provide a useful vocabulary for thinking about the affordances of payment systems as
a form of communication technology. This terminology—particularly “tokens and rails”—comes
from the payment industry itself.
Tokens refers to the physical or informational unit of currency. When most people think
of money, they think of tokens: the concept of dollar, as well as the dollar bill itself. While the
idea of tokens can be thought of as having its origins in Menger’s commodity theory of money, it
can also be the abstract unit of account. Tokens allow people to transmit money in everyday life,
and they produce meaning by tracing territories and associated identities. As Hart puts it, there
are “two sides” to the coin: the “heads,” which often, indeed, features the head of the person who
symbolizes the entity—usually a state—that authorizes the token and provides a common
transactional for those using it, and the “tails,” which states how much the token is worth and
provides shared informational standards for those using it. Tokens can be understood as a form
of payment media.
“Ledgers” refers to the record kept of payments. These can be physical ledgers: tally
sticks, khipu, computer databases. They can also be collective imaginary ledgers, such as that
described by Hart and aligned with credit theories of money. In this way, tokens form the basis
of ledgers. Ledgers are both vectors of information and meaning. Ledgers are records of
obligations, interconnections. They demonstrate ways in which money is used to maintain,
produce, and sever relationships. The many ways in which debts are remembered and enforced
or forgotten or forgiven have had tremendous political consequences. In addition, as social media
becomes an important economic paradigm, transactional ledgers themselves are becoming
sources of value. Ledgers can be understood as a form of payment information system.
17
“Rails” refers to the mechanism of transmission of money. Rails are whatever provides
the medium of exchange function in a payment. This term comes from the origin of the payment
industry in shipping. Payments professionals talk of various payments tokens “riding the rails” of
particular networks. Payment is literally conveyance of information socially guaranteed to
valuable, and rails are the systems that power this conveyance. Payment is a technology of
mobility, a portfolio that tethers us to the network of relations that help us move: a credit cards
that connect via magnetic tape to an account; dollar bills that are backed by state authority;
documents of identity, affiliation, and access. Less has been written about the rails of payment.
Like other forms of communication networks, key issues around payment can be understood in
terms of information justice, such as universal service and common carriage. Rails can be
understood as a form of payment infrastructure.
Although these three ways of thinking about payment are analytically distinct, they are
often imbricated. In the case of a dollar bill, the token—the physical bill itself—is also, at one
level, its rails. In everyday life, I can use that token to transmit the value associated with that
dollar with no other infrastructure. It is part of a collective, imaginary ledger system, as well as
part of the ledger system of the United States, by virtue of its treasury-issued serial number.
5
In
this way, state-issued cash is a public infrastructure of payment.
Bitcoin, as described in Chapter 6, is overtly a token, rail, and ledger system. In some
ways, it draws from the commodity theory of money to produce a form of “digital metallism”
that is prone to speculation (Maurer, Nelms, & Swartz, 2013). It also produces a payments rail
that is aligned with political attachments to decentralization and information freedom. Finally,
5
I am indebted to Maurer, in conversation, for this point.
18
the tokens and the rails only exist at all inside the blockchain, a distributed ledger of contractual
relations. In the case of Bitcoin, the token, rail, and ledger are mutually constitutive.
The dissertation begins with a chapter on the technological and social history of money
and communication, attending in particular to tensions between public and private visions of
transactional infrastructure—tokens, ledgers, and rails—in the United States in the 19th and 20th
centuries. The remaining chapters engage present and emergent concerns. New “tokens,” such as
rewards points and frequent flyer miles, derived from payment system interchange, have been
circulating alongside traditional currencies. As the tech industry discovers payment, the “ledger”
of transactional data becomes a source of value and a commons undergoing enclosure. Control
over the flow of transactions through “rails” provides greater potential for proxy censorship,
political and otherwise. As we look forward to possible futures of payments, we find new forms
of transactional counter-power, such as the cryptographic transactional systems like Bitcoin,
which can indeed be understood as token, a ledger, and a rail.
Chapter Overview
Chapter 1 - Histories: Public and Private Visions of Payment in the 19th and 20th Centuries
This chapter tracks the origin of the modern third-party payment industry in the United
States in the 19th and 20th centuries. It demonstrates that the business of payment
emerged not from finance, but from communication. Payment, as communication, is the
organization in space and time of information socially determined to be valuable. This
organization supports the moving of such value—in the form of physical or informational
representations—from one place to another. For at least the last two centuries, payment
technology has taken has tracked alongside communication technology: paper,
19
telegraphy, information systems, internetworking. This chapter touches down to examine
the development of key technologies and their historical conjuncture: postal money
orders and travelers checks, payment cards, and online person-to-person payment. This is
a history of technology but also of politics: the question of who should provide payment
services and how. This chapter maps out an initial history of payment—an original
contribution—and illustrates recurring themes across its history. It creates a context for
the examination of those themes in the rest of this dissertation, which will primarily
address present and emergent concerns.
Chapter 2 - Tokens: Rewards, Interchange, and “Competition in the Money Space”
This chapter explores credit card rewards—like frequent flyer miles, loyalty points, and
money-like tokens—which have been described at industry events as “the world's largest
alternative currency.” Rewards are available only to members, those whose financial
identity has been determined by institutions to be desirable enough to merchants to
warrant being paid when paying. These memberships are networks of affiliation and
identity and, indeed, value that are layered on top of mainstream economic networks.
Through payment card interchange, state currency is transformed into rewards. Rewards
are set aside from state currency according to specialized identities, meanings, and
territories. This chapter first investigates the money-ness of rewards from economic,
legal, and socio-cultural perspectives. It then describes interchange, a curious but key
function of mainstream payment infrastructure, to show how it produces rewards. Next,
three very different rewards systems are examined, each with their own identities,
territories, and meanings. Rewards are taken-for-granted alternative currencies that are
already in use—and, in the case of one example, Bernal Bucks, are overtly treated as an
20
“alternative” currency. Rewards show how something as taken-for-granted and seemingly
settled and intractable as money has been opened up to reimagination without anyone
noticing or seeming to mind too much. Rewards represent “competition in the money
space,” as a prominent payments lawyer put it; that is, rewards represent a competitor to
state-issued currency designed to do all the things state-issued currency traditionally
does. In this way, rewards are the model for any payment systems that would do the
same.
Chapter 3 - Ledgers: Silicon Valley meets the Memory Bank
Many different theorists of money—scholars, activists, and technologist—have argued
that money is a form of memory, a way of keeping track of value. In this way, it is a
distributed ledger of value and, crucially, social relations. Mobile wallets make this
function of money visible as a form of media, appropriately called “social media.” As
Venmo documents transactions, it produces a persistent ledger that previously existed as
an unarticulated form of collective memory. In addition to reifying this social ledger,
mobile wallets enclose it. Transactional data, previously thought of as a form of
“personal data,” becomes a kind of “social data” that promises to—someday, maybe—be
a source of revenue. The promised value of the mobile wallets comes from the record of
transactions, from the ledger itself. This chapter elaborates the idea of money as memory;
describes the processes of its enclosure from the Silicon Valley social media industry;
and compares the different paradigms of publicity and privacy, publicness and
privateness, implicit in the ledgers of leading would-be stewards of the our newly
“social” wallets. The terms of this enclosure are only now coming into focus, and
different paradigms are in play. Google Wallet put transactional data in conversation with
21
other social data with the anticipation of delivering targeted mobile advertising in real
place and time. Apple Pay’s model places less importance on collecting and brokering
access to transactional data. Instead, it offers privacy and security as a component of its
luxury device offering, while not destabilizing merchants’ interest in data. Venmo, owned
by PayPal, celebrates the sociality of payment and transforms social norms around the
way it is documented. Its ledger is public, perhaps all too public.
Chapter 4 - Rails: Censorship, Risk, Discrimination and the Management of Payment Systems
This chapter describes the way that payment systems work as the “rails” through which
value is transferred. It unpacks the mechanism through which this flow of funds is
enabled and constrained. Some kinds of payment traffic are allowed to flow freely
through the rails, while others are not. While this discrimination among various kinds of
payments traffic according to perceived transaction risk may not be overtly political, it
impacts payment and therefore communicative flow. It can literally shape politics, too, by
choking off flows of funds and thereby restricting speech. There are presently two
different payment industry imaginaries. The first, which I term the “market model,”
emerged from within the payment industry and creates a market for risk: high risk
merchants pay more to access the payment card infrastructure. The second, which I term
the “innovation model,” emerged from the technology and social media industry. It
allows individuals, as opposed to companies, to access the infrastructure, and it is
governed by terms of service, which prohibit high risk transactions entirely. Both models
can be equally influenced by political pressure to constrain payment flows, but each
method for managing risk also produces different constraints that are not overtly political.
While the innovation model emerged chronologically after the market model, this should
22
not be seen as one imaginary of payment and risk displacing another, but of two in-
parallel imaginaries running alongside each other. The sorting of industries, merchants,
and transactions into risk categories was inherited from the market model, but the way
that it has been implemented by the innovation model has had new effects. This chapter
examines the implications of these constraints, both through the example of pornography,
a traditionally high risk industry, and also through more mundane examples.
Chapter 5 - Futures? Transactional Cryptography as Token, Ledger, and Rail
This chapter looks ahead to possible futures of payment. Although Bitcoin has not proven
to be a practical alternative money form for most situations, it has acted as a staging
ground for discourse on the role and meaning of money in society. Like other
technologies, it is shaped by a variety of stakeholders, but its discursive field is
distributed, reflecting the architecture of Bitcoin itself. Bitcoin is not so much
polysemous but polycentric: Its discursive agents cluster around specific points of
practice and politics. Bitcoin is best understood through three distinct functions: as
commodity, as payment system, and as a protocol. These roughly correspond to token,
rail, and ledger, each of which is representative of particular vision of Bitcoin’s present
and future use and meaning. Each of these visions carries with it ideologies, which
recursively shape discussion of Bitcoin, expectations of what it can and should be able to
do, and how its code is implemented. This chapter first offers a short technical
introduction to Bitcoin, attending in particular to the functional attributes that are
required to understand its philosophical, political, and social terms. It then gives a pre-
history of Bitcoin, describing the cypherpunk and crypto anarchist groups of the late 20th
century, as well as various attempts within those communities to develop digital cash.
23
Next, this chapter describes the emergence of Bitcoin, contextualizing it in a moment
marketed by surveillance and financial crisis, a time when the concerns of the
cypherpunks and crypto anarchists became more generally popular. The next two sections
demonstrate practical tensions between different visions of Bitcoin, as a token, a rail, and
a ledger. Finally, the chapter looks to the future of Bitcoin, a trajectory caught between
incorporation into existing power structures and the deepening of political commitments,
which are themselves not without paradox.
Methods
The following section details my participant observation, documentary, and historical
data collection procedures, as well as my data analysis practices.
Participant Observation
Payment is inherently multi-sited (Marcus, 1995). It includes the payments industry,
which consists of traditional payments services and newer tech-industry entrants. It includes
community activism and other endeavors in which non-professionals attempt to deliver payment
and payments-like services. The field of payments does not exist in one space, and is instead
called into being and performed at events where various stakeholders come together to learn
about, discuss, and plan payments infrastructure and its management. In order to a conduct a
multi-sited ethnography of payment, I conducted research at the following sites over 4 years
(including one year of pilot, pre-dissertation research):
Industry conferences – These events bring together payment and technology entrepreneurs;
venture capital firms and other funders; payments, finance, and technology journalists;
24
regulators; and other interested parties. At these events, I watched panels, engaged in
informal interviews, and recruited for more formal interviews at designated networking
times, and also collected documentary evidence handed out by the participating companies,
including proprietary reports.
o The Future of Money and Technology Summit, San Francisco: In comparison to
Money 2020, The Future of Money and Technology Summit is smaller, shorter (1
day), and, compared to Money 2020, more inclusive of activist and other more
creative approaches. Its organizer also organizes a similar event around music and
technology, the SF Music Summit. Its sponsors have included SWIFT Innotribe, Citi
Ventures, PayPal, Capital One, First Data, American Express, and Bitcoin. It has been
held annually since 2010. I have attended three times:
February 28, 2011 - Keynote speakers: Scott Guilfoyle, PayPal CTO and
Senior Vice President, Platform Services; Antonio Benjamin, Citigroup
Institutional Clients Group/Global Transaction Services, Global Chief
Technology Officer. Panel topics: Financial Innovations, Information Driving
Effective Markets, Crowdfunding & Lending, Leveraging New Markets,
Funding Financial Innovation, Designing the New Bank, Transacting
Together, The Future of Angel Investing, Monetizing Intangible Capital,
Covering Your Bills, Debt Free America, Serving the Unbanked, Ecosystem
of Financial APIs, Mobile Money, Virtual Goods & Currency, Microsale &
Permission to Re-Use, Start-up elevator pitches, demos, and presentations.
April 23, 2012 - Keynote: Harshul Sanghi, AMEX Ventures. Panels topics:
New Automation of Underwriting, The New Value Movement, Money Meets
25
Tech, eGifting: The New Web, Social and Mobile Currency, Web Driven
Investment Advice, What’s In Your Wallet? – A Discussion on the Evolution
of Mobile Payments, Virtual Currencies, Mobile Money for the Other 4
Billion, Big Data and the Cost of Money, Visions of the Future, Ecosystem of
Financial APIs, MetaCurrency and Deep Wealth, Slow Money, Innotribe:
Financial Innovation Changing the Way We Transact, MoneyTech Funding,
Gamification of Money Management, Start-up elevator pitches, demos, and
presentations.
December 9, 2013 – Panel topics: Bitcoin: The Future is Here, New Currency
Models and Old Government Structures: Something’s Gotta Give, Ven
Currency, Mobile Payments, Point of Sale, The Future of BitCoin, Big Data &
FinTech, Colored Coin, Litecoin, Mastercoin, and Ripple, Innovating With
Government Finance Data, The Rise of Virtual Currencies, Banking
Innovation, Innovation in SMB Software, Q&A Discussion with Sophie
Raseman, US Treasury Department, Federal Reserve Payments Update,
FinTech Funding, The Ecosystem of Finance & Commerce: Connecting
Tradition and Disruption, Crypto Community Currency, Q&A Discussion
with Steve Jung of The Federal Reserve.
o Money 2020, Las Vegas. This is the largest and most important payments and
technology industry event. It much larger (4,000 attendees in 2013, 10,000 attendees
in 2014), longer (4 days), more international, and in some ways, more “serious” than
the Future of Money and Technology Summit. Its sponsors have included Accenture,
American Express, Bitpay, First Data, Fiserv, Financial Technology Partners, Galileo,
26
Google Wallet, Heartland, Lebara, PayPal, SecureNet, Bancorp, TSYS and Vantiv. In
addition to panels, demos, and exhibit hall, it also includes a hackathon, special deep-
dive sessions, and start-up accelerator sessions.
October 25-28, 2013 – Keynote speakers: Peter Diamandis, Founder, X
PRIZE Foundation; Mike Abbott, CEO, ISIS; Jim McCarthy, Global Head of
Innovation and Strategic Partnerships, VISA; Airel Bardin, VP, Google
Payments; Don Kingsborough, VP of Retails and Prepaid Products, PayPal;
Gary Greenwald, Managing Director, Digital Money Services, Citi; Ed
McLaughlin, Chief Emerging Payments Officer, MasterCard; Sarah Friar,
CFO, Square; Dan Schulman, Group President, Enterprise Growth, American
Express; Mike Alfred, CEO, BrightScope; George Gatch, CEO, J.P. Morgan
Funds; Robert L. Reynolds, President and CEO, Putnam Investments; Arun
Bhikshevaran, CMO, Ericsson; Diane Offereins, President, Payment Services,
Discover; Tom Taylor, Vice President, Amazon Seller Services; Patrick
Collison, CEO, Stripe; Deborah Lui, Social Commerce and Platform
Monetization Product Manager; Aditya Bhasin, SVP, Consumer Marketing,
Analytics and Digital Banking Executive, Bank of America; Frank Bisignano,
First Data
2013 thematic tracks included Legal Issues for Business Leaders, Proactive
Strategies for Regulatory Engagement, Bleeding Edge Issues in Domestic and
International Leading Edge Innovation, Aligning Ecosystems, Research and
Market-Centric Views, Data Application in Marketing and Compliance, The
Entrepreneurial Edge, Empowered Consumers, Banking and Money
27
Management, Retail 3.0: The Mobile-Enabled Commerce Experience,
Checkout and Payment Innovations, Sharing, Giving, and Gifting, Borrowing,
Global Innovations in Payment, Global Innovations in Financial Services,
Global Commerce Ecosystem Stakeholder Perspectives, Global Country and
Regional Focus, Enabling Infrastructure and Technology, Merchant and
Acquiring Solutions, Mobile Ecosystem and Infrastructure, Business
Applications, Ripple Developers Conference, and Customer Experience.
October 25-28, 2014 Keynote speakers: Mike Abbot, CEO, Softcard; Frank
Bisigano, CEO, First Data; Rosalind Brewer, CEO, Sam’s Club; Benjamin
Lawsky, Superintendent of Financial Services, State of New York; Marc
Goodman, Founder, Future Crimes Institute and Global Security Advisor,
Singularity University; Ryan McInerney, President, VISA; Osama Bedier,
CEO, Poynt; Jane Fraser, CEO of US Consumer and Commercial Banking,
Citi; Hikmet Ersek, CEO, Western Union; Erik Schatzker, Anchor and Editor-
at-Large, Bloomberg Television; Hill Ferguson, Chief Product Officer,
PayPal; Cameron and Tyler Winklevoss, Principals, Winklevoss Capital;
Kenneth Chenault, CEO, American Express; Mary Thompson, Reporter
CNBC; Tom Taylor, VP, Amazon Payment Services; Paul Galant, CEO,
Verifone; Dekkers Davidson, CEO, MCX; Jeffrey Yabuki, President and
CEO, Fiserv; Carman Wenkoff, CIO, Subway
2014 thematic tracks included Global landscape, Marketing Services, Bank
and Non-bank Disruptors, Legal and Regulatory Risk and Compliance,
Business to Business and Small Medium Sized Business, Disruptive Financial
28
Inclusion, Entrepreneurship and Innovation, Newly Released Market
Research, (Bit)Coin World, Payments Processing, Identity, Security, and
Fraud, Retailers: What’s in Store, Mobile Payments and Security, Innovations
in Online Payment, Commerce Disruptions, Legal and Regulatory Business
Issues, Demos, and Case Studies.
Industry training - Training for payments professionals is frequently outsourced to third-party
companies. In the United States, one of the foremost companies is Glenbrook Partners.
Headquartered in Menlo Park, California, Glenbrook also has many connections to the tech
industry. This is an important source of knowledge in the payments industry. Organizations
including VISA and the Federal Reserve send their employees to Glenbrook to learn how to
do their jobs. Attendees at Glenbrook training sessions include employees of banks,
merchants, tech firms, and regulators.
o Glenbrook Partners Payments Boot Camp, May 6-7, 2014, Palo Alto, CA
Topics included Payments Systems: principles, definitions, “push” and “pull”
payments, the domains of payments, how systems differ; Perspectives: users
(consumers and merchants), providers (banks, networks, processors, service
providers), regulators, investors; The card value chain: roles, functions,
economics, interchange, issuing, acquiring, risk management; Core payments
value chains: ACH, Checking, Wires, Cash; Recap and networking reception;
Global payments: local country payments systems, commonalities and
differences, cross-border payments; Emerging payments: Glenbrook’s
framework for understanding emerging payments, “building blocks” for
payments innovation, PayPal case study; Mobile and online wallets, major
29
players, new entrants; and The New POS: EMV, mobile card acceptance,
mobile marketing, mobile cash registers; P2P, virtual money, faster money.
o Glenbrook Partners Insight Workshop: Bitcoin and the Blockchain, Basics and
Beyond, March 26, 2014, Mountain View, CA
Topics included How Bitcoin Works; Basics of the Bitcoin protocol, how
Bitcoin addresses counterfeiting and the double spend problem; Bitcoin
limitations; The Bitcoin Ecosystem; Where Bitcoin meets the real world -
Bitcoin mining, wallet providers, exchanges, trading platforms; Players and
Providers; Examination of commercial providers, their services, and market
niches; Economic and business models; Math-based Currencies (MBCs) and
Regulation; Current view of US and global regulators on Bitcoin and other
MBCs; Bitcoin Use Cases; Bitcoin as currency; investment commodity;
payment rails; Purchases at the Point of Sale, remote purchases, B2B
payments, P2P payments, international remittances; Other MBC Challengers;
Bitcoin-based currencies; alternative MBC methods such as Ripple; Math-
based Currency Prospects; The future of MBCs; the resilience of Bitcoin;
niche use cases to watch; and programmable money and smart contracts.
Community, activism, and other public-facing events – In addition to industry events, I also
participated in community groups, some of which crossed over with industry events.
o Arroyo Seco-Echo Park Time Bank – I became a member and regularly participated
in the activities of this community alternative currency group, 2011-2014.
30
o Bitcoin Meet-ups – I regularly participated in meetings of Bitcoin enthusiasts and
developers in in Los Angeles, 2011-2014. In addition, I participated in Bitcoin meet-
ups in San Francisco, New York, Amsterdam and London.
Critical Expert - In order to most fully participate in payments, I used my academic training
to become a “critical expert” on the topic. This established my credibility in the field and
created new opportunities for access. After each of these industry- or public-facing events,
new interlocutors reached out to me. Some of these activities included:
o Interviews: I gave interviews on the history of money for Time as Money, a
documentary produced by a member of the Aroyo Seco-Echo Park Time Banks (April
2011), on payments and space tourism to a public relations firm (March 2013);
historical research on Diners’ Club on Tomorrow’s Transactions, one of the leading
podcast in the payment industry (October, 2013); Bitcoin to reporters from the
Orange County Register (September, 2014); and Venmo and mobile wallets to a
reporter from Slate (January 2015).
o Presentations: I gave presentations to public and industry groups, including Intel
Workshop on Privacy in Portland, OR (December, 2013), Sydney Ideas Festival
(November, 2013), Money Lab in Amsterdam (March, 2014), and OpenHere, Dublin
(November, 2014).
o With Bill Maurer, I published an article in The Atlantic titled “The Future of Money-
Like Things” in May 2014.
Researcher-organized events – In addition to attending events, I also organized them myself
in order to bring together key interlocutors. These included:
31
o Social Payment Workshop, Intel Science and Technology Center (ISTC) for Social
Computing, University of California Irvine, February 25-26, 2013. Together with Bill
Maurer, I planned an event that brought together scholars and professionals to
reconsider the pasts of payment technologies in order to grasp their futures. The 25
attendees included employees of start-ups, former executives who had pioneered the
payments industry in the 1970s, regulators from the Federal Reserve, payment
attorneys, activists, artists, anthropologists, historians, and other scholars.
o ARNIC Conference: Money as Communication, Annenberg School for
Communication and Journalism, University of Southern California, October 10-11,
2014. Along with Jonathan Aronson and Manuel Castells, I organized this gathering
to bring together industry representatives, scholars, activists, and artists.
Interviews - In addition to this participant-observation, I conducted more formal interviews
with interlocutors, most of whom I met and built relationships with at the previously
described events. Between 2011-2014, I interviewed 22 leaders in the payments field,
including consultants, industry pioneers, employees in traditional payments, entrepreneurs
and employees in emerging payments, attorneys, regulators, and activists. In addition to these
formal interviews, I have maintained ongoing email correspondence and social media
conversations with additional interlocutors.
Documentary
The social systems that produce and manage payments infrastructures are constituted as
much by documents and words as they are by activities and physical places. In order to fully
understand payments, it was necessary to create an archive of payments-related texts. These texts
included:
32
Trade publications – Includes companies’ public relations materials collected at trade
shows; reports and trends generated by industry-facing research firms; trade journals as
well as their online blogs; tech industry blogosphere; tech industry databases of
information about start-ups, funders, acquisitions, and personnel.
Regulatory guidance – Includes governance documents from the Federal Reserve,
Internal Revenue Service, Federal Deposit Insurance Corporation, Consumer Financial
Protection Bureau, and Department of Justice, as well internal trade guidance, such as a
that from VISA and Mastercard, Electronic Transactions Association, National
Association for Purchasing Card Professionals, Electronic Funds Transfer Association,
National Automated Clearinghouse Association, and the Payment Card Industry Security
Standards Council. In addition, this also includes decisions from relevant court cases.
Mainstream media – This includes coverage of the payments industry in mainstream
journalism; coverage of the tech industry; commentary and opinion on payments,
commentary and opinion on technology; and popular books on money, payment, and
technology.
Social media – This includes social media produced by public figures in the payments
industry and tech industry, social media reactions to innovations and controversial events
in payments and the tech industry, message boards, and other online interest groups
around personal finance.
Historical
In order to understand the present and future of payment, it is crucial to understand its
history. I drew from the following kinds of historical sources:
33
Original archival research – I collected original research from historical news sources.
In addition, I also collected historical payments industry detritus, such as a brochures,
advertisements, historical industry reports, and related paraphilia. Much of this is not
archived and had to be assembled. These items were purchased from eBay and similar
marketplaces, as well as donated by interlocutors who had worked in the industry and had
these items stores in their personal collections.
Non-academic histories – Although there is little academic work on the history of
payment, there are popular histories, many of which were produced by payments
companies themselves. Many of these are out of print. I treated them as a primary
sources, to be understood as shaped by particular ideological and historical lenses. In
addition, they are useful as roadmaps to guide original research.
Secondary historical resources - I synthesized existing histories that were not focused on
payment and teased out the payments stores implicit within them.
Data Analysis
My research practices draw from phenomenology, which works to “understand an
experience as it is understood by those who are having it” (Cohen, 2000, p. 3); ethnography,
which works toward the development of “descriptive theory” reflecting cultural knowledge,
behaviors, and meanings (Omery, 1983); and grounded theory, which works to move from a
description of what is happening to a theoretical understanding of the processes through which it
is happening (Strauss & Corbin, 1998).
Consistent with these approaches, the data collected was analyzed according to an
iterative processes. This iteration is, in part, a necessary function of studying emerging
34
phenomena. My research emerged alongside its subject. I began my project as many of the
infrastructures I would write about were assembled.
In order to address this process of emergence, I maintained the following practices, which
can be grouped into two phases:
Phase I: Data Collection and Analysis
o Conducting research and analysis of stable, historical phenomena alongside
with and as a grounding for participant observation and documentary research
of emerging phenomena.
o Collecting and maintaining archives of documents and other evidence, the
systematic organization of which was iteratively produced and an important
form of analysis itself.
o Continuously producing notes that document the process of constant
comparison of data-with-data, and data-with-theory, consistent with a
grounded theory approach (Charmaz, 2006; Glaser & Strauss, 1967; Kelle,
2007; Strauss & Corbin, 1998; Urquhart & Fernández, 2013).
o Continuously producing notes that worked to actively destabilize and recenter
my thinking, drawing from mapping procedures advocated by Situation
Analysis (Clarke, 2005), which draws from Actor-Network Theory, Grounded
Theory, and feminism.
o Further data collection was guided both by changes in the ethnographic field
and this iteratively developing theory.
Phase II: Development of project and writing
35
o Once the iteration between data collection and grounded analysis reached
sufficient saturation—and events in the field reached sufficient stasis—I
developed the shape and scope of this particular, initial writing project,
including chapter topics.
o Each chapter topic was produced according to further processes of grounded
theory, drawing from archives and notes that had been assembled and
organized in Phase I.
o New data was collected as driven by the developing theory as needed during
the writing process.
36
CHAPTER ONE:
HISTORIES: PUBLIC AND PRIVATE VISIONS OF PAYMENT
“Money is to the body politic what the blood is to the human heart. Any part where the blood
ceases circulate languishes and is not long in dying.”
– Henri de Saint-Simon
“The most mass-produced objects in the world, painstakingly designed for millions of people to
use”
– Virginia Hewitt, on state-issued currency, 1994
Introduction
This chapter tracks the origin of the modern third-party payment industry in the United
States. It demonstrates that the business of payment emerged not from finance, but from
communication. Payment, as communication, is the organization in space and time of
information socially determined to be money or money-like. This organization supports the
moving of such value—in the form of physical or informational representations—from one place
to another. By understanding money from this point of view, we open up new histories that are
otherwise missed by traditional accounts of the “economic.” We are able to understand how
meaning is made and power is wielded through money, both as media and as infrastructure.
37
For at least the last two centuries, payment technology has tracked alongside
communication technology: paper, telegraphy, information systems, internetworking. This
chapter touches down to examine the development of key technologies and their historical
conjuncture: postal money orders and traveler’s checks, payment cards, and online person-to-
person payment. This is a history of technology, but also of politics: the question of who should
provide payment services and how. This politics has hinged on differing visions of the public
good, state-democratic, and market, and has been marked by issues typical to communication
technologies. One is a tension between universal service (the expectation of providing basic
payment capacities to all citizens) and common carriage (the expectation of providing safe, fair,
non-discriminatory service). Another is more cultural, pertaining to the way that payment serves
as a vector of identity, community, and ideology. At times, private payment systems have posed
a direct challenge to state sovereignty. Historically, payment has been a vector of national
identity and geographic interconnection. Along these lines, over and over again, private payment
has produced tiered service that has served as the basis of differentiated identities and agencies.
This chapter maps out an initial history of payment—an original contribution—and
illustrates recurring themes across that history. It creates a context for the examination of those
themes in the rest of this dissertation, which will primarily address present and emergent
concerns. This chapter is largely synthetic, drawing on academic histories of relevant topics, but
also putting them in dialogue with each other in a way that makes an original contribution. In
addition, it draws on popular histories, most of which are now out of print. I treat these accounts
as primary sources and consider the bias of each work’s author, the purpose for producing the
book, and the milieu in which the book was intended to be read. In some cases, these are
flattering, triumphant histories of payment companies produced by the companies themselves,
38
making ample use of the company archive. Others are autobiographical accounts by payment
company founders and early executives. These, too, tell a particularly vision of the industry, one
which may or may not be authorized by past or current company leadership. As needed, I have
also conducted additional original research, analyzing a variety of artifacts, advertisements, and
journalistic coverage.
The chapter begins with debates between post-bellum “gold-bugs” and “greenbackers,”
and argues that these should be considered alongside competition between the United States
Postal Service and the private expresses for movement of value and information. These two
tensions came together when the private expresses were ultimately regulated by the federal
government and, in response, consolidated themselves as American Express. This coincided with
a refocusing on their money order and traveler’s check business, beginning the modern payment
industry.
Next, the chapter considers the use of telegraphy for money transfer and the implications
of Western Union’s corporate monopoly. Although the telegraph is often credited with
revolutionizing communication by divorcing the movement of information from the movement
mass, the telegraph was not widely used for payments. Instead, the Federal Reserve system and
its network of centralized clearing houses produced an infrastructure that could support the
movement of “telegraphic” informational money across long distances.
Lastly, the chapter moves to the 20th century and the development of networked
information and communication technologies, and the application of those technologies for
personal use. Diners’ Club, the first payment card, emerged in the 1950s as a way to
bureaucratize individual identity and mobility in harmony with corporate and tax infrastructures.
Unlike earlier private payment innovations, the Diners’ Club card served both state and corporate
39
interests. However, it also shored up existing race-based differentiation in American society.
When the VISA network was established in the 1970s, the radical vision of it founder was at
odds with the banks who ultimately put it into practice. In the 1990s, PayPal sought to provide a
way for individuals to pay online. It was an overtly anti-state project, a new private express for
the “electronic frontier.”
Paper and Rails
Paper currency maps well onto the stories we tell about print culture more generally. Like
other forms of what Benedict Anderson calls “print capitalism” that enable “imagined
communities,” paper money has contributed to “national strength and identity, politically and
economically through the creation of banks and other issuers, or symbolically through the
significance of the imagery on paper money” (Anderson, 1983/2006; Hewitt, 1995). It was a
“daily affirmation of the nation state” and a “common economic language with which to
communicate” (Gilbert, 1999; Helleiner, 1998). It was a democratized, mass-produced medium
that allowed low-denomination notes to enable money as a technology to penetrate into the daily
lives of ordinary people. Paper currency enabled anonymity that allowed dwellers of the new
modern metropolis to “circulate publicly with unencumbered and unmarked wealth, gaining
access to new forms of commercialized leisure, popular culture, and mass politics [and] to enjoy
a striking degree of personal freedom” (Henkin, 1998, p. 165).
However, establishing a national currency was not a naturally occurring development. It
was an achievement of the Federal Government that required significant effort over decades. In
the United States, national currency was not fully consolidated until after the Civil War
(Carruthers & Babb, 1996; Henkin, 1998; Zelizer, 1994). Prior to that, foreign currencies, private
40
bank notes, and other scrip circulated alongside those issued by the United States Treasury.
Monetary policy over the new currency became a key political debate of the era.
The currency question, as it was known at the time, demonstrated larger fault lines in
post-bellum society. Supporters of the gold standard were economic liberals concentrated in
northeastern cities. They wanted a currency that could serve as an international numeraire. One
supporter of the gold standard wrote that it was “the currency of a free people, strong enough to
maintain every other of their institutions against the world . . . strong enough to sustain the
measure of their business transactions with each other independent of kings, the least, or bankers,
now the most potent sovereigns in the world” (quoted in Ritter, 1997, p. 101). Conversely,
supporters of the greenback were populist and anti-monopolist and could be found in agrarian
states and among organized labor. To them, the question was, “who shall make the money, the
banks or the government, money-kings or the people?” (quoted in Ritter, 1997, p. 92). For
greenbackers, money was a legal representation of productive labor and the national economy,
and thus it should flow throughout the country, where it could be used for everyday life. In short,
money should not have a “value in exchanges,” but be a “medium of exchange” in everyday life
(Ritter, 1997, p. 99). The currency debate was not over whether a national paper currency should
exist, but how it should be managed, what kind of national imaginary it would foster, and what
its flows would be.
Crucially, however, privatized market money would not emerge from national monetary
policy, but through the private express postal system. This era was also a time of debate over not
just the authority, backing, and production of money, but also its transport and transmission. Its
territory and flow were determined by the material organization of the postal infrastructure. Like
the currency debate, this was organized along lines of democratic versus market control, private
41
expresses versus the United States Postal Service. The money order—a paper technology that, to
some extent and in some parts of the country, served as a de facto if not rival currency—was
issued by both.
The mail system has been widely praised for its contribution to American public life. As
a communication infrastructure, the mail brought newspaper and message from afar, binding the
country together and forging a national imaginary and society from a loose confederation of
states (John, 1998). But the mail also functioned as an infrastructure of the movement of value.
The mail was primarily used in this way by banks and merchants to ship large sums of money
and other financial instruments. In 1855, as much as $100 million dollars—double the federal
budget for the years—was shipped this way (ibid.). But it was also used by ordinary people.
Before the 20th century, checking accounts only existed for the wealthy, so sometimes
individuals, when they wished to send a payment long distance, “put their money into an
envelope, sewed the envelope shut, and sealed it with wax,” and then mailed it (Grossman, 1987,
p. 80).
Like paper money, the United States mail service was a “daily affirmation of the nation
state.” Postmasters were the most widespread representatives of the federal government. By
1831, postal employees accounted for 76% of the civilian federal workforce, and postmasters
outnumbered soldiers 8,764 to 6,332 (Government Relations, 2007). As the country expanded
and settlers began to ask the Post Office Department for service, the federal government had to
decide whether to subsidize routes that promoted settlement but did not generate enough revenue
to cover their costs (ibid.). At times, the department delivered mail using new, experimental relay
techniques along routes that it was actively forging, so attempts to advance and strengthen the
postal infrastructure were tied to its slow delivery (ibid.). Private express mail companies
42
competed with the federal postal service, targeting areas where public service was poor. Various
legislation throughout the 19th century sought to fight competition from the private express mail
companies, expand routes, keep fees down, and provide universal service to customers, no matter
where they lived in the country and territories (ibid.).
The private express mail companies that competed with the public postal service had also
carried cash. While they principally sought the business of banks and other bulk shippers, they
also transported small payments for individuals. Though arguably illegal, the private expresses
were the closest thing to universal service across the West. Driven in large part by the lucrative
services produced by the gold rush—and the simultaneously rise of marketist gold standard
supporters in the federal government—private expresses made swift profit transporting money
and money-like articles “gold dust, bullion, specie, packages, parcels, & freight of all kinds”
from coast to coast (Fradkin, 2002). In California and the rest of the early American West,
private expresses were more ubiquitous than the federal government (ibid.). According to one
observer, Wells Fargo—the company that would become American Express—“went
everywhere, did almost anything for anybody, and was the nearest thing to a universal service
company ever invented” and was “the first thing established in every new camp or diggin’s”
(Cited in Fradkin, 2002, p. 27). In this way, the expresses, like the public postal mail, tied value
transfer to communication.
Indeed, without private expresses, Californians would have been totally isolated from the
rest of the nation. As it was, Los Angeles—where there was no gold rush and private express
routes were fewer and farther between—learned that California had been admitted to the union
six weeks after the fact (Government Relations, 2007). Four years later, an article in the Los
Angeles Star newspaper was still asking, “Can someone tell us what has become of the U.S. mail
43
for this section of the world?” (ibid.). Indeed, the United States Post Office Department was
widely criticized as overpriced, inefficient, insufficient, and weighed down by political patronage
(John, 1998). While the public mail attempted to build infrastructure for long-term universal
service, the private express was able to provide targeted service in the short term.
But the benefits of the private expresses came at a price. Although it fought against
regulation, condemning the “monopoly” held by the United States mail, the express industry
itself was not actually competitive. Instead, the expresses divided up territory regionally and
elected not to compete on prices within those regions (Grossman, 1987). As part of this
collusion, the express companies required workers to gain written permission from past express
employers before attempting to work for another express company (ibid.). They kept unions out,
banding together against organized labor to fire unionized employees and hire scab workers
(ibid.).
In addition, the cartel setup allowed the express companies to engage in price fixing and
discrimination. Express pricing followed a complicated formula of weight, value, and distance
that was intentionally too difficult for the public to follow. For example, J.C. Fargo, then head of
American Express, heard one year that grape farmers in one region had a bumper crop. Because
fruit growers shipped perishables and relied on speed, they had no real alternative to the
expresses. Although American Express would have benefited anyway from the increased volume
of grapes, Fargo doubled the rates on that particular crop in that particular region (ibid.). The
cost of targeted, simulated universal service was loss of common carriage.
In 1887, the U.S. Congress created the Interstate Commerce Commission (ICC), which
regulated the railroads as “common carriers,” that is, as transportation companies that were
obliged to offer service to the general public without discrimination of price or service.
44
(Common carriage, along with metaphors borrowed from rail transportation, would become
important to the regulation of telecommunication systems 100 year later.) The express services
resisted being regulated by the ICC and becoming common carriers because, they claimed, they
merely contracted the rail service. This was largely disingenuous, ICC representatives argued to
Congress, because the expresses frequently held exclusive contracts with and dominated the
decision-making of railroads that had weak credit ratings by providing financing to them, and
further, ownership in both industries was deeply imbricated, with express companies holding
railroad stock and railroad companies holding express stock (ibid.).
The populist and then progressive movements—the same groups that favored greenback
currency as a national medium of exchange, rather than an international market device—worked
to end labor abuse and increase competition, including from the federal government, in the postal
industry. Finally, in 1906, the Hepburn Act placed the expresses under the regulation of the ICC.
Then, in 1913, Congress authorized a public parcel post system. With regulation and subsequent
competition—and the advent of the commercial telegraph in the mid-19th century—most of the
express companies went out of business. By that point, however, American Express, then by far
the largest express company, had already moved on to a new, lucrative, and unregulated way to
move value.
In 1864, the United States Postal Department, aware that a large volume of small
amounts of money was being sent through the mails by citizens, followed the British example
and created a postal money order system (Hines & Velk, 2009). In the era before the Federal
Reserve system, in the absence of an efficient network of national payments and bank settlement
clearinghouses, the postal money order system functioned as a retail financial institution capable
of moving value from post office to post office all over the country at a low cost (ibid.). In this
45
way, postal money orders functioned as a de facto national currency, a medium of exchange and
store of value, especially for travelers and itinerant workers. Furthermore, one supporter of the
United States Post Office asserted in 1893 that, “cases have been known, and, it is believed, are
not rare, in which persons permanently abiding in locations where there are no reliable banks,
have, for security, invested their savings in money orders issued upon application made by
themselves in their own favor” (Cushing, 1893). By 1880, the Post Office Department sold $100
million in postal money orders from 5,491 post office branches (Grossman, 1987).
That same year, American Express began to issue its own money orders. This move was
unusual in that the expresses typically acted together in competition with the government, but
perhaps, as Grossman suggests, younger American Express executives had begun to see that the
days of the unregulated cartel in the express industry were numbered (ibid.). American Express
identified a key weakness in the postal money order system on which they could compete. Only
post offices that did a sufficient amount of business to have cash on hand to pay out on postal
money orders were allowed to administer them (Hines & Velk, 2009). Again, American Express
targeted those areas where the infrastructure of the federal government was limited.
The postal money order had a complicated system for placing orders. As late as 1914, a
buyer had to specify to whom and at which specific post office it would be paid (ibid.). Upon
purchase, the money order itself was given to the buyer, who would, presumably, send it to the
payee. The issuing postmaster also prepared a separate form titled “Advice of U.S. Postal Money
Order,” which was mailed to the post office of the payee. The payee’s post office would keep the
advice form for one year, after which, if the order remained unpaid, it was sent to the auditor of
the Post Office Department. If the money order was paid out, the advice form was kept for four
years and then disposed. The main reason for this complexity was security. If a postmaster had
46
not received an advice form on it, a money order could not be cashed. In addition, it could only
be cashed for the sum listed on the advice. This system was confusing for customers who were
not literate, as well as for immigrants whose use of written English was limited (Grossman,
1987). Even for those proficient in the English language, it was very difficult to collect on lost
orders (ibid.).
American Express came up with an ingenious “paper engineering” solution to these
problems, which was later patented (Massengill, 1999). When an American Express money order
was purchased, the clerk wrote the name of the payee and the amount on two stubs, gave one to
the buyer, and kept the other for company records. Then, instead of writing the amount on the
money order, the clerk cut the “protective margin,” a column of nine figures on the money order
that depicted 5 cent denominations, to the proper sum. While the design of the money order
changed over the years, this basic design concept lasted well into the 20th century (Grossman,
1987).
Because American Express explicitly competed with the Postal Service by catering to
non-English speakers, its immigrant customer base grew. In addition to sending money
domestically, this group began to use American Express remittances to send money orders
abroad (Massengill, 1999). Unfortunately for these early customers with international ties,
American Express money orders could not be cashed abroad. American Express began to notice
that many money orders purchased by immigrants went uncashed, but it did not establish the
necessary connections until 1886, when it announced that Baring Brothers of London would
handle payment of the money orders in Europe. Soon, because of the large number of
immigrants in America from Ireland and Italy, American Express developed an especially large
47
network of correspondent banks in those countries, and by the late 1880s, American Express had
transacted millions of dollars in foreign money order per month to both (Grossman, 1987).
In addition to money orders, which were marketed to the poor, the far-flung, the
immigrant, and the illiterate, American Express soon offered a private payment technology for
the elite. By the end of the 1880s, American Express developed a new form of paper value
transfer, the traveler’s check. According to company lore, company president J.C. Fargo took a
long leave of absence to make the grand tour of Europe. At the time, international travelers,
usually wealthy, carried a letter of credit from a leading bank in their home country. The letter of
credit had existed more or less unchanged since the Renaissance. It represented an amount of
cash in deposit at the home bank that the carrier could draw upon at corresponding banks abroad.
The identity of the carrier was verified by the signature on the letter. When Fargo returned from
his trip, he complained that his letter of credit had been a huge inconvenience. It took a long time
to be verified at each bank, it provided no guarantee on exchange rates, and once he left major
cities, it was, he said, of “no more use to me than so much wet wrapping paper” (quoted in
Grossman, 1987).
The new American Express Travelers Cheque (as the company styled the item) preserved
one of the features of the letter of credit, the double signature. But unlike the letters of credit,
which were more of a guarantee of a store of value to be drawn upon, the Travelers Cheques
were more like money orders, in that they were issued in small denominations. Typically,
travelers would purchase a book of them in varying amounts. Because exchange rates were fairly
stable at the time, American Express listed rates it guaranteed to honor on the Travelers Cheque
itself. Although Travelers Cheques were intended by the company to be used only by elite
travelers, the success of the Travelers Cheques rested on the large network of European
48
corresponding banks that American Express had developed through their trade in foreign
remittances made by immigrants (Grossman, 1987). Travelers Cheques, widely referred to as
“blue paper money,” had the additional benefit over cash of being replaceable if lost or stolen
(Massengill, 1999).
Although American Express charged fees for both its money order and Travelers
Cheques products, its primary source of revenue was discovered incidentally. Soon after
beginning to offer money orders, in part because of the large number purchased by immigrants
that went uncashed in the early years, American Express executives began to notice that the
company always had a large surplus of cash on hand, waiting to be redeemed (Grossman, 1987).
As long as that surplus, or “float,” as it would come to be called, could be tracked and predicted,
American Express could use it to fund investments. By the time its express shipping business
came under federal regulation, American Express was an investment and payments firm, and
well on its way to becoming a modern financial powerhouse.
By the time World War I broke out, American Express was stable enough in terms of
finances, infrastructure, and reputation to be able to pay out money to customers in Europe. More
so than traditional banks, more so than governments, the story went, it was able to provide at a
time of crisis (Massengill, 1999). Of course, its responsibilities were much smaller, and its
mission much clearer than any of these other organizations, but American Express was widely
lauded in the press, and it was institutionalized as a savior to Americans otherwise stranded
abroad. During the war, President Wilson nationalized the railroads, and American Express
finally ended their shipping business (ibid.). The payment industry thus began not in the financial
sector, or through a direct challenge to the state’s monopoly on money, but in the communication
sector, through a direct challenge to the state’s monopoly on the mail. In contrast to state
49
currency, which was a marker of citizenship, the paper money that emerged from the private
expresses produced classed and differentiated payments media.
Telegraphic Money
In the history of communication technology, the telegraph is often credited with
divorcing the transmission of information from the transportation of mass. Carey notes that,
before the advent of the telegraph, the word “communication” primarily signified physical
movement, whereas after, it primarily signified the exchange of ideas. The telegraph allowed the
movement of messages to be made distinct from the movement of objects that carried or
contained those messages. In a metaphor popular in the 19th century, the telegraph was described
as a “nervous system in which signaling was divorced from musculature” (Carey, 1989, p. 166).
For this reason, it is tempting to understand telegraphy as a key progenitor of today’s payment
technology, in which money takes the form of information and is transmitted across
informational channels at high speed. However, it was the Federal Reserve system and its
network of centralized clearinghouses, not the telegraph, that was most responsible for producing
an infrastructure to support the movement of “telegraphic”—that is, long distance,
informational—money across the country.
Just as paper communication like mail and currency had bound the nation together, hopes
had been high that the telegraph would transform communication and thereby “make one
neighborhood of the whole country,” as its inventor, Samuel Morse, hoped (John, 2010, p. 10).
Similarly, telegraphy could have been used to make one economic neighborhood, one payment
territory, of the country. Indeed, telegraphy did contribute to the practice of modern finance. By
spreading the same price information across geographical areas, the telegraph shifted arbitrage
50
from space (buying low in Chicago and selling high in New York) to time (buying low in spring
and selling high in summer), creating the commodities market (Carey, 1989, p. 168). When the
telegraph made real-time financial information available outside of formal stock exchanges,
speculating was democratized through “bucket shops,” shadow markets were ordinary people
made trades (Hochfelder, 2006).
But the telegraph was not used as a payment system on any large scale until the 20th
century. Western Union first began sending money transfer telegrams in the late 1890s, but the
actual mechanisms of money transfer—developing cypher keys, verifying identity—were not
fully realized until the early 20th century (Lachter, 2009). Western Union partnered with
American Express, placing money orders by telegraph and selling paper Travelers Cheques at its
offices, but only the very wealthy availed themselves of these services. The money transfer
service never accounted for more than a small share of the company’s revenues. Today, Western
Union brands itself as “the fastest way to send money,” and has taken pains to present itself as a
pioneer in payments, but most of this rebranding occurred after the 1980s structuring of the
company. Toward this end, Western Union has begun to claim that it issued the first “credit
card.” While it is true that Western Union allowed regular customers to maintain balances and
identify themselves using cards with their name and account number on it, this was no different
than department stores, gas stations, and other merchants who employed the same practice and
had nothing to do with their money transfer service. Nevertheless, this speaks to the cultural
interconnection of communication and payment: Western Union leveraged its long history as a
trusted transmitter of information to become a trusted transmitter of money.
In part, this was because sending messages by telegraph was very expensive. The reason
for these high prices was not the result of costs. Unlike the railroads, which required massive
51
capital investment to develop, or even the post, the telegraph has relatively low infrastructural
costs. Indeed, the telegraph was praised for being made of nothing more than “5000 miles of
wire and a concept” (Wolff, 2013). Instead, prices were high because Western Union, the first
modern national-scale corporate monopoly, controlled them. Originally, Morse, believing that
the telegraph was an “instrument of immense power, to be wielded for good or evil,” control
over which should not be concentrated, petitioned Congress to purchase his patent and create a
dual system in which the government would operate the telegraph as part of the postal system,
but also license it to private carriers (ibid.). But Congress declined to purchase the patent. Morse
licensed his patent to private companies, and soon other competing patents emerged, which did
create problems of interoperability between different systems. But by 1865, Western Union had
absorbed all of its competition and become the center of public debate about whether telegraphy
should be an “enlightened public service,” or if monopoly was the price of unity (ibid.).
Monopoly control produced monopoly rates. Despite expectations of instantaneous
communication and national and global community, the telegraph turned out to be “rich man’s
mail,” or as one observer put it in 1883, “If an individual in common life now received a
telegraphic dispatch he fears that it means death or disaster” (John, 2010, p. 185). Western Union
catered to large firms, mostly in the financial industry. In 1890, the president of Western Union
demonstrated his lack of concern for the community or payment needs of ordinary people: “Most
complaints are by people who never use it and never would except in case of death. What farmer
or mechanic ever wants to use the Telegraph in any other case?” (cited in Wolff, 2013).
Although in the case of the bucket shops (gambling parlors that served as shadow stock markets)
the telegraph democratized access to fast flows of information about the markets across space, it
did not democratize access to fast flows of money itself.
52
Telegraphy has been described as contributing to the demise of the express industry,
though this had as much to do with regulation as it did telegraphy. Like the private postal
expresses, Western Union resisted being regulated as a common carrier. It claimed to be a
transmitter of information, not a transporter of mass, and it didn’t want to be held accountable for
the implications of information it did or did not transmit. Because it dealt frequently with brokers
and others in the financial industry, Western Union transmitted messages to buy or sell stocks.
Western Union, its executives and lawyers argued, should not be held accountable for the
hundreds of thousands of dollars in speculative capital that could be “lost” if telegraphic
messages were incorrectly transcribed or not delivered (Orton, 1873).
Western Union’s money transfer system worked in a similar way as its transmission of
stock orders, but with important differences. A customer would enter their local Western Union
office and give the clerk the payee’s identity and location information, as well as the amount of
money to be transferred plus a fee. The clerk would send a telegram to the payee’s local Western
Union office, authorizing the clerk to give the designated amount of money to the designated
person. Western Union usually did not transmit money orders for large amounts because the
receiving offices may not have had large amounts of cash on hand. If, perhaps, the lack of
common carriage designation made sense for the transmission of messages that contained
information about authorizing the movement of large amounts of money between third-party
banks, it did not make sense in terms of protecting individuals who were sending money transfer
telegrams. This issue seemed mostly to be a nuisance to Western Union executives. Company
president William Orton complained that clerks were being obliged to waste time “settl[ing] a
domestic dispute” when a woman received a transfer of $25 from her husband instead of the $50
she had been expecting (Orton, 1873). Although Orton insisted no money had ever actually been
53
misdirected or lost through Western Union money transfers, he admitted that there had been “a
few narrow escapes” (Orton, William Orton to Anson Stager, 1873).
This highlights an important mechanism in payment, the distinction between
authorization, settlement, and clearance of money. In the case of the stock orders, Western Union
was responsible for the authorization, but the settlement and clearance were handled by third-
party banks. In the case of the money transfer telegrams, Western Union was responsible for all
three steps of the process. In the latter case, the public would have had a better case to demand
common carriage protection. Western Union only offered an advantage to the postal system and
American Express in the speed of authorization. Speed was a luxury that would only be used by
the very rich for personal payments.
The establishment of the Federal Reserve system in 1913 may have been more important
to the production of telegraphic, informational money. However, this was not achieved through
monetary policy, but through the Federal Reserve’s development of an information system and a
communication infrastructure. In 1915, it established a national check clearing network, so that
banks would not have to go through a complicated system of correspondence relationships and
physical clearing houses to settle checks written by account holders at other banks (Spahr, 1926).
Arguments for developing the Federal Reserve often cite Cannon (1900), who described an
example check from the pre-Federal Reserve clearinghouse system era that was drawn on the
Peconic Bank of Sag Harbor, Long Island, deposited in a bank in Hoboken, New Jersey, then
traveled from the Hoboken bank to a New York City bank, and then to banks in Boston,
Tonawanda, Albany, Port Jefferson, Far Rockaway, New York City (again, but a different bank),
Riverhead, and Brooklyn, before finally arriving at its final destination, the Sag Harbor bank,
54
where it was cleared. A centrally managed, hub-and-spoke style clearinghouse system created
greater informational efficiency outside of cities.
Crucially, the Federal Reserve system also worked to end the process of non-par banking.
Before the Federal clearinghouses, paying banks were obligated to make payment in full for the
amount listed on the check for checks presented in person, but there was no such obligation for
checks presented through the mail (Spahr, 1926). Some banks were well-connected to the system
and offered par clearance, and in some states, non-par banking was prohibited. But rural people
often had to settle for discounted checks, sometimes paying quite a bit for their checks to be
cleared. Like money orders and traveler’s checks, non-par banking placed a rent on payment. It
also created differentiation in payment. As Maurer (2012) has pointed out, the non-par banking
states maps closely to former Confederate states. Non-par banking was seen as a “states’ rights”
issue, and the former Confederacy resisted the centralized reserve checking system as an
overreach of federal authority.
With the centralization of Federal Reserve clearinghouses, the justification for non-par
banking, the costs of authorization and clearance—of communicating checks and currency
throughout the country—were absorbed by the Reserve banks themselves. The development of
the Federal Reserve check clearing system was part of a larger long-term effort that would
continue for most of the 20th century to enforce par clearance of checks and create a public
utility for the movement of money nationwide. Under the Federal Reserve system, money was
already becoming less tied to physical mass and more instantiated as socially guaranteed
numerical value. Whereas American Express offered a private system to perform this, the
Federal Reserve offered a public one. Telegrams were sent quickly, and moving paper took time,
but conceptually, check clearance happened instantly across space and was, in this sense,
55
“telegraphic.” Crucially, without the Federal Reserve system, it would have been difficult to
move currency itself, to provide clearance, in the far-flung reaches of the country. The money
that was cleared was already information, not mass. The developer of the Federal clearinghouse
system would become the basis for the informational transfer of money at the end of the 20th
century and into the 21st.
A Membership in the Club
By the mid-twentieth century, rapid mobility became common through new experiences
like personal automobile financing, highway systems, rental cars, motels (a portmanteau of
“motor” and “hotel”) democratized jet travel, and corporate business trips. For the first time on a
mass scale, people moved much faster and farther than their money could. From a consumer
perspective, the United States banking industry was comparatively fragmented. Banks were
mostly small and local entities (Evans & Schmalensee, 2005). Out-of-town checks were slow to
clear, so many merchants refused to accept them, and it was difficult for a traveler to withdraw
cash away from home (Mann, 2006). As a contemporary writer put it, “the traveler—the man
who needed it the most—was creditless,” because “unless he went around with pockets full of
money, he was unlikely to find a friendly face in a strange town”.
6
As Matty Simmons, Executive Vice President of Diners’ Club, the first charge card
company, put it in a 1963 editorial, an “obituary” for cash, “Cash died today in Winsted and
may eventually die everywhere because it simply can’t keep up with the fast-moving world.
Cash simply hasn’t become modern” (Reprinted in Simmons, 1991). As Simmons described,
6
“Changing Times. 1952. "Traveling? Put it on the Cuff: a new, all-purpose credit card lets you do just that."
February.
56
cash wasn’t “modern” because could not “keep up with the fast moving world,” but more
precisely, it could not efficiently interoperate with the networks of rapid physical and
informational mobility that, at mid-century, were beginning to be assembled.
Of course, traveler’s checks had been widespread since the end of the 19th century, but
the nature of travel had changed since then. Most Diner’s Club cards were used for business
entertainment and travel, not tourism. Diners’ Club sought out these corporate accounts in large
part because they represented significantly less default liability than individuals. At the end of
the pay period, Diners’ Club mailed a list of itemized receipts to the cardholder’s office,
effectively outsourcing the accounting of travel expense labor. This became particularly useful
when, in the late 1950s, the IRS raised the standards of documentation for tax-deductible
business entertainment expenses. The Diners' Club statement was “in orderly contrast to the
promiscuous scattering of bills” (Grutzner, 1956). This was the “perfect way to squelch the
doubting Thomases at the Bureau of Internal Revenue” (Tucker, 1951). The “cash-free and
check-free society,” along with the perfectly bureaucratized luxury it offered, had become as
much a part of an idealized modern near-future as the jet pack (Batiz-Lazo, Haigh, & Stearns,
2014). It was a novelty: There are reports of crowds gathering just to watch someone pay with a
card (Nocera, 1995). A book of traveler’s checks had come to seem like just another old-
fashioned wad of paper.
Although the terms are sometimes used interchangeably, the Diners' Club card was not a
“credit card” but a “charge card.” In fact, it preceded the credit card by at least fifteen years.
Unlike later, true credit cards, the Diners’ Club card was not tied to an account of revolving
credit. It did not allow members to carry a balance and therefore carried no float to invest. Its
revenue came from its annual membership fee, transaction fees charged to the merchants, and
57
advertising in the magazine it sent to its members. Once members began to use the card for
work, they often ordered additional accounts for personal use. In 1958, Diners’ Club started a
“Women’s Division” to cater to wives and the emergent class of professional women (Swartz,
2014). Although for most, “putting it on the card” began as a business practice, soon it became a
part of everyday life.
The Diner’s Club was, indeed, like a club. The elimination of “vulgar cash” added a
“pleasant, club-like feeling that comes from walking into a beanery and paying with a card
instead of cash” (Sutton, 1958). It marked its members as an elite group to whom “country club
style billing” was available at an expanding number of merchants. Like Western Union,
department stores and gas stations had offered regular, trusted customers lines of credit, which
could be accessed using cards or metal Charga-Plates, but Diners’ Club allowed the same
convenience to be extend everywhere the card was accepted. This feeling of regularity and trust
was no longer limited in space and time to a particular building in a particular city, but spread
out through the merchant network.
Of course, some memberships in the “club” were more equal than others. As part of the
Civil Rights Movement, the Interstate Commerce Commission, the same regulatory body that
fought for “common carriage” and against price discrimination in the postal expresses and
railroads, would apply the same principles to fight the railroads to end passenger discrimination
against African-Americans (Barnes, 1983). But, earlier, African-American social commentator
George Schuyler suggested that “negroes who can do so purchase an automobile as soon as
possible in order to be free of discomfort, discrimination, segregation, and insult” on the
railroads (quoted in Weingroff, 2013). The so-called “freedom of the open road” was limited by
payment infrastructure. Although Diners’ Club did not discriminate on the basis of race, the card
58
was of little value to African-Americans, who faced de facto discrimination when their cards—
technically not “legal tender”—would be turned down by merchants.
7
Even elite African-
Americans might unexpectedly be relegated to cash-only status.
American Express and banks had attempted to compete with Diners’ Club throughout the
1960s, but neither brought card products permanently to market until the end of the decade,
when Diners’ Club quickly lost its market dominance. American Express took over the high end
of the market, using their nearly century-old reputation as a trusted purveyor of Travelers
Cheques and other non-bank financial services to offer universal charge cards to the elite
(Grossman, 1987).
The bank cards offered something for everyone else: lines of rotating credit. Consumer
financing had been available through banks and merchants like department stores for a long time,
but BankAmericard, offered by San Francisco’s Bank of America, was the first product to
connect it to a universal payment card (Evans & Schmalensee, 2005). At first, BankAmericard
did not require an application. Instead, it mailed out mass “drops” of credit cards, a practice
which was ultimately outlawed in 1970, but not before the market had been saturated by over
100 million largely unsolicited credit cards (Nocera, 1995). It was not just market segmentation
that lead to the decline of Diners’ Club. American Express’ head of card operations had been in
charge of data processing in the Air Force during World War II, and he understood that
computerization of accounts could make the card product more efficient and profitable
(Grossman, 1987). Similarly, the Bank of America had been the first bank in America to use a
computer, and it adapted its existing system to maintain cardholder accounts and process sales
drafts. Although these systems were partial and very slow, they were far more sophisticated than
7
Memphis Tri-State Defender. 1959. "Negro Still Has Hotel Problem." March 14.
59
Diners’ Club’s system. Throughout most of the 1950s and 1960s, Diners’ Club had relied on a
system of paper accounting. Although the system was very efficient, it would have been hard to
scale. When Diner’s Club attempted to computerize in 1967, it was done “in a state of confusion
and ineptness of classical proportions,” and was blamed for their first year of net loss since 1951
(Simmons, 1991, p. 103).
It seemed that Diners’ Club management—who had never tried to capture float through
their products—didn’t really want to be bankers, nor compete with them. Instead, Alfred
Bloomingdale, heir to the Bloomingdale department store fortune and then-president of Diners’
Club, preferred to take on flashier ventures, such as a chain of “floatels”—floating hotels—the
most of ambitious of which was the Queen Mary cruise ship, which remains today, permanently
docked in Long Beach California (“Floating Hotel Concept Splashes Shipping Industry,” 1968).
Nevertheless, it was through Diners’ Club that paying in everyday life with a third-party
payment card became domesticated.
Dreams of a Cashless Society and the “Chaordic Age”
In the late 1960s, after the success of BankAmericard in California, banks nationwide
became interested in offering their own credit card product. Although Bank of America—
arguably through their credit card program—has become one of the largest banking institutions
in the world, at the time, it was a regional bank that, compared to other banks of its scope,
primarily dealt in consumer, rather than commercial services (Stearns, 2011). Because of federal
restrictions that were not repealed until the 1990s, banks could not expand across state lines. But
Bank of America was able to license its credit card program to other banks. In order have a large
enough two-sided network of cardholders and merchants for the system to work, banks needed to
60
allow these cardholders and merchants to transact with those who held accounts from other
banks.
According to a contemporary researcher, adoption of credit cards by banks was driven by
a few factors (Struble, 1969). Foremost, banks became aware of the profits BankAmericard was
making, mostly from interest. Credit card products also offered banks a new way to compete
with each other under the strict regulatory environment, which restricted, for example, fees on
check clearance and placed an upper limit of interest on deposits (Evans & Schmalensee, 2005).
At the time, banks were so desperate to gain customers that they frequently offered toasters or
other incentives to lure in new accounts (Stearns, 2011). New “high speed computers” made the
administration of these kinds of products more efficient and, the promise went, more profitable.
Finally, credit cards, like the computers, appealed to optimism about modernity and progress: the
much-anticipated cashless society, which many Americans, including bankers, believed could be
just around the corner.
In reality, the process proved to be nothing like what the hopeful bankers expected
(Stearns, 2011). A typical transaction involved the merchant using a phone to call an
authorization center and verbally relaying transaction details to an operator, who consulted giant
binders of computer-generated reports to determine whether the transaction should be authorized.
Because of the long delay authorization caused at point of sale, merchants would frequently
discourage customers from using their card. Alternatively, merchants would rely on their own
assessment of the customer. If the customer was thought to be trustworthy, merchants would take
the card without authorization. Then, the merchant prepared the sales draft, which involved
manually filling out the date and purchase amount, making an impression of the card, asking the
customer to sign the sales draft, and comparing the signature to the signature on the card.
61
The arduous check out process was only the beginning of the operational problems of the
card. Clearing and settlement of transactions was an even more complicated process. As Dee
Hock, the founder of VISA put it, “The system for clearing sales drafts between banks was
primitive, cumbersome, and impossible to fully describe” (Hock, 2005, p. 77). Indeed, Hock’s
own short description was as good as any other:
There were no electronic data entry or clearing systems. Each merchant signing bank
accepted all transactions regardless of the issuing bank, crediting the merchant account
for the total, manually sorted the transactions by issuing bank, and reimbursed themselves
by drawing a clearing draft on each issuing bank through the Federal Reserve System.
When the clearing draft reached the issuing bank, it was posted to a suspense ledger
while waiting for the merchant bank to keypunch the sales drafts and send them through
the U.S. mail. Meanwhile, the merchant bank, having already been paid and under
immense pressure to handle its own cardholder transactions, had no incentive to process
foreign transactions and get them to the issuing bank for billing to the cardholder. Since
each bank was both a merchant-signing bank and a card-issuing bank, they began to play
tit-for-tat, while back rooms filled with unprocessed transactions, customers went
unbilled, and suspense ledgers swelled like a hammered thumb. It became an accounting
nightmare.
A credit card sales draft was much like a check—a claim on value ready to be withdrawn from
an issuing bank. When another bank agreed to acquire the transaction, there needed to be a
mechanism through which the sale draft could be routed to the issuer, and then payment made to
the acquirer. But with credit cards, banks found themselves in a similar position as they one
they’d been in a hundred years ago with out-of-town checks.
The credit card issuing banks asked the Federal Reserve to use its national clearinghouse
system to clear and settle credit card sales drafts (not just bulk clearing drafts), but the Federal
Reserve declined (Stearns, 2011). To the officers of the Federal Reserve, debt instruments, and
perhaps even more importantly, transactions that did not clear at par to merchants, should not be
able to ride on the public rails. Around the same time, the Federal Reserve was building its own
modernized clearing house for the par clearance of checks, eventually called the Automated
62
Clearinghouse, or ACH (Benson & Loftesness, 2010). Without payment cards or any other
technology, banking customers could always still write and cash checks using the public system.
Banks not only failed to successfully compete on credit cards, they lost money on them.
Working toward the “cash free society” using “high speed computers” turned out to be a lot less
glamorous than anyone could have imagined. As Hock (2005, p. 79) described it:
All data entry required keypunching each digit of information (every letter and every
number) into a four-by-six inch piece of cardboard by a clunking mechanical punching
typewriter the size of a large refrigerator. The punched cards were then put through an
elongated card reader twice the size of the keypunch machine to capture the data on
magnetic tape, then fed into a van-sized computer for posting to customer accounts.
Bank of America had disproportionate power in the system, and licensee banks felt that it
was not listening to their concerns or trying to solve problems, simply collecting fees. By 1970,
tension among the licensed banks reached a breaking point, and the system seemed ready to
implode. At a meeting with Bank of America and licensed banks, the licensees made the
collective decision that they needed to form an organization that would manage the program
more equitably. Dee Hock, then the card-center manager from the Seattle National Bank of
Commerce, was nominated and agreed to become the leader of the association. Originally,
National BankCard Inc. (NBI), as it was called, was simply a “cohesive, coherent, self-
organizing effort involving all licensees to examine all problems plaguing the system” (Hock,
2005). Bank of America was not bound by its recommendations.
However, NBI gradually became operationally and technologically more powerful,
wresting control away from Bank of America. It in 1975, NBI and the associated credit card
program changed its named to VISA. This was crucial to international expansion, as foreign
banks had been uncomfortable using the brand BankAmericard. It also demonstrated the member
parity and decentralization of the new system: U.S. banks had also resented the brand as well, as
it made their banks look subordinate. Economists cite VISA as a founding example of “co-
63
optition,” an unusual market arrangement in which firms both compete and cooperate (Evans &
Schmalensee, 2005, p. 61). Through VISA, banks competed for merchants and cardholders, but
they cooperated at the system level by sharing infrastructure and setting operational protocols
and standards.
But for Hock, whom one colleague described in an interview as the “Steve Jobs of
payment,” this was much more than a market arrangement. To him, VISA was “was a quasi-
governmental, quasi-for-profit, quasi-not-for profit, quasi-consulting, quasi-franchising, quasi-
educational, quasi-social, quasi-commercial, quasi-political alliance. It was none of them, yet it
was all of them. It was chaordic” (Hock, 2005, p. 157). Hock defined “Chaord,” as “any self-
organizing, self-governing, adaptive, non-linear, complex organism, organization, community or
system, whether physical, biological or social, the behavior of which harmoniously blends
characteristics of both chaos and order” (Hock, 1999).
VISA was owned by its member banks
and governed according to a corporate charter that included principles of self-organization, equal
participation, distributed decision-making and function, and flexibility. VISA, to Hock, was an
opportunity to make a new form of global currency and, beyond that, a totally new way of
organizing all forms of life.
Hock saw himself as an outsider to the world of banking. Whereas most banking
executives came from elite backgrounds, he had grown up in rural Utah and, earning a two-year
degree, had been the first person in his family to attend college (Hock, 2005). Credit cards,
although they represented a new profit opportunity for struggling banks, were also considered
outside of the banks’ core functions. To traditional bankers, they were a novelty at best and, at
worst, unsavory and exploitative, certainly not “real banking” (Stearns 2011, p. 172).
64
Crucially, Hock did not see VISA as being in the business of consumer debt. Indeed,
initially, VISA did not design any debt instruments or even any consumer-facing packages.
Instead, he saw VISA as building technological and social systems to exchange value. As he
describes it:
Money would become nothing but alphanumeric data in the form of arranged energy
impulses. It would move around the world at the speed of light at minuscule cost by
infinitely diverse paths throughout the entire electromagnetic spectrum. Any institution
that could move, manipulate, and guarantee alphanumeric data in the form of arranged
energy in a manner that individuals customarily used and relied upon as a measure of
equivalent value and medium of exchange was a bank. It went even beyond that. Inherent
in all this might be the genesis of a new form of global currency.
(Hock, 2005, p. 97)
For him, banks, and also governments, were vestiges. He wrote, “It mattered little that traditional
banks or government might be the settlers of last resort—the ultimate handlers of huge,
accumulated transfers of monetary value. The vast preponderance of the system would fall to
those who were most adept at handling and guaranteeing alphanumeric value data in the form of
arranged particles of energy” (ibid.).
Perhaps for this reason, VISA, headquartered in San Francisco, developed stronger
collaborations within the technology and data processing industry than it did within banking. Its
product was a novel information system, not a financial tool. It was developed in collaboration
first with DEC, an innovation technology firm, and then with IBM’s San Francisco office, which,
distant from the headquarters in New York state, had a less “buttoned-down” reputation than the
rest of the company (Stearns, 2011). VISA’s technical collaborators took to Hock’s “chaordic”
management style, and together they solved many of the problems of authorization, clearance,
and settlement of the credit system without the use of a centralized clearing house.
To Hock, there was no reason why the VISA should be used only for credit cards. From a
technical perspective, there was nothing stopping any organization that maintained accounts
65
from becoming a node on the VISA network, regardless of whether or not it was a “bank.” And,
there was nothing stopping that organization from using the VISA network to exchange value of
any kind, whether or not it was “money.” The boundaries between various kinds of
organizations, accounts, and stores of value were, to Hock, social and political, not technical
(Stearns, 2011).
Threatened by the rising independence of VISA, bank leaders within the VISA system
sought to institute and maintain these boundaries. For example, when VISA was courting J.C.
Penney, hoping to convince it to accept external payment cards, the retailer agreed, but only
under the condition that it would connect directly into the transactional network, bypassing an
acquiring bank. J.C. Penney was effectively absorbed into the VISA network as a node no
different than any bank node. However, after signing the deal with J.C. Penney, the VISA board
amended its bylaws to prohibit this kind of incursion from happening again. This act also
produced a boundary between banks and retail organizations. Today, all retailers using VISA
must go through a member bank, which acts as a gateway and charges a fee. Stearns argues that
the “fee keeps the gateway noticeable, reminding the merchants that the boundary is restrictive
and actively defended” (Stearns, 2011, p. 216).
To bank leaders, VISA was a membership agency with the purpose of building
infrastructure for the member banks. Over time, and especially after the J.C. Penney deal, they
began to see Hock as acting in the interest of VISA as an independent organization, as
attempting to “build an empire” and acting more like their “competitor than their coordinator”
(ibid., p. 187). In 1984, Hock resigned. VISA’s protocols, though updated, continue to be the
industry standard. It operated as a quasi-not-for-profit member organization until it was re-
organized into a stock-issuing organization in 2008. Beginning in the 1970s, VISA’s national
66
advertising campaign urged potential cardholders to “Think of it as Money.” For example, one
such advertisement showed a new father holding newborn twins and read, “Think of it as Money
. . . for the unexpected” (Swartz, 2014). Americans did, indeed, think of the VISA card as an
access point to value, as Hock had hoped, but that value was not some “chaordic” global data
standard, it was debt. Although Hock firmly asserted that VISA was never in the business of
creating consumer debt, in the decades after VISA was founded, consumer debt skyrocketed
(Evans & Schmalensee, 2005).
Virtual Communities and Global Markets
With the growth of the internet came a new spatialized market imaginary: not only
global, but translocal, peer-to-peer. When eBay was founded in 1995, entrepreneur Pierre
Omidyar saw the internet as full of opportunities to “move from self to society,” and regarded his
online auction start-up as a “community,” an “organic, evolving, self-organizing web of
individual relationships, formed around shared interests.”
8
eBay created a market for buyers to
connect with sellers across the country and even the world. Omidyar’s vision reflects that of
many Silicon Valley entrepreneurs before and since. Many saw themselves as building, as
Howard Rheingold put it, a “virtual community” where people could “homestead on the
electronic frontier” (Rheingold, 1993).
But if Wells Fargo had been a fixture at any new settlement on the frontier of the
American West 100 years before, no such simple system of electronic value transfer was yet
available in its “electronic” counterpart. At a time when diffusion of personal computers was
rapidly increasing, it was still difficult for small businesses to accept card payments, and
8
Omidyar, Pam and Omidyar, Pierre. 2002. "Commencement Address “From Self to Society: Citizenship to
Community for a world of change”." Tufts Alumni. May 19. tuftsalumni.org/images/uploads/omidyar-speech.pdf.
67
virtually impossible for individuals. In order to accept credit cards, a merchant required bulky,
leased point of sales equipment and expensive merchant services accounts. It was costly and
cumbersome to accept payment cards. Some processing banks had already decided to
discontinue services to home-based business, citing fraud risk (Perlman, 1990). In order to
conduct translocal commerce online, individuals and small business had to ask buyers to write
checks, send them in the mail, and then wait several days for them to clear before the seller could
send merchandise. Peer-to-peer money did not move at the pace of peer-to-peer communication.
Although their start-up would eventually be acquired by eBay in 2002, Peter Thiel and
Max Levichin had nothing as mundane in mind as online auctions when they founded PayPal in
1999. Indeed, they first received funding to build a system that would allow users to “beam”
money between Palm Pilots. But more crucially, it would become perhaps the clearest
demonstration in recent memory of a payment system as a political project.
What they imagined was nothing short of “world domination.” In its early years,
according to PayPal Wars, a laudatory history of the company’s founding by early employee
Eric M. Jackson, all employees had access to the “World Domination Index,” a desktop
computer program that listed the number of PayPal users (Jackson, 2004, p. 14). Jackson’s book
was produced by a publishing company Jackson himself founded, with funding from Thiel, so
while it cannot be thought of as an unbiased source on the early history of Paypal, it serves as an
excellent guide to the way Jackson and Thiel would like that history to be remembered.
9
In a speech documented by Jackson, Thiel stated that he wanted PayPal to be the
“Microsoft of payments,” referring to a company that had just faced antitrust charges, “the
financial operating system of the world” (Jackson, 2004, p. 19). But, as Jackson points out,
9
http://gawker.com/230076/an-alternate-history-according-to-elon-musk.
68
perhaps “world liberation” might have been a more appropriate description of Thiel’s vision
(ibid., p. 21). The PayPal dream included not just the tremendous wealth that came with “world
domination,” otherwise known as monopoly, but vast political economic change. In the same
speech, Thiel extolled the connection between currency market globalization and political
freedom:
[G]overnments play fast and loose with their currencies. They use inflation and
sometimes wholesale currency devaluations […] to take wealth away from their citizens.
Most of the ordinary people have never had a chance to open an offshore account or to
get their hands on more than a few bills of stable currency like U.S. dollars. […] PayPal
will give citizens worldwide more direct control over their currencies than they ever had
before. It will be nearly impossible for corrupt governments to steal wealth from their
people through their old means, because if they try the people will switch, to dollars or
Pounds or Yen, in effect dumping the worthless currency for something more secure.
(ibid., p. 19)
According to Jackson, many early employees were enthralled by Thiel’s vision. Many could be
seen wearing t-shirts depicting an altered Sistine Chapel ceiling fresco in which God beams Adam
money on a Palm Pilot, or carrying copies of Neil Stephenson’s then-recent novel Cryptonomicon,
which detailed an intergenerational struggle to use cryptography and a secret vault of gold to
create a private global currency (ibid., p. 20). The PayPal political project was not just about the
free flow of information championed by many in Silicon Valley, but unfettered access to global
currency markets. PayPal’s vision was not one of a translocal global community connected by
peer to peer commerce, but of a global currency market.
Ironically, PayPal’s business model was only possible because of its use of a not-for-
profit infrastructure, the ACH, the interbank network established in the 1970s and partially
operated by the Federal Reserve (Benson & Loftesness, 2010). The ACH was originally
developed as a utility to simplify settlement between banks at a low cost to ensure par clearance
of checks for banking customers. ACH charges no interchange fees, keeps no float, and therefore
69
has no direct revenue (ibid.). Banks do not assess fees on checks, but they can assess fees on
other payment products, like credit and debit cards (ibid.).
In order to circumvent the card networks, and the costly fees associated with them,
PayPal asked their customers to link directly to their checking account, and then used the ACH
transaction code to draw money from the customer account (Benson & Loftesness, 2010;
Jackson, 2004). PayPal effectively created a private “on ramp” to a semi-public infrastructure,
and charged a fee, lower than the card networks but certainly not at par, to sellers for the service.
Because ACH transactions take a 2–3 days to complete, PayPal also simulated a “real time”
ACH by also asking customers to link their credit cards to the account, which served as back-up
funding sources in case the ACH transaction bounced (Benson & Loftesness, 2010; Jackson,
2004). PayPal’s use of the ACH was controversial in the payments industry because it used the
cooperative, semi-public bank infrastructure to compete with and replace debit card transactions,
which banks can charge merchants fees to accept (Benson & Loftesness, 2010). Although it did
not achieve it, PayPal’s eventual goal was not to make money primarily off of transactional fees,
but off the float.
The “California ideology,” which links values of anti-corporatism, social autonomy, and
cultural bohemianism with the seemingly paradoxical value of marketism, has been widely
documented among Silicon Valley entrepreneurs (Barbrook & Cameron, 1996). For example,
Electronic Frontier Foundation co-founder John Perry Barlow, who served as both a lyricist for
the Grateful Dead and a campaign manager for Dick Cheney, wrote the provocative “Declaration
of Independence for Cyberspace” while sitting at the World Economic Forum in Davos (Turner,
2006). Although their visions may be complex and even contradictory, technological
70
counterculturalists like Barlow imagined computers as vectors of personal liberation, as well as
virtual and alternative forms of community and social life.
Thiel was certainly no counterculturalist. In fact, he would attribute the “tech slow down”
and the loss of “the true cultural war over Progress” to the moment “the hippies took over the
country” (Thiel, 2011). Thiel was not only a radical marketist, but also an extreme social
conservative. As a Stanford undergraduate, he founded The Stanford Review, which became the
campus’ main conservative student publication. Many early staff members of PayPal had been
editors or staff members of The Stanford Review, including Eric Jackson. With another member
of both organizations, David O. Sacks, Thiel had written the book The Diversity Myth:
Multiculturalism and Political Intolerance on Campus, a polemic against “diversity” that railed
against “speech codes, ‘dumbed-down’ admissions standards and curricula, campus witch hunts,
and anti-Western zealotry that masquerades as legitimate scholarly inquiry” (Sacks, Thiel, &
Fox-Genovese, 1999).
What is most important about the personal ideology of Thiel and other PayPal founders
was the way it directly impacted the implementation of the payment infrastructure, conditioning
and constraining the flow of money that rode on its rails. Jackson describes how Thiel and his
team courted the online gambling market. He writes, “While perhaps not thrilled to be supporting
a vice industry, most of our conservative employees agreed that, even if gambling was not a
harmless amusement in in all cases, it was harmless enough to remain a person’s own business”
(Jackson, 2004, p. 165). The company, which at that point had yet to turn a profit, was so keen to
maintain its online gambling business, which at that point represented 8% of its total payment
volume, that it fought a subpoena from the New York State Attorney General’s office, which
wanted to investigate whether PayPal was in violation of its anti-gambling laws (Jackson, 2004).
71
But the same libertarian stance on what constituted a “person’s own business” was not
applied to pornography. Although adult websites were and remain some of the internet’s most
profitable businesses, according to Jackson, “the unsavory nature of an industry viewed by to be
exploitative of young women and having a corrosive effect on society was too much for many of
PayPal’s employees to bear” (ibid., p. 165). Ultimately, Thiel decided not to pursue the adult
industry, but to not disallow adult sites to open accounts. As Jackson puts it, “That meant that the
company would not devote resources to obtaining this kind of clientele while still allowing
PayPal’s users to transact in an essentially libertarian marketplace where the company would not
impose its values on them” (ibid., p. 167). However, PayPal’s current acceptable use policy
prohibits “certain sexually oriented materials or services." The company has faced numerous
complaints of censorship from artists, authors, and booksellers who do not view their wares as
pornographic or even “sexually oriented.”
10
It is exactly this kind of “proxy censorship” that
would put PayPal and other private payments providers at odds with other streams of cyber-
libertarian thinkers for the next decade, as is described in chapter 6.
Because it offered a novel service, PayPal was in a regulatory gray area. At first, it tried
to become recognized as a federally regulated trust bank with authorization to act as a custodian
of its users’ funds. This would prevent it from being classified as a commercial bank, which
would have come with significantly more of a regulatory burden. When it failed to receive the
federal trust bank recognition, PayPal had to seek money transmitter licenses in each state
individually. In some states, the regulators wanted further information for the purposes of
consumer protection, and even threatened to block PayPal’s service until they were able to
10
See for example, http://bookseller-association.blogspot.com/2012/03/paypal-redefines-payporn again.html and
https://www.techdirt.com/articles/20120313/21091718095/authors-can-sleep-easy-now-paypal-reverses-its-
censorship-decision.shtml.
72
understand more about what kind of service it offered. According to Jackson, PayPal’s
leadership was convinced that the American Bankers Association, threatened by the new
company, lobbied to have consumer protection investigations launched against it. This may be
true. However, at the time, PayPal did not have a clear rating from the Better Business Bureau,
due to numerous customer complaints about inconsistent applications of its terms of service, a
problem that has continued on into the present.
In 2002, after less than four years as an independent company, PayPal was acquired by
eBay, which by then had become a corporate behemoth. Although PayPal had begun, finally, to
be profitable at the time of its acquisition, it was only able to achieve the necessary network
effects to dominate the online payments market by being absorbed by eBay. As even Jackson
acknowledges, by selling out to eBay, PayPal’s founders gave up on their vision of “world
domination,” at least temporarily. Their product would become simply the payments wing of the
auction website, not an instrument to create a global currency or open currency market.
However, it would make them very, very rich, and able to channel that wealth to promote the
libertarian vision PayPal was not able to achieve. Today, the so-called “PayPal Mafia” is a major
gatekeeper of venture capital funding. Their investments range from the outrageous—such as
attempts at “sea-steading,” producing man-made island colonies exempt from national laws (and
taxes)—to the deceptively mundane—such as Outbox, a private postal start-up that hopes to
“stick it to the (mail)man” (Theroux, 2014; Wohlson, 2014).
Conclusion
Despite being a site of imagination and innovation for over 150 years, payment
technologies linger. Nearly everything in this chapter still exists, in one form or another. Cash,
73
contrary to all rumors to the contrary, continues to be the most widely used form of payment
worldwide. People send checks through the United States Postal Service. Private, high-security
express firms transport commodities and large amounts of cash. Money orders, gifts certificates,
and other prepaid instruments have their purpose. Western Union, though not via telegraphy, is
used to send remittances all over the world. Similarly, Diners’ Club, now owned by Discover, is
still operated in parts of the world where its brand has cache. Although new systems that make
use of the ACH in modes that PayPal did are attempting to compete with it, VISA and the card
networks are still the dominant payments processing system. PayPal is a leader in peer-to-peer
payments, on eBay and off. Payment systems remain of particular interest to the PayPal Mafia
and the rest of the Silicon Valley tech industry. The ecosystem keeps becoming more and more
complex. Rather than attempting to supplant the old, today’s new technology, like Hoch’s dream
for VISA, seeks to manage this complexity and build interoperability between old and new
forms.
74
CHAPTER TWO
TOKENS: INTERCHANGE AND “COMPETITION IN THE MONEY SPACE”
“Don’t take any wooden nickels!”
–American colloquialism
“He has his cash money, but you couldn’t pay for food with that. It wasn’t actually illegal to
have the stuff, it was just that nobody did anything legitimate with it.”
–William Gibson, Count Zero
Introduction
According to a 2011 post on the personal finance blog Budgets Are Sexy, there’s a lot you
can learn about a person from their payment instrument of choice.
11
The post, a “guide to
(potentially unfair) snap judgments based solely on credit card choices” suggested that women,
while (heteronormatively) out on the town, should take a look at close look at their dates’ credit
cards, because “What he pulls out of his wallet tells you a lot about this guy, in terms of his
personality, his credit, and his financial situation.” Cash or a pre-paid debit card might indicate
that he either has poor credit, is “living a life of crime,” or both. An American Express Centurion
“Black” card indicates that, though he is likely well-off, he may be more concerned about status
than sound finances because, according to the article, the high annual fees associated with the
card outweigh its associated benefits. Conversely, a Discover Escape or Costco credit card shows
11
http://www.budgetsaresexy.com/2011/01/what-your-dates-credit-card-says-about-his-personality-and-his-bank-
account/
75
that he “doesn't care what other people think,” because these are, in fact, excellent credit card
products with good rewards schemes and low interest rates, but “aren’t the sexiest brands on the
planet.” Indeed, each payment instrument conveys cultural meaning beyond its transactional
function.
Payment instruments mark those who use them and mark the nature of their financial life.
They are what Anthony Giddens (1990) calls “access points” that connect to institutions that
authorize our economic agency. Payment is an interface between institutional and lived
identities. Modern payment systems rely on infrastructures that manage the self: There is a
reason why payment card fraud is commonly called “identity theft.” Payment produces
transactional identities, which result from networks of relations between people, institutions, and
discourses. They are performed at the moment of transaction and authorize who can pay or be
paid, by whom and where. Payment instruments trace not only identities, but territories. Like
state currencies, payment forms define territories and foster within them a “common economic
language with which to communicate” (Helleiner, 1998, p. 1414). Through the communication
of money—information socially guaranteed to be valuable—payment forms trace existing
meaning and express new meaning. Money is like an economic language, binding people and
places to one another, making them visible and legible, while also enforcing their boundaries.
Viviana Zelizer (1994) demonstrates how even national currency can be earmarked to
express different meanings: to create or dissolve social ties, to manage or limit intimacy, to
establish or maintain inequality. Sometimes, she shows, people simply “earmark” money for
these special purposes, and sometimes they create special purpose tokens: gift certificates, food
stamps, and the like. Sometimes, people pull away from national currencies and create
“alternative” currencies, such as local, complementary, and community monies. These are
76
special-purpose tokens that intentionally critique money itself. As J. K. Gibson-Graham (2006)
argue, these “alternative” economic arrangements are not just alternative because they provide
something other than the mainstream capitalist economy, but because they demonstrate that the
mainstream way of looking at the economy hides all the strange, non-normative practices that
don’t adhere to capitalism. They are “alternative” in that they produce an “alternation,” or
“oscillation” in and out of both the economy as it is taken-for-granted and the economy as it
might be otherwise (Maurer, 2005). Like state currencies, special purpose and alternative tokens
produce special purpose and alternative identities and territories. Unlike state currencies, they do
not aspire to publicness or universality. They produce an oscillation in and out of citizenship in a
state and membership in something other.
This chapter explores credit card rewards, which have been described, as I heard it put at
an industry event, as “the world's largest alternative currency.” Rewards circulate alongside
national currencies, but never quite in competition with them. They are available only to
members, those whose financial identity has been determined by institutions to be desirable
enough to merchants to warrant being paid when paying. These memberships are networks of
affiliation and identity—and indeed, value—that are layered on top of mainstream economic
networks. Rewards are special-purpose tokens born of the infrastructure of payment cards.
Through payment card interchange, state currency is transformed into rewards. Rewards are set
aside from state currency according to specialized identities, meanings, and territories. There is a
tension between keeping these rewards in a closed loop and opening them up to interoperation
with other currency forms, such as national currency itself.
The “economy” of rewards is often described in terms of its size relative to a small
country’s gross domestic product. They are routinely described as “one of the world’s main
77
currencies,” or “new global currency.”
12
These characterizations are somewhat hyperbolic, but
they do have some veracity. Despite continuous predictions in the popular press and trade
journals from their inception that the programs were failing, they have persisted for over 30
years.
The recurring characterization of rewards as a sub-rosa global currency reveals the
contingency of ordinary state-issued currency. Rewards are used, in turn, to introduce other, even
more radical money-like tokens, such as community, complementary, or cryptographic
currencies.
13
Again and again, advocates of experimental payment systems explicitly describe
their new technologies as “frequent flyer miles” for one or another specialized group or purpose:
“frequently flyer miles for artists,” “frequent flyer miles for the community,” “frequent flyer
miles for solar energy.” Rewards, in this use case, show how something as taken-for-granted and
seemingly settled and intractable as money has been opened up to reimagination without anyone
noticing or seeming to mind too much. Rewards represent “competition in the money space,” as
a prominent payments lawyer I shared a panel with put it; that is, rewards represent a competitor
to state-issued currency designed to do all the things state-issued currency traditionally does. In
this way, rewards are the model for any payment systems that would do the same. Rewards as
tokens help to make money strange.
This chapter first investigates the money-ness of rewards from economic, legal, and
sociocultural perspectives. It then describes interchange, a curious but key function of
mainstream payment infrastructure, to show how it produces rewards. Next, it details three very
12
See, for example, http://www.economist.com/node/1109840 and
http://www.theguardian.com/money/2005/jan/08/business.theairlineindustry
13
See http://cborowiak.haverford.edu/solidarityeconomy/resources-for-researchers/currency-and-solidarity-finance/;
http://www.fastcoexist.com/1682736/creating-an-alternative-economy-for-under-paid-artists-with-a-brand-new-
currency; and https://www.solcrypto.com/faq and http://www.ttbook.org/book/economics-well-being
78
different rewards systems, each with their own identities, territories, and meanings. Rewards are
taken-for-granted alternative currencies that are already in use—and, in the case of one example,
Bernal Bucks, are overtly treated as an “alternative” currency. In order to make sense of new and
emerging money forms, it is essential that we first understand the history, technology, economy,
and culture of existing rewards systems.
Are Rewards Money?
At a payments industry workshop in Palo Alto, California, that I attended in 2013, the
leader asked everyone in room—mostly people who worked for Silicon Valley tech firms that
wanted them to learn more about payments—what they thought the most common form of non-
cash payment was: credit card or debit card. Most people raised their hands for credit card and
were surprised to learn that the answer was, in fact, debit card. I assumed that most of the
participants guessed credit because they imagined that ordinary Americans lived paycheck-to-
paycheck and used credit cards to get by. I was surprised at the comments made by nearby
participants. The woman sitting next to me, a project manager for Google Wallet, remarked,
“Why would anyone use debit? Not using credit is throwing away free money!” The “free
money” she was referring to was, it turned out, rewards. But are rewards money?
One way to determine whether or not rewards are money is to compare them against
existing definitions of money. Traditionally, in economics, money’s money-ness is described in
terms of its functions. As the old macroeconomics textbook couplet puts it, “Money’s a matter of
functions four: A Medium, a Measure, a Standard, a Store.” Although this definition, which is
drawn from the work of 19th-century polymath William Stanley Jevons, can be seen as overly
normative, it provides a good working vocabulary—as Jevons put it, an “elementary
79
grammar”—for describing the tasks to which money has traditionally been deployed. It has
served as a medium of exchange, a token-based (whether material or ledger) system to overcome
and mediate the “double coincidence of wants” inherent in barter. It provides a common measure
of value or unit of account, which is necessary for communicating prices and maintaining
accounts. It is a standard of deferred payment for all debts public and private, which is to say that
it is an acceptable form of payment recognized by the state and by the community. Finally, it
provides a store of value that can be reliably be saved and retrieved, and that doesn’t
dramatically decay or inflate over time. In short, money is information guaranteed to be socially
valuable, and Jevon’s four functions describe its mechanics.
Rewards are most clearly a medium of exchange. As one frequent user of rewards put it to
me, “If my frequent flyer miles aren’t money, then I just bought a flight to Australia with no
money, which would be pretty cool.” Frequent flyer miles may not seem like a medium of
exchange because they are limited to use within the closed loop of the airline, but rewards
increasingly can be used more universally. Amazon, the online marketplace where one can
purchase almost anything, from rolls of toilet paper to a car, now accepts rewards from American
Express, Citi, Discover, and Chase as payment for most items.
14
Customers using the site’s own
Amazon.com Rewards Visa can earn points as they pay with them. Similarly, companies like
PointsPay propose to “free your points” by providing software that allows any merchant,
including small businesses, to accept a variety of different rewards as payment.
15
The website
Points.com creates a brokerage for a variety of different kinds of rewards, allowing users to
transfer across programs or cash out for universal gift cards.
14
https://www.amazon.com/gp/shopwithpoints/marketing.html?inc=swpamex&pr=swpamex
15
http://www.pointspay.com/
80
In its other functions, the money-ness of rewards is decidedly more contingent. Rewards
are a standard of value only within the walled garden economy of the company that issues them.
For this reason, their utility as a measure and store of value is curtailed. Yes, rewards are used as
a measure of value—they are fungible units used to price things and to keep accounts—but this
value is highly dynamic. For example, using 25,000 frequent flyer miles to buy a $100 coach
ticket means that each one of those miles is only “worth” about .4 cents (four tenths of a cent),
but using 100,000 miles for a business-class ticket to Europe priced at almost $11,000 means that
those miles are “worth” about 11 cents, while a camera that could be bought from a store for
$588 costs 90,000 miles if purchased from a frequent flyer program marketplace, making those
miles worth about 6 cents.
16
Because it is so difficult to determine the value of frequent flyer
miles, most travelers’ insurance policies typically do not cover plane fare for trips bought with
rewards.
17
Similarly, rewards are not a well-functioning store of value because their value is
contingent. Rewards can expire if left unused, and their value can disappear entirely if the
issuing company goes bankrupt. Rewards do function as a temporary store of value, however, as
they accrue over time. This produces a shared time horizon of value for those who use them.
Another way to inquire after the money-ness of rewards is to determine their legal status
as such. U.S. law defines rewards as a “token of legal obligations,” like coupons or trading
stamps.
18
They represent a contract, a promise on behalf of the issuer, to redeem them for
something of value. Ownership of the rewards, however, remains with the issuer, which gives the
issuer the ability to control the terms on which the rewards can be redeemed or transferred, to the
16
See http://abcnews.go.com/Travel/frequent-flyer-mile-revisited/story?id=13184705&singlePage=true, and see this
chart: http://www.airfarewatchdog.com/blog/6126643/how-much-are-frequent-flyer-miles-worth-five-route-fare-
scenarios/
17
http://elliott.org/the-troubleshooter/insurance-cover-frequent-flier-miles/
18
“Trading Stamps and Coupons.” In Batten, D. (Ed.), Gale Encyclopedia of American Law, 3rd ed., Vol. 10 (pp.
80–81). Detroit, MI: Gale, 2010. Gale Virtual Reference Library. Accessed February 17, 2015.
81
extent allowed by the original contract. The obligations created by rewards may be enforceable
by criminal penalties, as well as by contract law. For example, in 2014, the California members
of the Camel Cash program—a rewards program issued by RJ Reynolds, makers of Camel
Cigarettes, won a class action lawsuit on counts of breach of contract and promissory estoppel
when RJ Reynolds decided to the terminate the program and, in the last issue of the Camel Cash
catalogue, only offer tobacco products and not the full range of merchandise members had come
to expect.
19
Although, legally, money or other forms of “negotiable paper,” like checks and bank
notes, have a higher legal “promissory” burden, tokens like stamp, scrip, and coupons have been
used as a substitute for state-issued currency at times when cash was scarce. In the 19th century,
American mining and lumber companies commonly issued company scrip to the workers as
salary, which could be redeemed at the “company store,” obligating employees to make
purchases there, often at high mark-ups (Green, 2010). More recently, in 2008, the Mexican
Supreme Court of Justice ruled that Wal-Mart may not pay its worker in vouchers redeemable at
Wal-Mart stores.
20
Whether or not rewards should be taxable has long been up for debate. Under IRS
guidelines issued, rewards are not subject to taxation. Because consumers receive them as part of
a transaction, they are considered rebates, not an asset or income, and are therefore not taxable.
21
Similarly, rewards, if donated or used for some other tax-deductible purpose, can’t be claimed as
a deduction. However, recent legal decisions have opened the possibility that this could change.
19
http://cdn.ca9.uscourts.gov/datastore/opinions/2012/07/13/11-55057.pdf
20
http://www.jurist.org/paperchase/2008/09/mexico-supreme-court-orders-wal-mart-to.php
21
http://www.irs.gov/pub/irs-drop/a-02-18.pdf
82
For example, in 2012, Citibank unsettled the question of whether or not rewards would be
taxed when it began issuing a 1099-MISC tax form to account holders who had been issued
“Thank You” points for signing up for a new account at the rate of 2.5 cents per point.
22
This
surprised cardholders, who, in turn, filed a class action lawsuit arguing that Citibank had not
properly disclosed that the rewards would count as taxable income.
23
In response, the IRS issued
an announcement that “the IRS has not pursued a tax enforcement program with respect to
promotional benefits such as frequent flyer miles.”
24
Analysts agreed, arguing that Citibank, and
not the IRS, was responsible for “making an issue” of rewards.
25
Nevertheless, right wing
pundits asserted that, under the Obama administration, “the temptation to wring some tax
revenue out of the vast non-dollar economy of [rewards points] was so great that that the
government just cannot resist.”
26
Whether or not the IRS decides to begin taxing rewards, the
mere suggestion of taxation is risky for U.S. policymakers on either side of the aisle.
At the time of this writing, it appears that rewards will be taxable under a limited set of
circumstances. In 2014, a tax court decided that, in some cases, such as when a cardholder is
issued rewards without making a transaction, the rewards could be taxable.
27
The narrow scope
of this decision followed a similar decision from 2010, in which a Canadian court decided that,
in cases of medical travel, spending frequent flyer miles could be tax deductible.
28
In Canada,
22
http://www.forbes.com/sites/kellyphillipserb/2012/03/01/citibank-issues-forms-1099-for-frequent-flyer-miles-
surprising-customers-and-irs/
23
http://www.topclassactions.com/lawsuit-settlements/lawsuit-news/1649-citibank-frequent-flyer-mile-class-action-
lawsuit
24
http://www.irs.gov/pub/irs-drop/a-02-18.pdf
25
http://www.forbes.com/sites/kellyphillipserb/2012/03/01/citibank-issues-forms-1099-for-frequent-flyer-miles-
surprising-customers-and-irs
26
http://reason.com/archives/2014/05/26/irs-sets-sights-on-frequent-flyer-miles#comment; see also
http://taxfoundation.org/blog/irs-considering-change-tax-treatment-travel-loyalty-points
27
https://www.ustaxcourt.gov/InOpHistoric/ShankarDiv.Halpern.TC.WPD.pdf
28
http://www.nationalpost.com/related/topics/Expert+Traveller+wins+right+claim+Aeroplan+points/3228774/story.
html
83
those who need to travel more than 40 kilometers for medical care can claim the cost of
transportation as a medical expense for tax credit. The court’s decision was based on a trip taken
by one Ontario resident to Illinois for a medical procedure in 2007. The Ontario resident paid for
the ticket using 76,000 frequent flyer miles and $220 for taxes and fees. When he did his taxes,
he found the price of a comparable ticket, $2,280 (the flight was booked with little notice, so it
was more expensive that it would normally have been), and deducted that amount from his 2007
tax return. The Canada Revenue Agency denied the full deduction and approved only the $220
cash portion of the cost of the ticket as a medical expense. In a court proceeding to decide the
case, the judge allowed the claim and ruled that the phrase “amount paid” can include payments
made by means of a transfer of a right, and that the points used for the ticket were, indeed, a
right, since they could be exchanged for air travel upon his request. In the opinion of the
Canadian court, therefore, frequent flier miles used for medical travel were to be treated as
equivalent to other forms money.
Perhaps most importantly, the status of rewards as money can be determined by their
social use. For the people who use them, rewards are very much “real” money. For some people,
understanding and using rewards is an important part of their personal finance strategies. There
are countless blogs and websites like Nerd Wallet, The Points Guy, and One Mile at a Time that
encourage people to maximize, even “hack” rewards programs.
29
On message boards like Flyer
Talk and Fat Wallet, posters collaborate to share knowledge about the fine details of all manner
of credit card rewards programs. In this context, rewards are as important to personal financial
well-being as any other form of money.
29
See, for example, http://riskology.co/advanced-travel-hacking-the-credit-card-blitzkrieg/
84
Savvy users have determined many ways to maximize their rewards. A common practice
is to pay for large dollar amount transactions—like taxes or college tuition—using a rewards
card, and then immediately pay down the balance to reap a big bonus (or discount) on the hefty,
predictable expense. Another common practice is to stack rewards-generating activities on top of
one another, such as booking air travel using a rewards card affiliated with the airline. One
article describes the “quadruple dip,” which involves booking a restaurant through a site that
offers rewards for reservations, purchasing a dining voucher with rewards from an online portal,
signing up for a rewards program that offers points for all restaurant expenses, and then paying
for everything with a rewards-generating card.
30
“Hacks” like these highlight the integration of
rewards with existing strategies for earmarking and managing money.
Rewards are sufficiently money-like, as a medium of exchange and store of value, to be
attractive to thieves. Scammers have been known to hack accounts in large scale data breaches,
access an individual’s airline accounts from hotel Wi-Fi hotspots, send phishing e-mails and
letters cloaked in rewards program branding, and steal frequent flyer numbers from discarded
boarding passes. Rewards are a desirable target of theft because of their ambiguously money-like
status. People do not always exercise the same degree of caution and information security for
their rewards accounts as they do with their bank accounts. In fact, many people don’t keep track
of rewards at all, so they may not even notice that rewards have been stolen from their otherwise
fallow accounts. Once stolen, rewards can be converted into prepaid gift cards, which are mailed
to the thief at a temporary post office box.
31
If you don’t treat your rewards like money, there
may be a hacker who would love the opportunity to do so.
30
http://thepointsguy.com/2015/01/quadruple-dip-with-points-miles-discounts-at-restaurants/
31
See http://www.consumeraffairs.com/news/frequent-flyer-miles-stolen-from-american-and-united-airlines-
passengers-011315.html; http://www.privatewifi.com/hacker-steals-frequent-flyer-miles-at-a-hotel-hotspot;
85
Understanding how to navigate rewards programs is an important part of the financial
literacy of many Americans today but, again, this is contingent. For others, rewards do not play a
role in their economic lives at all. For some, signing up for a rewards card may seem like a good
idea, but then they pay the annual fee associated with program membership and never bother to
learn to navigate the often byzantine process of redeeming rewards. Importantly, even more
people are not considered credit-worthy enough to be granted a rewards card. Cash and debit
cards still make up the vast majority of payments in the United States.
32
The value, both financial
and even ontological, of rewards is wholly dependent on one’s financial subject position. If you
are a “member of the club”—and an active one, at that—rewards are far more valuable,
meaningful, and real than if you are not.
This contingency is a salient property of rewards as a new, money-like thing, not a reason
to dismiss them as such. If money is information guaranteed to be socially valuable, rewards are
money, but a special form of money that is limited by the ability and scope of its issuer to make
that guarantee.
Born of Interchange
Rewards are generated through payment card interchange, the amount the merchant’s
bank pays the cardholder’s bank during the processing of a transaction. In general, sellers pay to
be paid.
33
They pay interchange plus fees to their acquiring bank, who pays interchange fees to
the customer’s issuing bank. Interchange is the mechanism through which the entity who
http://www.airfarewatchdog.com/blog/15241217/thieves-want-your-frequent-flyer-miles/; and
http://www.marketwatch.com/story/scammers-now-want-your-airlines-miles-2012-08-22
32
The 2013 Federal Reserve Payments Study, 2013, Federal Reserve System.
33
See Benson and Loftesness, https://www.minneapolisfed.org/publications/the-region/the-interchange-fee-debate-
issues-and-economics
86
receives value—the merchant—compensates the issuer for their expenses. The issuer is seen as
“selling access” to customers to the merchants, and the merchant, through their acquiring bank,
pays the issuer for these services. In economics, this is a referred to as a two-sided market. The
card networks serve as a platform connecting two sides—the merchant side and the cardholder
side. In most two-sided markets, one side is willing to pay more to access the other side. In
payment, the merchant side has been willing to pay to access the cardholder side (Evans et al.,
2011).
In theory, acquirers pay issuers to cover the issuers’ expenses for “supplying” the
customers. Issuer expenses include all of the technical and administrative work necessary for
providing customers with the card payment service.
34
Issuers recruit new customers and offer
them attractive card products according to their needs: Those with good credit receive low
interest rates and rewards, while those with bad credit have to pay fees or high interest rates but
are given access to the card payment system. They design, manufacture, and distribute physical
payment cards, which, in the case of “contactless” near field communication (NFC) devices and
chip-embedded “smart cards,” can be costly. They front the funds for each payment at the time
of the transaction, guaranteeing that the merchant is paid, even if the customer ultimately does
not pay their issuer. They manage fraud prevention, arbitration, and compensation for cases of
card theft and counterfeit. Issuers also have operating expenses, including customer service,
billing, and collections. All of these costs fall under the umbrella of “supplying” customers and
are, in turn, passed along to the payments acquirer for the privilege of accessing those customers.
The idea of interchange, as it applies to payments, originated from the communication of
payment information from the acquiring bank to the issuing bank. When checks and banknotes
34
See Benson and Loftesness.
87
were the most common forms of payment, a person presented a check to a bank and exchanged it
for money. The bank then arranged for the check to be physically sent back to the bank from
which it had been originally issued. The check often had to travel a circuitous route through a
network of correspondent banks until it reached its destination. Then, the issuing bank would
convey funds, through that same network, back to the acquiring bank. The acquiring bank
shouldered the risk of paying out on the check before knowing with certainty that it would be
redeemed. The acquiring bank also incurred the expense of physically transporting the check to
its issuing bank. For this reason, acquiring banks often charged a fee to the person who presented
the check before cashing it. This was called “non-par” banking, a practice which was prohibited
when the Federal Reserve absorbed the cost of check clearance and settlement.
35
Nevertheless, it
set the precedent that receivers of funds pay to be paid, and that the acquiring bank shoulders the
initial cost of a payment, which it tries to recoup.
When the card payments began, they were “unitary” or closed loop systems, with one
bank providing both the issuing of cards to customers and the acquiring of payments for
merchants. The first successful bank credit card, BankAmericard, was produced by Fresno’s
Bank of America office, and both the cardholder and the merchant had to have an account there.
Bank of America set the fees charged by both groups—interest rates and other fees to
cardholders, and transaction fees to merchants. In 1966, Bank of America franchised the card
system to other banks, who themselves were free to determine the fees they charged. When
transactions occurred across banks—if a customer holding a card issued by one bank made a
purchase at a merchant who held an acquiring account with another bank—Bank of America
35
See Chapter 1 for more on this.
88
required that the full transaction fee be sent to the customer’s issuing bank (Evans et al., 2011;
Stearns, 2011).
In 1970s, BankAmericard gave up full control, and the bank credit card program became
a cooperative organization, later to be renamed VISA, with a membership of all participating
banks. VISA was an unusual organization, in that it enabled members to engage in, as it is
termed in the payment industry, “coopetition,” a portmanteau of cooperation and competition:
They cooperated to produce the network and its governing rules in order to form the basis of
competition. The membership established an “interchange” fee that would be paid by the
acquiring bank to the issuing bank when the two were not the same. Interchange thus became a
source of revenue for issuers and a cost for acquirers. The cost of interchange was passed on
from the acquirers to the merchants, plus an additional transaction fee. The membership of VISA
also set other rules for its operations. These included “honor all cards,” meaning that contracted
merchants were obliged to accept cards issued by all membership banks, regardless of whether or
not they would incur higher interchange and transaction fees. In addition, merchants were
prohibited from charging customers a surcharge on top of the purchase price to able to use the
cards.
Little has changed since the early 1970, although the system has become more complex.
The card networks—VISA, Mastercard, America Express—set the rates of interchange. Today,
this is not a fixed rate. In fact, the most recent document published by VISA for determining
interchange was 70 pages long. Face-to-face transactions are typically charged a lower fee than
online transactions. Swiping is charged less than hand-keying. Large retailers like Wal-Mart
have negotiated custom rates. Interchange varies by card product. Debit cards, under the Durbin
Amendment, have lower interchange than credit cards. Interchange also varies based on the
89
network. For example, the reason many businesses don’t take American Express is that their
interchange fees are higher than other networks’.
The advent of rewards cards has been key to shaping interchange prices. Premium cards,
those that grant rewards and are offered to customers who have good credit, incur more
interchange than other credit cards. The costs associated with maintaining reward programs, as
well as the rewards themselves, are recovered through higher interchange. Issuers compete to
serve the “best” customers: those with the highest credit scores. Merchants are willing to pay
higher interchange to access more desirable customers, because those with the highest credit
scores will also have the most spending power. Through this chain of relations, merchants
effectively bear the cost of paying out customer rewards. As issuers increasingly compete for the
best customers by offering more attractive—and therefore more costly—rewards programs, the
interchange charged to merchants goes up. This is a very unusual market condition in which
competition drives prices up instead of down. Indeed, interchange rates have steadily climbed in
recent decades, largely owing to the expansion of rewards.
Interchange has been highly controversial in the payment industry. Merchants argue that
interchange fees represent “price fixing” by card network “cartels.” Because merchants’ costs
(and therefore, prices) increase to account for interchange, customers who don’t use cards wind
up subsidizing those who do, especially those who carry rewards cards that generate higher
interchange. Interchange fees in the United States are higher than they are in other similar
countries, despite the fact that there is a much larger economy of scale in the American card
processing market. Finally, interchange fees have been increasing, despite the fact that—rewards
aside—the costs of operating the card networks and doing business as an issuer have been
declining. Card networks and issuing banks, on the other hand, see fee schedules not as
90
collusion, but as an efficient means of “coopetition,” of organizing an infrastructure shared by
many different competing parties. To issuers, the increased interchange associated with rewards
is simply the cost of accessing the customers that an issuer can provide.
Rewards make money strange, but they also make interchange strange. Interchange,
perhaps, was already strange. Its economics make little sense according to traditional market
logics, even to traditional economists. As Bill Maurer has pointed out, interchange “opens up a
space for asking whether core elements of the capitalist economy operate always according to its
principles” and finds it to be, compared with other practices in the anthropological record, more
like a tribute—a fealty acknowledging rank, gratitude, protection—than it is like price set by the
logics of supply and demand in a capitalist system (Maurer, forthcoming). But to whom is this
fealty paid? And by whom? Rewards, born of interchange, are a curious system of wealth (in the
form of specialized tokens), production, and redistribution.
In order to illustrate how interchange becomes rewards, it’s helpful to look more closely
at an extreme use—or perhaps abuse—of the system.
36
In 2005, Brad Wilson, author and
extreme personal saving guru, figured out a way to generate “free” rewards. That year, the
Presidential $1 Coin Act was passed to incentivize the circulation of dollar coins by allowing
citizens to buy them directly, with free shipping, from the U.S. Mint website at face value. As he
documents in his book, Do More, Spend Less, over the course of eight months, Wilson bought
almost $3 million in one dollar coins using his rewards credit card (Wilson, 2013). He would
bring the coins to his bank, thousands at a time, and deposit them into his account, paying off the
balance of his credit card in full each month. He earned 1 rewards point for every $1 he “spent,”
which he converted into American Airline frequent flyer miles at 1.25 miles per point. He
36
http://www.dailyfinance.com/2013/02/28/credit-card-reward-points-airline-miles-free/
91
accumulated 1 million miles, worth 40 domestic round-trip flights and, combined with miles
he’d already saved, meant lifetime Platinum status for both Wilson and his wife before the $1
coin program was discontinued.
In this case, Wilson was running the machine of interchange to generate rewards. The
mint was paying his credit issuer for the right to access Wilson as a customer. The issuer was
paying Wilson, in rewards, for qualifying for their cards and choosing to use it. This example is
illustrative because it is absurd. It is useful, now, to turn to three examples of rewards that are
embedded in everyday practice: frequent flyer miles, truck driver rewards, and Bernal Bucks, a
community rewards program for a neighborhood in San Francisco.
Money for the Space of Flows
Credit card rewards points emerged in 1989, when Citibank brokered a deal with
American Airlines. For close to a decade before this, American Airlines had offered a loyalty
program, and the deal linked this already existing practice to a credit card. Airlines had begun
offering internal frequent flyer rewards programs when the airline industry was deregulated in
1979.
37
Now, cardholders could earn points when completing other transactions.
When Citibank and other credit card issuers partnered with airline loyalty programs, they
did so in order to compete with American Express. American Express was known for issuing
cards only to the most affluent, credit-worthy individuals. Because of its dominance at the
highest end of the market, American Express was able to run its own network, apart from the one
VISA and MasterCard maintained in coopetition. It was also able to charge higher interchange
for access to these customers. By offering frequent flyer miles for everyday purchases, not just
37
http://thetravelinsider.info/airlinemismanagement/airlinederegulation2.htm
92
for flying, VISA- and MasterCard-branded cards could court these most desirable customers and
justify charging merchants through their acquirers’ higher interchange. Even more importantly,
because they did not require payment of the full balance at the end of every month, these rewards
cards could also be offered to a much larger, if somewhat lower market segment, the business
class which had been the beneficiaries of frequent flyer programs in the first place. Since then,
rewards, points, miles, and other incentives to attract cardholders have proliferated.
These loyalty programs, even before they were yoked to payment cards, mirrored many
of the qualities of Diners’ Club, the first third-party payment card, which had emerged in the
1950s (Swartz, 2014). Like Diners’ Club, airline rewards targeted those who travelled mostly for
business. Frequent flyer programs created a “club” that codified “business class” as a distinct
upper strata of the middle class. As was also the case with Diners’ Club, membership in frequent
flyer programs was made possible through affiliation with a corporation. Although most business
travel was paid for by the passengers’ employers, the rewards were linked to the passengers’
identities. They could be redeemed for free or discounted travel with partner airlines and stays at
partner hotels, as well as upgrades to first class, specialty customer service, and benefits at
“award destinations,” like ski resorts.
38
Frequent flyer programs converted business activity
performed on behalf of an employer into luxury consumption experiences for individual
members.
Today, many frequent flyer miles are generated and used by those who travel for work.
To earn rewards from employer issued cards, cardholders usually have to pay an annual fee.
Some companies, however, make deals with issuers to not allow their employees to earn rewards
38
See, for example, Western Airlines at 60, available at https://www.youtube.com/watch?v=NyTqy_QPHSQ
93
individually, instead accruing them in a central, company-controlled pool or forgoing points
entirely to negotiate for better interest rates.
39
Frequent flyer miles are the coin of the realm of what Manuel Castells calls the space of
flows, the “habitat” and “spatial organization of the dominant, managerial elite” (Castells, 1996).
Frequent flyer miles are generated in the space of flows—through the flow of business
passengers on airplanes from one hub to another, and through the flow of money through the
card networks. And they are used in the space of flows. Indeed, in airports such as Newark
Liberty International Airport, everything sold in the terminal is denominated in both U.S. dollars
and points.
40
Increasingly, airports are becoming places where cash is not accepted as a form of
payment.
41
Already, most airlines only accept credit cards for on-board purchases.
Frequent flyer miles are used by frequent flyers—those who live in the space of flows.
The last time I—hopefully still just an ethnographic observer of flows, but interpreted by the
natives as one of their own—flew from Los Angeles to Boston, I had three different
conversations, none instigated by me, about how best to use frequent flyer miles: A
pharmaceutical saleswoman from Cleveland told me that I should save them up and cash in on a
big international vacation; a human resources manager from New Jersey told me that I should
buy drinks with them in Newark, but be sure to use my (miles-generating) card to pay for food,
which would be more readily reimbursed by my presumed employer; and a management
consultant from Orange County explained to me why Chase Sapphire was the best rewards card
available.
39
http://thepointsguy.com/2014/08/can-i-link-a-corporate-card-to-my-amex-membership-
rewards/#ixzz3Rm1V2mON
40
http://www.usatoday.com/story/travel/flights/2014/11/17/united-passengers-can-pay-with-miles-at-newark-
airport/19025135/
41
https://hub.united.com/en-us/news/products-services/pages/united-goes-cashless-in-airport-lobbies.aspx
94
Through interchange, general purpose money flows through the payment system, through
banking networks, and passes through the processes of interchange, where it becomes special-
purpose money in the form of frequent flyer miles. Money is deterritorialized, then
reterritorialized, to map the space of flows, a placeless place.
There are many attempts to make frequent flyer miles into a more general purpose
payment technology. In addition to Points.com, an online brokerage for frequent flyer miles and
other rewards, and PointsPay, a universal point of sale system, most card-based reward systems
allow users to transfer points across programs, converting them in and out of frequent flyer
programs as needed. This move toward universality can be understood as an attempt to break
frequent flyer miles out of the space of flows. In a promotional video for PointsPay, a
businessman is shown strolling down an airport terminal, his rewards, visualized as little blue
bouncing coins, following him out of the airport, the space of flows, and on to small businesses
like a newsstand and a sidewalk café in the city beyond the airport.
42
“Food Stamps for Truckers”
Credit card rewards are not limited to the business class. Programs have proliferated for
use in a variety of economic niches, driven, of course, by that the niche’s capacity to generate
interchange for issuing banks. For example, the American commercial trucking industry is made
up of millions of drivers, each of whom refuels a tractor trailer multiple times per day. This
generates a massive amount of interchange revenue. It should come as no surprise, then, that
issuing banks have developed many different rewards programs to compete for the card business
of fleet managers and individual owner-operators. The territory traced by these rewards follows
42
http://www.pointspay.com/
95
the contours of the highway system and the North American Free Trade Agreement (NAFTA),
mapping another a placeless place, a working class space of flows.
The reward tokens produced by this interchange are targeted to the needs of commercial
truck drivers. Many offer discounts per gallon of fuel, and even access to members-only
discounted gas stations. Many include rewards and discounts for truck parts and maintenance. At
participating truck stops off highways across North America, truckers can use rewards like
currency. On the forum TruckStopUSA, one trucker described how he used rewards to pay for all
but $20 of the replacement of an essential part on his truck. Another described how his points
have “saved [him] many times,” and that he had used points that were about to expire to pay for
a credit to a truck stop shower for another trucker who needed it.
43
Like other rewards cards issued to employees, trucker rewards are converted through
interchange from on-the-job spending into personal tokens. Truckers find that, “These cards
come in handy when fueling you can swipe these and earn money while spending your
companies.”
44
Truckers on online forums, such as TruckersReport, TruckersForum, and
TruckStopReport—not to mention, no doubt, in actual truck stops across the continent—share
practices for paying with rewards, moving them in and out of state currency as needed. For
example, one suggested than an “honest” way to convert rewards to cash was to use them to pay
for scale tickets at weigh stations, and then get reimbursed for the expense by an employer in
state currency.
45
On another forum, a driver described rewards as “food stamps for truckers.”
46
As with
food stamps, money converted into trucker rewards can’t be used to purchase alcohol or
43
http://truckstopusa.com/archive/index.php/t-31491.html
44
http://www.lifeasatrucker.com/driver-reward-cards.html
45
http://ww7w.lifeasatrucker.com/driver-reward-cards.html (See comments).
46
https://www.truckersforum.net/forum/threads/reward-cards.80213/#post-424738
96
tobacco.
47
As Zelizer (1994) points out, there has long been political and moral drama over the
management of the money of the poor and working class. More recently, Virginia Eubanks
(2014) has demonstrated that those accepting actual welfare are subjected to the vanguard of
transactional surveillance and control. In addition to targeting the preferences of commercial
truck drivers, these rewards also exert classed constraints on their economic agency. There have
been some attempts by employers to exert ownership of the rewards earned on fleet cards, for
example, pressuring drivers to use them only for work-related expenses or reporting them as
fringe benefits on tax forms.
48
Other companies allow drivers to retain rewards and use them as
they see fit, but have stopped reimbursing drivers for showers and other purchases for which
rewards can be easily used.
49
Fleet managers are of particular interest to card issuers because they make decisions
about contracting for large numbers of trucks.
50
Fleet cards offer managers access to reports on
drivers’ transactional data, which includes information on fuel type and cost per unit. Because
the transactional data includes location, it can be used to estimate costs per mile and miles per
gallon. Some programs will capture more data from drivers by prompting them to enter
additional information—such as the odometer reading—at the gas pump before being able to
make a purchase. In addition to this monitoring, fleet managers can use cards to exert direct
control over drivers, limiting the amount and location of purchases.
51
For individual owner-operators, small business rewards cards serve an accounting role.
They can be used to avoid commingling personal and business expenses, which is helpful both
47
http://www.truckstopreport.com/driverrewards/
48
https://www.truckersforum.net/forum/threads/reward-cards.80213/#post-424735
49
https://www.truckersforum.net/forum/threads/reward-cards.80213/#post-424818
50
http://www.automotive-fleet.com/article/story/2011/05/pros-and-cons-of-using-a-fuel-card-vs-a-corporate-card-
for-fleet-fuel-expenses/page/2.aspx
51
http://www.automotive-fleet.com/article/story/1999/02/full-fleet-data-capture-takes-fleet-fuel-cards-to-the-next-
level.aspx
97
for tax purposes, and for protecting themselves from personal financial liability in case of an
accident.
52
Some cards have mobile apps that use similar data as that provided to fleet managers
to help owner-operators track their spending.
53
Small business credit cards like those offered to truck owner-operators are not regulated
under the Credit Card Accountability Responsibility and Disclosure Act of 2009.
54
They are not
subject to consumer protection, and they offer more profit potential for issuers. They are
aggressively marketed with high credit limits and attractive rewards packages. These cards are
sometimes even more attractive than those available to customers with the highest credit scores
who aren’t incorporated with a small business.
The lack of regulation of small business cards can mean that practices that would not be
allowed in consumer cards can negatively impact truck owner-operators. Some have exorbitant
late fees and other penalties. Owner-operators with bad or limited credit may find themselves
with skyrocketing interest on variable rate cards, similar to the predatory adjustable rate
mortgages that preceded the 2008 housing bubble. They may be offered much higher limits than
someone with their credit history would be able to access through an individual, rather than small
business card. Because owner-operators are self-employed, few have financial safety nets should
they become unable to work due to illness, equipment failure, weather, or lack of available jobs.
According to Overdrive, a trade journal for the trucking industry, in 2011, 40% of owner-
operators owed an outstanding credit card balance of at least of $5,000 on at least one card.
55
The
affordances of small business cards and working class rewards cannot overcome the precarious
52
See http://truckstopusa.com/archive/index.php/t-31491.html; http://www.overdriveonline.com/play-your-cards-
right-5/#
53
http://equinoxlife.com/index.php/our-blog/item/69-best-credit-cards-for-owner-operator-truckers
54
http://thomas.loc.gov/cgi-bin/bdquery/z?d111:HR00627:@@@D&summ2=m&
55
http://www.overdriveonline.com/play-your-cards-right-5/#
98
financial situations facing lower-income workers across the economy. Trucker rewards codify
and map this economic subject position.
“Frequent Flyer Miles for the Neighborhood”
Bernal Heights, a neighborhood with a long history of community activism south of San
Francisco’s Mission District, is home to what has been called the first complementary
community currency in the form of bank payment card.
56
These “frequent flyer points for the
local economy,” are tied to a pre-paid debit card issued by Mission SF Federal Credit Union, a
non-profit community bank based in Bernal Heights. When a cardholder makes a transaction
using the card in a participating business, they earn Bernal Bucks, rewards that accrue at the rate
of 5% of the total transaction. In order to redeem these rewards, cardholders print out Bernal
Bucks in ten dollar increments on their home printer, and then use them like cash at participating
businesses. Some cardholders choose to donate a fixed percentage of their Bernal Bucks to
neighborhood non-profit organizations.
Bernal Bucks was founded by self-described “banking executive(s) in recovery” Arno Hesse and
Guillaume Lebleu.
57
After earning an MBA from the University of California, Berkeley, Hesse
had a 20-year career in finance and management consulting, including as executive vice
president and head of retail product management for Union Bank. Lebleu had been the co-
founder and vice president of a financial services software start-up which was acquired by
Diebold. Hesse and Lebleu were motivated by the financial crisis of 2008 to leave their
mainstream financial services careers. They wondered how technology was “changing money
56
See http://www.shareable.net/blog/bay-area-launches-business-currency-network;
http://articles.latimes.com/2012/feb/06/local/la-me-bernal-bucks-20120206-1
57
http://www.mileagegenius.com/?p=3072
99
itself and, with it, our communities and society.”
58
Because of their work experience, they were
able to think about ways in which the architecture of the already existing payment system could
be used for an alternative purpose. As Hesse put it, in the crisis, “local communities were
suffering because of the spreadsheet acrobatics done by those on Wall Street.”
59
As a rewards
program, Bernal Bucks performs a simple form of “spreadsheet acrobatics” to transform
interchange into an alternative community currency.
There is some ambivalence from those who see Bernal Bucks as a community currency
about its relationship to mainstream financial infrastructure. One critic found “irony” in the fact
that there is the logo of a “megacorporation” (i.e., VISA) on a payment card that generates
community currency, and found it “somewhat discouraging” that this local business campaign
“comes by way of plastic fantastic.”
60
Of course, it is important to note that, for this very reason,
Bernal Bucks, unlike like most other rewards, is tied to a debit card, not a credit card. Credit
cards are seen as antithetical to the ethos of the project.
Perhaps because of this ambivalence, Bernal Bucks first used stickers that could be
placed on five and ten dollar bills. When those bills were spent at participating Bernal Heights
businesses, the stickers could be redeemed with retail incentives, like discounted purchases or a
lagniappe, such as an apple or an upgrade to a larger size of coffee. The goal was to remind and
incentivize people to literally return the bills to community merchants, because the money was
“worth more” in Bernal Heights than it was outside of it. The stickers themselves cost one dollar,
which was donated to the Bernal Heights Library and the Bernal Heights Neighborhood Center.
61
58
http://www.mileagegenius.com/?p=3072
59
http://www.mileagegenius.com/?p=3072
60
http://www.sfbg.com/2011/06/28/bernals-bucks?page=0,1
61
http://www.thebolditalic.com/articles/314-stock-exchange
100
In its next iteration, Bernal Bucks issued universal gift certificates for participating businesses,
hoping they would circulate like bank notes.
Although they raised awareness about the local economy, neither of these early versions
of Bernal Bucks produced a functioning local currency or lasted long. Bernal Heights merchants
described these earlier iterations as “awkward” and a “hassle.”
62
They were difficult to do
accounting with, both at the register and in the back office. The stickers and gift certificates had
been too complicated, adding extra steps to transactions without adding much additional value to
the local economy. It was not until 2011, when Bernal Bucks was tied to a payment rewards
card, that the program took off.
In contrast to both the stickers and the gift certificates, the payment cards reward system
was something many residents were already familiar with. No novel equipment was required,
and no extra complications were added to the process of checking out. As Hesse put it, “We
don’t want to create a parallel currency. We want to build on top of what people are already
accustomed to.”
63
The Bernal Bucks card itself was adorned with a cute cartoon of the
neighborhood’s iconic hill and microwave tower: there are kites flying and children playing and
family dogs running around. But Bernal Bucks’ primary place-making mechanism was not
aesthetic, but processual. By limiting the creation and circulation of rewards to the
neighborhood, Bernal Bucks produced a bounded economic territory and, with it, a form “fiscal
localism.”
64
This infrastructural arrangement enforces the project’s larger goals. Under the Durbin
Amendment to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, debit
62
http://www.artbrock.com/node/70
63
http://www.artbrock.com/node/70
64
http://www.sfgate.com/bayarea/article/Communities-issue-currency-promote-local-spending-
2355723.php#ixzz1S17kqOsy
101
card interchange can be regulated and capped.
65
Lower interchange means less money to fund
rewards. Although rewards debit cards used to be as common as a rewards credit cards, they
have been disappearing since 2010.
66
However, the regulation only applies to banks that have
more than $10 billion in assets, so credit unions and community banks like the Mission SF Credit
Union that issues Bernal Bucks, and many other credit unions and community banks that could
deploy a similar program for use in other neighborhoods, would likely be exempt.
As with frequent flyer miles and truck driver rewards, Bernal Bucks takes money out of
general purpose circulation and transforms it into a special-purpose money. But instead of the
placelessness formed by frequent flyer miles and truck driver rewards, Bernal Bucks is an
instrument of strategic place-making. It traces, codifies, and protects an existing community, an
existing local economy. Bernal Bucks expresses the values of Bernal Heights, whose residents
proudly assert it as a place. Bernal Heights is variously described as a “tight-knit community,”
“probably the neighborhoodiest neighborhood in San Francisco,” and even as a “notoriously
insular.”
67
It makes sense, then, that a community so aggressively local in ethos would “print
[its] own currency” that would “unify [residents] by the coin of their realm.”
68
As one Bernal
Bucks user put it, “I think it’s pretty awesome. I don’t leave the hill.”
69
Bernal Bucks captures the infrastructure of payment, appropriates the performance of
interchange, and recodes general-purpose money as community money. In producing fiscal
localism for Bernal Heights, Bernal Bucks reveals the politics and geographies already
65
http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=111&session=2&vote=001
49
66
http://thepointsguy.com/2013/08/updated-options-for-earning-airline-miles-from-debit-cards/
67
See http://www.nbcbayarea.com/news/local/Bernal-Bucks-Keeps-Spending-Local-123052008.html;
http://www.mileagegenius.com/?p=3072; and
http://www.huffingtonpost.com/2011/07/13/bernal-heights-issues-own-currency_n_897835.html
68
See http://articles.latimes.com/2012/feb/06/local/la-me-bernal-bucks-20120206-1 and
http://www.huffingtonpost.com/2011/07/13/bernal-heights-issues-own-currency_n_897835.html
69
http://www.latimes.com/local/la-me-bernal-bucks-20120206-1-story.html#page=1
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embedded, implicitly, in all rewards programs. The relationship between the place-making
function of money and the circulation of rewards is something Hesse seems keenly aware of. He
tweeted recently, “Even @Amazon is now launching its own rewards currency - #Coins. For use
within its kingdom.”
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Whereas Bernal Bucks is designed to remind customers of their place in
the geography of payment, Amazon Coins are generated within a commercial environment that
obscures territory in favor of placeless convenience.
The politics of Bernal Bucks is, in a way, conservative: preserving what is cherished,
excluding and fending off everything else. But there is an imagined network of other cities with
their own local rewards implied by Bernal Bucks, and Hesse and Lebleu hope to “make a living
not a killing” exporting the method. It remains to be seen whether they will also export the
values of Bernal Heights. It also remains to be seen if rewards, even in their alternative use, are
necessarily producing of niches, or insularities, or if other communities would be able to express
other values with and through them.
It is also unclear that the economics of Bernals Bucks will actually improve the local
economy of Bernal Heights. After all, the same merchants who pay higher interchange every
time the cards are swiped accept the rewards as currency. However, for many in Bernal Heights,
it is the affective experience of infrastructure that matters most. As one local blogger wrote:
Personally, I think the biggest upside of the Bernal Bucks card is psychological. Using
the card to make purchases has a curious, consciousness-raising effect. I notice that I
gravitate toward business that accept the Bernal Bucks card because I want to use the
card—and vice-versa. Honestly, it’s like I get a little shot of endorphins every I use the
card to make a purchase, because the physical act of handing my card to a merchant
represents the completion of an intentional YIMBY [Yes In My Back Yard] gesture to
support local businesses. And really, we all want to do that, right? RIGHT??!!
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It remains also to be seen, then, whether other communities, perhaps those with greater scale, or
with less flexibility around the margins of profits, would be able to benefit from the
infrastructural experience.
Conclusion
Are rewards money? From a functionalist economic perspective, from a legal
perspective, and from a cultural perspective, the answer appears to be: perhaps, maybe,
sometimes. But, in order to understand where money is going and where it has been, it is useful
to understand rewards, a money-like token that has long circulated alongside state currency.
Rewards are a byproduct of payment infrastructure, produced through interchange when
merchants pay their acquirers, who pay card issuers for access to cardholders, who are in turn
paid by issuers in the form of rewards.
Just as national currencies create a common “economic language” for transactions and
map economic territories, rewards express niche economic identities and places. Frequent flyer
miles trace the “business class” space of flows, a placeless place for the managerial elite. Truck
driver rewards similarly follow the contours of a working class space of flows. Bernal Bucks are
a form of place-making for an insular community. Interchange—and payment itself—is, then, a
process of deterritorializing and reterritorializing money.
The circulation of rewards is likely to increase in the coming years because of consumer
adoption of mobile smartphones. Mobile smartphones are an ideal tool for implementing
money’s traditional functions. As networked communication devices, they can easily transmit
information and serve as a medium of exchange, and because they connect to shared databases,
they can be used to keep track of measures and stores of value. The ability of rewards conveyed
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by mobile phones to serve as a standard of value is limited by the issuer’s ability to guarantee
that value.
Indeed, when Apple announced its first iteration of the mobile wallet product, the official
Twitter account of Bernal Bucks tweeted, “Apple Passbook is kind of perfect for the
@bernalbucks vouchers!”
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Instead of printing out Bernal Bucks earned through local purchases
for redemption at local businesses, Bernal Bucks users can store their Bernal Bucks rewards
alongside their credit cards, coupons, and other payment options in their Apple Passbook wallet.
The range of different rewards available to consumers is also likely to increase because of
rising interest in rewards among merchants. Starbucks offers a vision of what is to come:
Starbucks’ mobile payment system has over 13 million active users and averages more than 7
million transactions a week, 16% of its total sales, making it the most successful and widely-
adopted mobile payment system implementation in the United States.
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The mobile payment
system is integrated into Starbucks’ rewards program, in which customers to earn “stars” when
they make purchases with a registered Starbucks card or through the mobile payment app.
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Accumulating stars entitles customers to free drinks and other specialized customer service
experiences. Unlike traditional rewards, the Starbucks system is unitary. The cost of the
Starbucks rewards program is offset not by charging interchange, but by avoiding it altogether:
When customers pay using the system, neither Starbucks nor its acquirer pay interchange to an
issuing bank. Furthermore, Starbucks uses the system to collect a wide range of transactional
data from customers, which can be used for targeted marketing and other purposes.
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https://twitter.com/bernalbucks/status/212293223119466497
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http://www.pymnts.com/in-depth/2015/starbucks-mobile-payments-jolt/#.VOYAoC6DC6Q
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http://www.starbucks.com/card/rewards
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http://www.wired.com/2014/11/forget-apple-pay-master-mobile-payments-starbucks/
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Many merchants are keen to build closed-looped rewards systems like Starbucks’ to
avoid paying interchange, capture customer data, and increase customer loyalty. The coming
networked wallet will be an access point to an increasing variety of institutions and meanings, an
assemblage of monies and, alongside them, money’s social functions: geography, identity, value,
and values.
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CHAPTER THREE
LEDGERS: SILICON VALLEY AND THE NEW MEMORY BANK
“The most valuable commodity I know of is information.”
– Gordon Gekko, Wall Street, 1987
“The sticks were housed in Westminster, and it would naturally occur to any intelligent person
that nothing could be easier than to allow them to be carried away for fire-wood by the miserable
people who lived in that neighbourhood. However, they never had been useful, and official
routine required that they should never be, and so the order went out that they were to be
privately and confidentially burnt. It came to pass that they were burnt in a stove in the House of
Lords. The stove, overgorged with these preposterous sticks, set fire to the paneling; the paneling
set fire to the House of Lords; the House of Lords set fire to the House of Commons; the two
houses were reduced to ashes.”
– Charles Dickens, on the wooden tally sticks used to keep track of accounts by the
English Court of Exchequer, 1855
Introduction
In a 2014 episode of the technology and culture podcast “Reply-All,” author Chiara Atik
tells the story of her fascination with the mobile phone payment application Venmo.
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Venmo
allows individuals to pay their friends directly. It is popular among college fraternities and other
groups of young people for shared monthly expenses. It is also useful for settling up restaurant
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tabs, for example, when dining in a group in which no one has cash and the server is reluctant to
split the check. People can invoice their friends for money, as well as send it to them.
Venmo is unusual in that it draws from the contact lists that users assemble on their
phones and social media profiles to generate the set of people with whom each user can transact.
When one person pays another, the transaction is made visible to all of their friends, not unlike a
Facebook News Feed or Twitter stream. User are encouraged to annotate their transactions with
notes. For example, a user might add martini glass emojis when paying a friend back for a round
of drinks. Jokes, such as faux insinuation of payment for sexual services, are common.
According to reporting in the business press, Venmo is unusually popular among “millennials,”
and is one of the most widely-used mobile payment systems.
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In the podcast, Atik explains how she finds reading through her Venmo feed to be
“addicting.” Fascinating stories turn up in this “shoebox of the internet’s receipts.” She found a
series of transactions from one of her acquaintances, “Melanie,” particularly compelling. First,
Atik noticed that Melanie was billing her long-term live-in girlfriend for a lot of things, such as a
chandelier and “half a couch.” It looked to Atik like an acrimonious break-up in which Melanie
and girlfriend were divvying up their belongings. Then Atik noticed that Melanie seemed to be
on the rebound, charging and paying her friends for “Pizza night with the girls.” These gave way
to dating transactions for “Taxi, dinner, drinks.” Then, Melanie seemed to have found love again,
demonstrated by airplane emojis designating weekend getaways.
Venmo is popular because it illustrates something scholars interested in the cultural
dimensions of money have long argued: that far from being tools of rational economic behavior,
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financial transactions are social. As anthropologist Keith Hart puts it, money is a “memory bank”
(Hart, 2001). It is a way of keeping track of both the movement of value and relations, a
distributed ledger. Venmo makes this function of money visible in a form appropriately called
“social media.” As Venmo documents transactions, it produces a persistent ledger that previously
existed as an unarticulated form of collective memory. In addition to reifying the memory bank,
Venmo encloses it. Transactional data, previously thought of as a form of “personal data,”
becomes a kind of “social data” that promises to—someday, maybe—be a source of revenue for
Venmo.
This chapter elaborates the idea of money as memory, describes the processes of its
enclosure from the Silicon Valley social media industry, and compares the different paradigms of
publicity and privacy, publicness and privateness, implicit in the ledgers of leading would-be
stewards of the our newly “social” wallets.
Money as Memory
Anthropologist Keith Hart (2001) points out that the word “money” comes from Moneta,
a Roman translation of the Greek Mnemosyne, the goddess of memory. He argues that money is
primarily “an instrument of collective memory” and “a way of keeping track of some of the
exchanges we each enter into with the rest of humanity.” Money is a form of shared credit, a way
of remembering promises of value, projecting them into the future, and sharing them. Money is,
for Hart, a “memory bank.” For Hart, the ledger function of money pertains not just to keeping
track of financial debts and credits. Rather, money is fundamentally a form of communication.
This seemingly heterodox way of thinking about money has been echoed in unlikely
places. For example, in 1998, Narayana Kocherlakota, economist and now president of the
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United States Federal Reserve Bank of Minneapolis, published a paper simply titled, “Money is
Memory.” In it, he uses mechanism design to show how money (a set of tokens) and collective
memory (a collective ledger of past interactions) both provide the same affordances across
various economic environments. In an environment with collective memory, an “imaginary
balance sheet” is maintained for each agent. In an environment with money, money is a physical
way of maintaining this balance sheet. Money, then, is a “technological innovation” that
simulates memory and allows “societies to implement allocations that would not otherwise be
achievable” (ibid.). Money is a “primitive form of memory.” Kocherlakota argues the only real
answer to the question, “Why does money exist?” is that it helps to keep track of the past.
The idea that money is a memory system is central to debates over the origin and nature
of money. Building from the work of George Friedrich Knapp (1924) and Mitchell Innes (1913,
1914), as well as from the archaeological and ethnographic record, modern monetary theorists
such as Randall Wray (1998, 2004), Geoffrey Ingham (2004), and Michael Hudson (Hudson &
Van de Mieroop, 2002) argue that money evolved not as a system of commodity tokens used to
mediate barter, but as a system of ledgers: ancient Babylonian shubati, medieval English tally
sticks, and the like. A baker owes a farmer for wheat; the farmer in turn owes a blacksmith for
horseshoes; the blacksmith in turn owes the baker for bread. These networks of obligation were
written down. The receipt, or the ledger, preceded the token.
As a society becomes more complex, the network of credit relations quickly becomes
more complex, and these records of obligation begin to circulate as negotiable instruments. In
this way, all money is credit. The forms of money accepted by the state for the payment of taxes
becomes the dominant, authorized form of money (Bell, 2001). In this way, the state authorized
the contractual, credit relationships created by everyday transactions.
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For Hart, like the Modern Monetary Theorists, the value of money is located not in
money’s relationship to precious commodities, but in society. It is not objective, but something
contingent upon and generated by our relations, whether vertical, as between states and citizens,
or horizontal, as between members of a community. He writes, “Communities exist by virtue of
their members’ ability to exchange meanings which are substantially shared between them”
(Hart, 2001). It produces not just shared economic value, but identities and temporalities. By
collecting money, one “considerably expands the capacity of individuals to stabilize their own
personal identity by holding something durable which embodies the desires and wealth of all the
other members of society” (ibid.). For Hart, “commonwealths” are tied to a common definition
and sense of wealth. The memory bank, then, has tremendous political stakes. Modern Western
money recognizes, according to Hart, not communities, but states and markets. These, too, form
communities, but they are not truly democratic.
Here Hart departs, to some extent, with the Modern Monetary Theorists, who see the
state as ultimately authorizing the “hierarchy of money” (Bell, 2001). Hart argues that the road to
“economic democracy”—that is, money emerging from communities, rather than states or
markets—will come through people “participating in exchange as themselves, not just as the
anonymous bearers of cash” (Hart, 2001). As electronic networks become the dominant form of
social organization, and electronic means become the dominant form of communication, the
memory function of money will come to the fore, and money will become more personal,
“electronic networks of personal credit” or “people-money,” as opposed to “state-money” or
“bank-money.” Money is “above all a source of information” and “principally a way of keeping
track of what people do with each other” (ibid.), so in an era when information is easily and
cheaply exchanged between people, it creates the possibility that:
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Money would then no longer be left to impersonal agencies, to the death struggle of the
disembodied twins, states and markets, heads or tails; but rather would become a question
of subjective judgment, a skill to be learned by persons capable of making and remaking
society through the exercise of their own judgment of probabilities. In short, money
might become more meaningful than it has been of late.
(ibid.)
Unlike Hart, who is interested as much with the relations that produce and are produced
by these exchanges, Kocherlakota is more concerned with what can be considered, using
communication theorist James Carey’s (1989) terminology, the “transmission” features of money
as memory. Nevertheless, Kocherlakota concludes by addressing “real world” implications of his
exercise. If money is an “imperfect substitute for high-quality information storage and access,”
the “government’s monopoly on seigniorage might be in some jeopardy as information access
and storage costs decline” (Kocherlakota, 1998). In short, if money is memory, and the means of
memory-keeping are democratized, so too will money be. This is exactly what Hart and
Kocherlakota argue may be happening through networked information and communication
technology.
The idea that money is a ledger, a form of memory-keeping, and that new networked
communication technology has the power to keep new ledgers with new democratic values has,
in recent years, become appealing to activists. Hart, along with a collection of researchers,
theorists, and activists, published a “citizens’ guide” to the “human economy” that, starting from
the position that money is memory, laid out a variety of alternative—or more accurately,
“human”—economic strategies (Hart, Laville, & Cattani, 2010). Anthropologist David Graeber
became a leading figure in the Occupy movement for his 2011 book, Debt: The First 5000 Years,
which retraced the credit theory of money and argued that informal, non-calculative forms of
interconnection and indebtedness became replaced by legalistic, precise, state-enforced monies
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and therefore debts. Echoing the language found in Hart et al., Graeber also calls for a return to
what he calls “human economies” (ibid.). For these activist theorists, money’s origins as a
memory system are key to rethinking the prevailing financial systems.
Similar ideas gained traction among technologists as well. Virtual reality pioneer and
popular computing culture writer Jaron Lanier described cash as “too forgetful” for a
“humanistic,” digital economy that values individual contributions equally and so advocates for
“economic avatars” that act as memory-keeping agents (Lanier, 2013). Influential payments
industry consultant and digital money guru Dave Birch also describes money as a form of
memory bank, one that produces identities. In his 2014 book, Identity is the New Money, Birch
paraphrased a version of the credit theory of money, which he credited to Sam Lessin, head of
the Identity Product Group at Facebook:
Human societies evolved trade to deal with the costs of exchange, and we evolved trust
networks to do it efficiently by growing larger networks with more trading partners and
by capturing more information about those partners over time. Thus the cost of trade
reduced and the amount of trade went up. Money was an element of these trust networks,
because it was cheaper to trust the money than the credit of a counterparty beyond your
clan, village, or tribe.
(Birch, 2014, pp. 59–60)
Cash, according to Lessin via Birch, is a “hack” that substitutes a token for social trust and
memory or, as Birch as it puts it, drawing from sociological theory, social capital. Now that
communication technology has made it easier and cheaper to access information about social
capital, the cash “hack” is becoming obsolete. Birch argues that the “social graph”—the
representation of networks of personal relations, as seen from the point of view of a platform like
Facebook—is a “more efficient form of the kind of memory we need to make transactions work”
than traditional money (ibid., p. 63). Birch argues that payments and technology services should
be thinking about ways to build “identity infrastructures” that both comprise the reputational
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function of the social graph and account for the various kinds of identities and affinity groups—
and in turn, money forms—that people use in their economic lives.
The Enclosure of the Memory Bank
In recent years, there has, indeed, been an attempt to use communication technologies to
maintain the memory bank ledger of our transactions, but not necessarily in the radically
democratic form imagined by Hart and Graeber. Instead, a variety of companies, mostly from
within the Silicon Valley technology sector, have sought to produce “social” payment systems.
In particular, large technology firms are trying to bring “mobile wallet” software products to the
American market.
Although mobile wallets are still not fully integrated into everyday life, their immediate
origins can be pinpointed to 2007 and 2008, a historical conjuncture marked by a number of
elements hospitable to the emergence of mobile wallets. Global financial crisis undermined the
legitimacy of financial institutions, bringing new attention to transactional infrastructures and
interest in payments from those means outside of traditional banking. The first successful mobile
payment system, M-Pesa, was launched in Kenya, proving a proof of concept for mobile wallets.
The Apple iPhone and the Google Android system debuted. Suddenly, large amounts of
Americans were carrying powerful computers, perfectly equipped to transmit and keep track of
payment information, around in their pockets.
Although they promise personalization and emphasize the social nature of payment, these
new systems are primarily “social” in the Silicon Valley sense of the word: like other forms of
social media, they are tied to business models predicated on gathering data (Gehl, 2014; Van
Dijck & Poell, 2013). The “wallet wars,” as some in the industry have dubbed the race to release
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a successful mobile payment system in the United States, are really a set of conflicts over
ownership of and access to transactional data. As one marketing pundit put it, mobile wallets
represent the “holy grail” of online marketing: the ability to track highly targeted advertising
messages through to an actual point of purchase, in real location and time.
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Marketing is by no
means the only use of transactional and other social datasets, but it is one of the most common
and certainly the most obvious. The race to produce a widely-adopted mobile wallet is not
simply about selling a new technology. Rather, the winner of the “wallet wars” will be in the best
position to exploit the much more lucrative market in transactional data that will result from the
mass adoption of mobile payment. Various participants and stakeholders in the payment process
have long had access to different components of the transactional record, but no single player has
been able to witness to the whole chain of activity. Card issuers, because they usually have a
larger banking relationship with cardholders, hold a tremendous volume of personal information,
including each customer’s credit score, account balance, and repayment behavior. In addition,
issuers have access to transaction-level data. Merchants with information systems can keep track
of item-level data using SKU, or Stock Keeping Unit numbers, but they don't know anything
about a customer and can’t track their behavior over time unless the customer volunteers it by
consistently using a loyalty card. Historically, issuers and merchants have attempted to use this
data in various ways: risk assessment, card-linked marketing, and other predictive analytics. But
the recent turn of Silicon Valley toward payments has dramatically ramped up the interest in and
stakes of gaining access to the fullest picture of transactional data by producing mobile wallets.
The mobile wallet not only collects payment data, it links it to all the other streams of personal,
social, and locational data passing through the payer’s smartphone. It took the imagination of
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Greg Sterling, “Google Wallet + Offers + Check-ins = Closed Loop,” Screenwerk, May 2011,
www.screenwerk.com/2011/05/26/google-wallet-offers-check-ins-closed-loop/
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social media, an industry driven by the promised value of social data, to activate the potential
value of transactional data.
A mobile wallet is not just a means of payment; it is a portfolio of payments, a universal
gateway to collect data on whatever passes through it. In this way, it is a ledger-keeping system.
With the use of mobile of wallets, the memory bank produced by transactional relations becomes
newly materialized—and privatized. Ledgers are also records, and the keeper of those records is
the keeper of the memory bank. What was once either a distributed, imaginary ledger or a set of
public records maintained by the state becomes a dataset controlled by a social media company.
State money is a public infrastructure, and it comes with a shared set of expectations around
privacy. Mobile wallets, in contrast, create private ledgers. Participants have little control over
the terms of how they are produced, shared, or used.
Crucially, mobile wallets do not just keep track of transactional relationships, they
produce a new one between the provider and the user. Like all forms of social media, users are,
more or less explicitly, paying for use of the platform with their data. Simply by passing their
everyday economic lives through the infrastructure of a mobile wallet, people pay a rent—in the
form of transactional data—to the keepers of the infrastructure, who in turn “monetize” the
ledgers produced by transactional data. A ledger interacts with a rail to become a token. This
token is, indeed, a debt-based one, with the users getting something “for free” because platform
providers see future value in the data generated in their use of it. But the terms of this debt are
uncertain: Social media is a predicated on the promise of it eventually being valuable to
someone, somehow. It is unclear how, or if, continued value can be extracted from transactional
data and other social datasets. These data are tokens that circulate beyond users’ control and out
of users’ sight, and that can never return to them.
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This process of extracting personal data in return for providing a service is in line with
what theorists have described as the “becoming-rent of profit” (Marazzi, 2010; Vercellone,
2010). As Harvey (2001) describes, rent is a pre-capitalist form, distinct from profit. It is the
revenue derived from exclusive ownership and control of a private resource, such as land. Hence,
the bridge trolls of mythology are not capitalists. Instead, they are rentiers, extracting value from
means other than the production process. Today, there is a new proliferation of forms of rent.
Digital infrastructures, such as the mobile wallet, are private resources that extract value from the
communicative activity of users. Hart may have imagined the memory bank as a commons, a
store of collective memory, but as O’Dwyer (2013) puts it, rent is the “flipside of the commons.”
For Vercellone (2010), this can be understood as the “communism of capitalism,” but it may also
demonstrate capitalism’s contingency and incoherence. It is either a resurgence of pre-capitalist,
feudal forms, or a demonstration that capitalism has always depended on such alleged
anachronisms.
As a technology, the meanings around the mobile wallet are not yet settled and have not
yet achieved rhetorical closure. Different wallets have different paradigms of sociality and
provide different kinds of access to transactional records to differently-defined relevant parties.
Whomever “wins” the “wallet wars” will set the terms for expectations around the uses and
meaning of the ledgers generated by mobile wallets. This battle is not a zero sum game. Privacy,
and the rents paid to have it, will be offered differentially to users.
The following sections describe various paradigms of leading exemplary mobile wallets.
Google Wallet is perhaps the most typical. It creates a ledger of transactions that can be put into
conversation with existing personal and social datasets, and then used for targeted marketing.
Google has gone to great lengths to secure its access to this data, betting that it will be worth
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more than the costs of collecting it. With Apple Pay, users pay for the feeling of privacy along
with their expensive device. The iPhone offers added security and the ability to control which
merchants can access customer data. Venmo and its parent companies break down taboos around
payment, turning payment into a public act, the ledger of which can be accessed by anyone with
the savvy to collect and parse it. The ledgers produced by Venmo may have, perhaps, surprising
reach.
Google Wallet: Online Advertising Everywhere
As, essentially, a targeted advertising company, Google has perhaps the clearest plan for
extracting value from transactional data. The 2011 launch video for Google Wallet provides an
idealized version of the Google vision. It shows the journey of a group offriends as they buy gifts
on the way to another friend’s birthday brunch. One man searches—using Google, of course—on
his home computer for a gift, and he finds a local shop that has what he wants and is offering,
through Google Wallet, a discount coupon. With a click, he sends the coupon to his phone and
stops to buy the gift on his way to brunch. One woman, waiting in line while picking up a cup of
on-the-go coffee, is delighted to see that she can tap her phone to a poster and, through near-field
communication (NFC), automatically sign-up for a loyalty program and get her tenth coffee for
free. She then uses her phone to search for “Deals Near Me,” and is off to find flowers.
Tracking and personalization grow legs like an evolving fish and emerge from the
internet into public space. This is, as I have argued elsewhere, a “transaction-sorted” geography
(Swartz, 2013). In the same way that Google search organizes our interacting with and access to
online information, Google Wallet organizes space and our movement through it.
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The transactional data Google collects through Google Wallet will most likely be
organized and made available according to similar principles as the data it collects about other
user behavior. Google does not resell or otherwise allow direct access to user data; instead,
Google uses it to sell targeted marketing. In 2014, Google’s ad revenue amounted to nearly $59
billion and accounted for almost 90% of the company’s total revenue.
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Revenue from mobile
phone advertising, the kind most relevant to eventual Mobile Wallet advertising, has climbed
from nearly $2.7 billion in 2012 to nearly $4 billion in 2013, to over $6.3 billion in 2014.
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Google brokers filtered access to web users. Advertisers bid to have their ads placed in
the search engine and on other websites according to the individual user’s search history and
proprietary Google profile.
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An industry has grown up around Google’s advertising. Third-party
companies, many of which are certified Google Partners, help advertisers interface with
Google’s products.
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When Google changes its policies or practices, advertisers and advertising
consultants must change their tactics accordingly. Because Google overwhelming dominates the
way people experience the internet, it is the gatekeeper to how the internet is monetized.
Perhaps because of this dominance on the web, Google has faced resistance from nearly
all fronts in its efforts to bring a digital wallet to market. In particular, Google has struggled with
device makers and mobile network operators over territorial control of a piece of mobile phone
hardware called the “secure element.” The secure element controls Near Field Communication
(NFC), which transmits payment information at point of sale, and stores secure credentials,
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https://investor.google.com/financial/tables.html
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See https://investor.google.com/financial/2012/tables.html; https://investor.google.com/financial/2013/tables.html;
and https://investor.google.com/financial/tables.html
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https://support.google.com/adwords/answer/2497976?hl=en
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https://support.google.com/adwords/answer/2375510?hl=en
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which provides greater security for payments. Both functions are necessary for mobile payments
as they have been envisioned by most in the industry.
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Google does not manufacture or control all of the devices that run the Android operating
system, and it has not been able to successfully reach deals with manufacturers to standardize or
allow access to the secure element on all handsets. In part, this is because mobile network
carriers AT&T, Verizon, and T-Mobile buy most devices, package them with their own versions
of Android (an open-source operating system), and resell them to consumers. These carriers
sought to produce their own mobile wallet, originally called ISIS but renamed to Softcard to
avoid confusion with the militant group, Islamic State of Iraq and Syria.
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Carriers thus asserted
their power as “gateway[s] to the device.”
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Softcard planned to “rent” the secure element to
bank partners directly.
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The structure of the mobile industry in the United States made it impossible for Google to
introduce its Wallet to all of its users at once. Instead, Google payment technologies became
available to consumers in small, fragmented releases. When it debuted in 2012, Google Wallet
was only available on a phone on which Google did have access to the secure element, the Sprint
Nexus S 4G, one of the premier Android phones of the time, which was also tied to a carrier that
was not part of the ISIS/Softcard coalition.
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Google attempted a variety of a solutions to get
around the lack of carrier cooperation. First, Google created special NFC stickers that could be
tied to a single credit card. Transactions made with the sticker were encrypted and relayed to the
Google Wallet over the air.
88
These implementations were awkward and ultimately abandoned.
83
https://gigaom.com/2011/03/18/the-4-way-battle-to-control-your-digital-wallet/
84
https://news.gosoftcard.com/2014/07/07/isis-wallet-rebranding/
85
https://gigaom.com/2011/05/06/isis-respect-the-carriers-well-be-key-to-nfc-success/
http://www.verizonwireless.com/news/2011/12/pr2011-12-06a.html
86
http://sites.tufts.edu/costofcash/2013/04/03/isis/
87
http://www.techhive.com/article/240218/google_wallet_a_hands_on_in_the_real_world.html
88
http://techcrunch.com/2011/05/26/special-stickers-will-bring-google-wallet-to-android-phones-that-lack-nfc/
120
By 2014, Google Wallet no longer used hardware to deliver payments at all, and instead
developed a system that used host card emulation.
89
In this system, Google stores the original
credit card numbers on its own cloud servers. During a transaction, the customer selects which
card she would like to use, and software on the phone creates a virtual card number, which it
transmits to the merchants via an NFS point of sale terminal. The merchant doesn’t ever see the
customer’s card number—and neither would thieves attempting to hack into the merchant’s
system or the NFC process—but Google does, giving it greater access to cardholder data and
making it liable and ultimately vulnerable to data breaches.
90
The engineering changes brought about by the structure of the mobile industry altered the
financial structure of a payment made via Google Wallet. In Google Wallet’s host card
emulation process, each payment is actually made up of two transactions. First, there is
transaction from the Google Wallet virtual card to the merchant. Then, there is the transaction
from the customer’s “real,” originary card to Google. This means that interchange will be
collected twice. First, the merchant will pay interchange to Google’s virtual card issuer, Bancorp
Bank. Then, Google will pay interchange to the issuer of the customer’s originary card.
91
Given
this arrangement, moving the cardholder’s information to the cloud was a costly decision.
Many in the industry noted that Google would not be able to offload the cost of the
interchange it pays in that arrangement. Both sides of the two-sided market, customers and
merchants, would likely be unwilling to adopt the system should they be expected to pay
additional fees. It is possible that Google is breaking even on interchange, but most in the
89
http://arstechnica.com/gadgets/2014/10/how-mobile-payments-really-work/
90
http://support.google.com/wallet/bin/answer.py?hl=en&answer=2701024
91
http://blog.unibulmerchantservices.com/how-many-cards-does-google-wallet-need-to-process-a-single-payment
121
industry see Google Wallet as a loss leader designed to gain access to payment data.
92
As one
banking analyst put it, the “transaction economics” of Google Wallet “are no longer obvious.”
93
This illustrates the lengths to which Google is willing to go to able to supply payments services;
that is, to collect transactional data and sell advertising packages around it. When Google pays
interchange on Google Wallet purchases, it is effectively paying credit card issuers for access to
cardholders. Although nearly all payment services providers have made revenue through
interchange, Google is paying interchange in order to collect data.
In 2015, the seemingly intractable gap between the web and mobile industries closed.
Google acquired SoftCard, giving it better access to the necessary hardware elements to conduct
payment directly on the payer’s device.
94
According to some reports, as part of the deal, Google
will pay carriers to feature Google Wallet prominently on their phones, and may also be sharing
mobile advertising revenue with them.
95
This may help Google streamline its NFC process,
improve security, and reduce interchange expenses, but it will not change Google Wallet’s
overall paradigm. However the transactions are structured, Google’s purpose in developing a
payment technology is to add streams of transactional information to its vast portfolio of user
data.
Apple Pay: Privacy as Luxury?
In the 2014 launch presentation for Apple Pay, CEO Tim Cook cited a litany of facts that
“Payments is a huge business”: Americans use cards to make 200,000,000 transactions a day,
92
http://www.americanbanker.com/issues/177_150/Is-Google-planning-to-collect-interchange-fees-on-its-wallet-
1051556-1.html
93
http://bankingblog.celent.com/2012/08/02/google-wallet-relaunches-and-takes-paypal-on-its-own-game/
94
http://techcrunch.com/2015/01/16/softcard/
95
http://www.theverge.com/2015/2/20/8075133/google-may-pay-wireless-carriers-to-revive-google-wallet
122
spending $12 billion a day, $4 trillion a year. The time had come to “replace” the wallet. He said,
“That’s 200,000,000 times that we scramble for our credit cards and go through what is a fairly
antiquated payment process.” Many other companies had been trying, but they “started by
focusing on creating a business model that was centered around their self-interest, instead of
focusing on the user experience.” Apple, he argued, was right company to steward this part of
everyday life. He said, “We love this kind of problem. This is exactly what Apple does best. And
so, we’ve created an entirely new payment process and we call it Apple Pay.”
Apple, unlike other technology companies trying to move into payment, was not driven
“by self-interest,” and therefore it could make both security and privacy an important value
proposition. As Cook put it, “security is at the core of Apple Pay, but so is privacy.” In the
payments industry, security—the ability to protect personal information from those who would
use it for illegal purposes—has always been paramount. But in the “social” technology industry,
privacy—the ability to control the flow of personal information from those who would use it for
legal purposes—has been limited. At the intersection of these two industry imaginaries, security
is necessary, but privacy is a luxury.
Unlike Google, which is essentially an advertising and data collection company, Apple is
a maker of luxury devices. In an interview with The New York Times following the launch, Tim
Cook said, “We’re not looking at it through the lens that most people do of wanting to know
what you’re buying, where you buy it at, how much you’re spending and all these kinds of
things. We could care less.”
96
Apple’s official online product support guide reads, “Apple Pay
doesn’t collect any transaction information that can be tied back to you. Payment transactions are
between you, the merchant, and your bank.”
97
In this way, Apple Pay offers privacy not just from
96
http://www.nytimes.com/2014/09/11/technology/with-new-apple-products-a-privacy-challenge.html
97
http://support.apple.com/en-us/HT203027
123
those legally seeking to monetize personal data, but from those seeking to steal it: Apple can’t
leak what it doesn’t have. Apple Pay was released at the same time as Apple Watch, which could
be integrated with Apple Pay to make purchases, as well as to collect data about the wearer’s
physical health. Apple positioned itself as a steward, a caretaker, of these most intimate and
potentially valuable datasets.
Cook’s appeal to privacy and security outlined a technological arrangement, as much as
business model promise. Whereas mobile providers were able to bar Google from accessing the
“secure element” on phones that they resell, Apple controls all of the hardware and software that
makes up its ecosystem. As a result, Apply has the ability to unilaterally standardize and
implement new technological features. Apple Pay uses a technology called “tokenization” to
better ensure customer data protection. Each iPhone or Apple Watch has a specific device-only
account number that is stored in a “secure element” on the device itself. This element works
much like the chip in an EMV (Europay Mastercard Visa) smart card. Each time an Apple device
is used to make a payment, the secure element dynamically produces a one-time only payment
number and security code. No actual account numbers are stored on either the device or in Apple
servers. Instead, Apple partners directly with issuing banks to serve a conduit for account
information. This means that Apple Pay users must have accounts at participating banks, which
include most major banks and many smaller banks and credit unions. In the Apple Pay system,
merchants can accept payments without ever seeing or possessing account information about the
customer. In theory, this means that the only parties with any access to the personal information
tied to transactions are the customer and the customer’s issuing bank.
98
98
http://bankinnovation.net/2014/09/heres-how-the-security-behind-apple-pay-will-really-work
http://qz.com/284068/the-complete-guide-to-apple-pay/
124
In order to achieve this arrangement, Apple had to broker deals with major issuers,
including JPMorgan Chase, Bank of America, and Citigroup. Although the details of these deals
aren’t public, it seems that the issuers will pay Apple from the interchange fees they collect from
acquirers, which acquirers collect from merchants.
99
Through this partnership, Apple can access
the existing payment infrastructure, which is incredibly complex and has proven intractable,
while ensuring that big financial firms will continue to play a role in the system. These large
banks may also see promise in Apple’s commitment to improving security through tokenization,
something banks themselves have been slow to implement because of associated costs. By
meeting some of the payment industry’s existing needs, Apple has made itself part of the value
chain of actual money, not just transactional data, which is merely the promise of eventual
monetization.
This ability of Apple to provide both security and privacy was celebrated widely in the
popular and industry press at time of Apple Pay’s launch, but some in the payments industry
wondered if its lack of a means to monetize user data would thwart adoption among merchants.
Payment technology is a two-sided market: Yes, Apple Pay might be desirable to consumers, but
the attraction for merchants is less clear. If merchants are being asked to pay a premium, they
may demand access to customer data, a violation of Apple’s bargain with the public.
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In spite
of its messy architecture and uncertain beginning, Google Wallet made no similar promises
regarding user privacy. From the merchant’s point of view, Google might seem more likely than
Apple to eventually share data about their customers, though they have not yet given any
indication that they will do so.
99
http://www.bloomberg.com/news/articles/2014-09-10/apple-said-to-reap-fees-from-banks-in-new-payment-
system
100
http://www.bloomberg.com/bw/articles/2014-10-20/apple-pay-is-too-anonymous-for-panera-starbucks-and-
other-retailers
125
Of course, as was the case with American Express and rewards cards before them,
merchants have proven willing to accept high interchange if it means having access to the “best”
customers, and Apple certainly boasts some of the most affluent people in the world as users. As
one technology pundit put it:
From the day it slipped out of Steve Jobs’ womb and onto credit card bills, the iPhone
was a dearly coveted bourgeois object. It was expensive, fancy without ostentation, and
semi-affluent white people loved it like their own progeny. It is the phone of actors,
models, rappers, academics, and graphic designers living beyond their means. There’s
never in history been an electronic class beacon so clear as the iPhone.
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The symbolic value of the Apple logo is difficult to understate. By agreeing to accept Apple Pay,
and placing the Apple logo by its cash register, merchants signal their place in the circuits of the
discriminating, high-end consumer.
In practice, Apple Pay supports more data collection by merchants than its marketing
materials suggest. In earlier versions of the iPhone, Apple included an app called Passbook, a
“wallet” that allowed customers to store special mobile vouchers, like boarding passes, movie
tickets, and coupons. It also allows users to store loyalty cards, an account number that a
merchant scans, which have been the primary mechanism through which merchants have built
profiles of their customers over time. Currently, the iPhone bundles both loyalty and payments
cards onto one device, but maintains a distinction between the two. If Apple Pay and Passbook
were integrated, however, it would offer retailers—those accepted in the Apple ecosystem—
powerful access to customer data.
The integration of payment and loyalty data into a single profile seems to be what many
merchants expect. As the executive vice president for technology and transformation of fast food
chain Panera Bread described it, the company is trying to build its own payment apps and loyalty
101
http://gizmodo.com/5977625/android-is-popular-because-its-cheap-not-because-its-good)
126
systems, but hoping that Apple gets there first.
102
Indeed, Cook ended the launch presentation by
describing that the next iteration of Apple Pay will include an API, which will allow developers
to build apps—presumably loyalty, rewards, and coupon apps—that interoperate with Apple Pay.
As with the present App Store, it is likely that Apple will exert control over what kind of
payments-related apps can enter its ecosystem.
Of course, not every consumer will own an iPhone, and not all merchants will be willing
to accept Apple Pay. After its launch, several merchants refused to accept it, leading to a
backlash from passionate Apple users.
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These merchants were all part of Merchant Customer
Exchange, or MCX, a coalition of large merchants, including WalMart, Target, and several
convenience, drug store, gas station, and restaurant chains, who have joined together to produce
their own mobile wallet, called CurrentC.
104
Because merchants, through their acquiring banks,
pay interchange to issuing banks, they have long paid to be paid and haven’t had access to
persistent longitudinal data.
The CurrentC wallet system can be used on any smartphone, with or without access to the
secure element or other cooperation from device manufacturers, mobile network operators,
operating system makers, banks, or card processing networks. In this way, it is most able to
include customers from lower socioeconomic strata, not the market segment that Apple has in
mind. It is easy to imagine a consumer who would do little of their spending outside MCX
merchants—WalMart, Target, Kmart, Best Buy, Lowe’s, Gap, Old Navy, Sears, Kohl’s,
Dillards, Dunkin Donuts, Rite Aid, CVS, Wendy’s, Chili’s, Olive Garden, Giant Eagle, Publix,
102
http://www.bloomberg.com/bw/articles/2014-10-20/apple-pay-is-too-anonymous-for-panera-starbucks-and-
other-retailers
103
See http://www.washingtonpost.com/blogs/the-switch/wp/2014/10/27/as-cvs-and-rite-aid-disable-apple-pay-
does-the-digital-wallet-have-a-rocky-road-ahead/; https://www.internetretailer.com/2014/11/07/merchants-take-
some-heat-blocking-apple-pay; http://www.pymnts.com/news/acquiring/2014/apple-pay-by-the-day/
104
See http://www.mcx.com; http://currentc.com/; http://techcrunch.com/2014/10/25/currentc/
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Meijer, ExxonMobile, Sunoco, Conoco, Shell, and on and on. Considering that WalMart is the
country’s largest employer, employing more than 1.3million people, it is similarly easy to extend
this scenario such that, if those employees elected to be paid inside the CurrentC system, much
of their money might never leave it.
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Venmo: A free (way to divide up the cost of) lunch?
Venmo is the most overtly “social” of the social payment systems. In some ways, it is
also the most overtly public, with clear expectations that there will be no privacy. As Chiara
Atik, the writer who described the voyeuristic pleasure of watching a friend’s breakup unfold,
described it, Venmo creates “public displays of transaction.”
106
It has been described as the
ultimate in social media “overshare” culture.
107
The technology website Quartz posted its
editorial chat logs of a debate regarding Venmo. Global News Editor Heather Landy wrote, “It’s
not bad enough that I have to know that the girl I used to sit next to in social studies just took her
4-year-old to the dentist,” referring to a typical social media update. “Now I have to know that
one of you paid your roommate for the phone bill??? People, you are just GIVING your privacy
away! About sensitive things like money!”
108
Venmo may be shifting norms around one of the
most taboo forms of social interaction: money between friends.
By default, Venmo is set to not just share transaction details with friends in a social
media feed, but with anyone who views Venmo’s public feed, available on its website. This
105
http://corporate.walmart.com/our-story/locations/united-states;
http://www.usatoday.com/story/money/business/2013/08/22/ten-largest-employers/2680249/
106
https://medium.com/matter/public-displays-of-transaction-cede14426328
107
See, for example, http://thebillfold.com/2015/02/friends-with-venmo/;
http://www.washingtonpost.com/news/the-intersect/wp/2015/02/26/why-would-anyone-in-her-right-mind-use-
venmo/; https://www.yahoo.com/tech/in-the-age-of-snowden-and-online-oversharing-privacy-75621205340.html;
and http://gimletmedia.com/episode/4-follow-the-money/, all of which include the word “overshare.”
108
http://qz.com/277509/read-what-happens-when-a-bunch-of-over-30s-find-out-how-millennials-handle-their-
money/
128
ledger of transactions may be manipulated by anyone who can write a script to crawl the app’s
public-facing application programing interface (API). In 2014, two programmers did exactly this
and created the site Vicemo, which searches for and publically posts payments that are tagged by
their participants as being related to “drugs, booze, and sex.”
109
In a typical Vicemo set of
transactions, we learn that “Ryan paid Brandon [for] Walmart meth supplies,” that “Michael paid
Danielle [for] Gay Jewish strippers,” and that “Emily paid Kayla [for] Clean pee for my drug
test.”
110
Vicemo links to the actual transactions on Venmo’s website, which links to the rest of
each of the participant’s public transaction history.
Of course, some of these comments are probably jokes, but it remains to be seen whether
there will be major consequences because of a Venmo log. Venmo’s terms of service—like all
social payment systems—explicitly prohibits use of the service to facilitate illegal transactions,
including drugs, drug paraphernalia, sexually oriented materials and services, and pornography,
or to violate existing restrictions around tobacco or alcohol.
111
Nevertheless, there haven’t been
any high-profile reports of users’ accounts being frozen for transactions tagged with references
to such things, and certainly, Vicemo demonstrates that there are thousands of such transactions
made every day. In reaction to Vicemo, many pointed out that most savvy users already make
illicit transactions private.
112
While this action prevents the transactions from entering the public
record, it does not remove them from Venmo’s private ledgers.
Jokes about strippers and crack are part of the fun of Venmo, so it has little incentive to
restrict these kinds of tags, joking or otherwise. But Venmo does not ignore the contents of the
109
http://www.vicemo.com/
110
Last names have been redacted. See https://venmo.com/story/p/oZuoC; https://venmo.com/story/p/J-roC; and
https://venmo.com/story/p/FzroC.
111
https://venmo.com/legal/us-user-agreement/
112
http://www.businessinsider.com/vicemo-lets-you-see-who-is-buying-drugs-and-sex-on-venmo-2015-2
129
ledger being created by its users, and it has frozen accounts for a variety of other reasons. One
user complained that his account was frozen because he used it to sell his old phone through
Craigslist, and “business transactions,” rather than peer-to-peer payments, are prohibited.
113
One
user had her account frozen because she tagged a $40 payment to her boyfriend with the word,
“Ahmed.”
114
According to popular reports, the user, who was disturbed at having her account
frozen and shared screenshots of her interactions with Venmo with journalists, said that
“Ahmed” was an autocorrect error. According to an email that the user shared with the press
from Venmo’s “Compliance Support” representative, using the name “Ahmed” in a transaction
tag “may be in violation of policies pertaining to the Department of Treasury’s Office of Foreign
Assets Control.” The user was asked by Venmo to “provide an explanation for your reference to
Ahmed as well as elaborate on who and what this payment was specifically for.”
Many in the payment industry believed that peer-to-peer mobile payments would not be
profitable. Traditionally, the merchant pays to be paid, and in peer-to-peer transactions, there is
no merchant. As a result, many peer-to-peer payment start-ups that once competed with Venmo
have since pivoted to deliver “platform payments”; that is, providing payment services to
marketplaces, crowdfunding, and other services that broker transactions between people.
115
Indeed, Venmo does not charge users any fees to receive money or make payments from debit
cards or bank transfers. Venmo’s executive team has plainly said that it “[doesn’t] currently
make any money on friend to friend payments.”
116
113
http://www.reddit.com/r/legaladvice/comments/2hnp2q/us_i_received_a_payment_for_two_iphones_through
114
http://www.complex.com/pop-culture/2014/10/venmo-ahmed-racial-profiling
115
http://techcrunch.com/2014/01/16/after-a-pivot-wepay-raises-15m-to-focus-on-payments-api-for-marketplaces-
crowdfunding-sites-and-others/
116
http://www.quora.com/How-does-Venmo-make-money
130
The potential value that Venmo promises to investors and partners is based neither on
fees, nor transactional data, but rather, on the transformation of everyday social norms regarding
peer-to-peer payment, exactly those norms that troubled the editors of Quartz. Venmo envisions
eventually using its transaction tagging system to “lead a new form of advertising by providing
the genuine social interactions brands are so desperate to tap into.”
117
To achieve this outcome,
however, Venmo must reach mass-scale adoption across the demographic groups it plans to sell
to advertisers. Perhaps even more valuable than this ledger, then, is the way the word “Venmo”
has, among its 20-something users, caught on as a generic verb for sending money, the way
“Google” has for search.
118
While Google Wallet and Apple Pay piggyback on existing payment
practices, Venmo is quietly altering the everyday rhetoric of payment among individuals.
For these reasons, Venmo was acquired by Braintree, a payments processor that mostly
serves “sharing economy” platforms like Uber and AirBnB, for $26.2 million dollars in 2012,
despite not ever making a profit.
119
Braintree itself was acquired by PayPal for $800 million in
2013.
120
The ledger of transactional tags, jokes and all; the network between people they form;
and the verb “to venmo” are all, effectively, owned by PayPal.
The stakes of lowering social taboos around everyday transactions and the potential value
in documenting and annotating them are heightened when considered in light of the larger
political economy of transactional data analytics in the tech industry. Peter Thiel, founder and
former CEO of PayPal, also founded Palantir, a data analysis company funded by the U.S.
Central Intelligence Agency venture capital firm In-Q-Tel and Thiel’s own venture capital firm,
117
http://www.forbes.com/sites/natalierobehmed/2013/07/02/venmo-the-future-of-payments-for-you-and-your-
company
118
See http://www.bloomberg.com/news/articles/2014-08-18/millennials-say-venmo-me-to-fuel-mobile-payment-
surge-tech
119
http://bits.blogs.nytimes.com/2012/08/16/payments-start-up-braintree-buys-venmo-for-26-2-million/?_r=0
120
http://techcrunch.com/2013/09/26/paypal-acquires-payments-gateway-braintree-for-800m-in-cash/
131
Founders Fund.
121
Palantir, named after the “seeing stone” used by evil wizards in Tolkein’s
Lord of the Rings trilogy, grew out of PayPal’s techniques for detecting and thwarting fraudulent
activity on eBay, particularly as perpetrated by Russian organized crime groups.
122
Palantir
specializes in the production of predictive analytics using massive, complex sets of data.
Since its founding in 2004, Palantir has grown to become one of the most important, if
not widely heard-of, data and analytics companies. In 2014, it was valued at $9 billion dollars.
123
Its clients include the CIA, DHS, NSA, FBI, and CDC; the Marine Corps, Air Force, Special
Operations Command, West Point, and the Joint IED-defeat organization and Allies; the
Recovery Accountability and Transparency Board; the National Center for Missing and
Exploited Children; Medicaid and Medicare Services; police departments, including the Los
Angeles Police Department; the International Consortium of Investigative Journalists; and a
number of private companies in the pharmaceutical, legal, and finance sectors.
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Circling back
to its origins in payment, in 2014, Palantir partnered with First Data, one of the oldest and largest
global credit card processors, to produce Insightics, a platform that infers demographic and
behavioral information about customers from merchants’ payment records, which typically do
not include such details.
125
Although PayPal—and therefore Venmo—and Palantir may not have a data-sharing
agreement, the world Palantir predicts and is best-adapted to thrive in is one in which the social
ledgers of transactions produced by mobile payments aren’t kept private by rivals like Google or
siloed for use by individual merchants, as would be the case with Apple Pay. Instead, Palantir
121
http://techcrunch.com/2010/06/25/palantir-the-next-billion-dollar-company-raises-90-million/
122
http://online.wsj.com/article/SB125200842406984303.html
123
http://www.forbes.com/sites/ryanmac/2014/12/11/palantir-aiming-to-raise-400-million-in-new-round/
124
http://techcrunch.com/2015/01/11/leaked-palantir-doc-reveals-uses-specific-functions-and-key-clients/
125
http://www.wsj.com/articles/first-data-reports-first-quarterly-profit-in-more-than-seven-years-1423602902
132
would benefit from the Venmo approach, in which money’s sociality is made public, durable,
and accessible to all—friends, future employers, the intelligence community—like most other
forms of social media.
Conclusion
Theorists who understand money as physical or imaginary ledger systems that keep track
of obligations often focus on the question of sovereignty. How do states maintain the hierarchy
of money and create national systems for these ledgers? National monies form national publics,
national economic territories, and national imaginaries. Mobile wallets produce ledgers and
enclose them, but they do not overtly challenge the state’s monopoly on the issuance of money,
of the tokens that stand as numeraires in ledgers, public or private. But when value, in the form
of state money, simply ricochets between accounts, never leaving the closed loop ecosystem of a
given wallet, how do we understand its terms beyond the private ledger system in which it lives?
In addition, as described in chapter 2, new tokens are being produced by these infrastructures
themselves, and these new tokens map existing communicative niches in what was thought to be
a unitary economic territory, revealing unarticulated complexities. Crucially, the private ledgers
produced by mobile wallets enclose our experience of economic sociality, which, in many ways,
transcends nations.
The terms of this enclosure are only now coming into focus, and different paradigms are
in play. Google Wallet puts transactional data in conversation with other social data, in
anticipation of delivering targeted mobile advertising in real place and time. Apple Pay’s model
places less importance on collecting and brokering access to transactional data. Instead, it offers
privacy and security as a component of its luxury device offering, while not destabilizing the
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merchant’s interest in data. Venmo celebrates the sociality of payment and transforms social
norms around the way it is documented. Its ledger is public, perhaps all too public.
There will be no “winner” in the “wallet wars,” but the paradigm of the new ledgers produced by
mobile wallets will lead to battles over how they are maintained and used. Once the memory
bank is made material, its politics will also be more apparent. This future is not necessarily one
of exploitation. With a ledger accessible to all, we may find new ways to democratize our
collective memory of obligation, and perhaps even design new ways to be forgotten and forget.
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CHAPTER FOUR
RAILS: POLITICS, PORNOGRAPHY, AND THE FLOW OF PAYMENT
“Making a payment is one of the most basic financial transactions in any economy.”
– Mission Statement, G20 Global Partnership for Financial Inclusion, 2015
126
“A connection to global information networks is like an on-ramp to modernity. . . . It allows
individuals to get online, come together, and hopefully cooperate.”
– U.S. Secretary of State Hillary Rodham Clinton, 2010
127
Introduction
Payment is, as Helleiner (1998, p. 1420) puts it, a “shared economic language” that
coheres members of a group as a communicative polity. Chapter 2 demonstrated how payment
tokens maps the territories, both spatial and imaginary, in which they are redeemable, and
produce identities that mark those who use them. Chapter 3 demonstrated how payment ledgers
are a memory system that keeps track of obligations and relations. In both of these respects,
payments are a vector of meaning and power. The identities produced by payment tokens are
stratified, and they enable and constrain different economic agencies. As payment is increasingly
assembled as part of a portfolio of social media services, its ledgers are enclosed as a source of
economic value unto themselves, and the archival paradigms in which they are maintained
become an issue of politics. As both tokens and ledgers, payments depend on rails, the
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http://www.gpfi.org/subgroup-markets-and-payment-systems
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http://www.state.gov/secretary/20092013clinton/rm/2010/01/135519.htm
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technological infrastructures through which value is transported, or communicated, from one
account to another. These, too, are important vectors of meaning and power.
Infrastructure—those roads, rails, tubes, tunnels, and wires, that are “pervasive enabling
resources in network form” (Bowker, Baker, Millerand, & Ribes, 2009) that support modern
life—is easy to ignore. However, if we understand communication as the transmission of
information that produces shared meaning, we must also attend to the material process and
protocols that enable that sharing as a vector of meaning, as well. Star writes, “Study a city and
neglect its sewers and power supplies (as many have), and you miss essential aspects of
distributional justice and planning power. Study an information systems and neglect its
standards, wires, and settings, and you miss equally essential aspects of aesthetics, justice and
change” (Star, 1999, p. 379). To make her case, Star cites Langdon Winner’s classic example of
Robert Moses, a New York City planner who made the decision that the bridges over the Grand
Central Parkway would be low in height. These bridges were too low for public buses to pass
through. Poor people were effectively prevented from traveling easily to and from wealthier
Long Island suburbs, but by design, not policy. Although Star notes that the Moses example is
not uncontroversial, she uses it to point out that “there are millions of tiny bridges built into
large-scale information infrastructures, and millions of (literal and metaphoric) public buses that
cannot pass through them” (ibid., p. 389). Infrastructure, as Paul Edwards puts it, “act likes
laws.” He writes, “To live within the multiple, interlocking infrastructures of modern societies is
to know one’s place in gigantic systems that both enable and constrain us” (Edwards, 2003, p.
191). Sociologist Michael Mann (1984) similarly sees “infrastructural power”—the way a
governing authority is able to organize systems that transmit information, materials, and people;
organize labor force through those systems; codify a centralized set of standards; and organize
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literacy in the populace to enact those standards—as the primary means of assembling and
performing state power by coercion.
This chapter unpacks the mechanisms through which the flow of funds are enabled and
constrained. It performs what Bowker and Star (1999) call “infrastructural inversion” of, or
attempts to study and make strange, the ordinary, everyday card payment system. In particular,
this chapter looks at how this infrastructure is assembled to enable organizations and individuals
to receive funds. Getting paid is one of the most fundamental components of a payment system.
Not being able to get paid cuts people and organizations off from participating in an economic
polity. In this sense, it similar to other forms of intermediary pressure or proxy censorship.
However, it is also true in a very dire sense: Not being able to be paid, to access the resources
needed to survive, can pose what one observer called an “existential threat” to anyone or
anything.
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For this reason, there have been several high-profile controversies over seemingly
politically-motivated attempts to constrain the flow of payments.
Politics aside, the controversy over payment flows speaks to a misalignment between the
ways payment systems are used and the ways they are managed. Control over the flow of funds
is experienced by users as censorship, but it is assembled within the industry as the management
of risk. This “riskwork”—the organizational routines, values, and instruments mobilized by the
payments industry for risk management—has more of an impact on the flow of payments than
political pressure (Power, 2014). In practice, this starts to look more like discrimination among
various forms of transactional traffic according to its risk-level, rather than overt censorship.
Indeed, the ways that payment flows are enabled and constrained are not perfectly determined.
For this reason, Edwards, Bowker, Jackson, and Williams (2009) argue against the idea that an
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http://www.independentsentinel.com/operation-choke-point-has-capitalism-and-bill-of-rights-in-the-crosshairs/
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infrastructure can be “built,” and instead promote, as a means to “capture the sense of an organic
unfolding within an existing (and changing) environment,” the metaphor of “growing an
infrastructure” (Edwards et al., 2009, p. 369).
Presently, payment infrastructure is being “grown” to enable individuals to accept
payments. Historically, only merchants (that is, companies), could accept card payments, but as
payment becomes part of our social media portfolio, as the need for person to person payment
card payments increases, the industrial imaginary around how payments can be received is
shifting. The traditional imaginary, which I term the “market model,” emerged from within the
payment industry and creates a market for risk: High-risk merchants pay more to access the
payment card infrastructure. The emerging imaginary, which I term the “innovation model,” is
coming from the technology and social media industry. It allows individuals to access the
infrastructure and is governed by terms of service, which prohibits high-risk transactions
entirely. Both models can be equally influenced by political pressure to constrain payment flows,
but each method for managing risk produces different constraints that are not overtly political.
The sorting of industries, merchants, and transactions into risk categories was inherited from the
market model, but the way that it has been implemented by the innovation model has had new
effects. This chapter first describes how the infrastructures that support receiving payments are
assembled, then describes the industrial shift from the market model to the innovation model,
and finally examines the implications of this shift through the examples of politically motivated
payment embargos, pornography, and more mundane examples.
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Getting Paid: How the System Works
In order to fully understand how the flow of payment is enabled and constrained, it is
important to understand how the infrastructures that, in ordinary circumstances, make it possible
to receive payment work. Payment services are managed according to a multi-layered chain of
value and liability.
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The card networks, like VISA and Mastercard, facilitate payments between
banks. The first kind of bank—the “issuer”—issues cards to consumers. They extend credit to
their cardholders, bill them, and handle customer service. The second kind of bank—the
“acquirer”—accepts payments on behalf of merchants. The card networks act as an intermediary
between these banks. They set rules and operate systems. They operate the computer networks
that send these messages, as well as the information systems that process them.
Card networks conduct payments by sending standardized messages between member
banks.
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The first series of messages relates to authorization. When a merchant swipes a
customer’s card, a message is sent to the acquirer, who sends a message to the network. The
network then sends a message to the issuing bank, which queries the customer’s account to see if
it is in good standing. If it is, the issuing bank sends a message back to the network, authorizing
the payment. The network relays that message to the merchant in the form of the card “going
through” and being accepted at the point of sale. This happens in real time, taking seconds.
The second series of messages relates to settlement. At the end of every business day or
other defined period, the acquiring bank collates transactions and submits them to the network
for settlement. The network then sends a message to the issuing bank, informing them of total
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For a more in-depth overview of how payment systems function, see Benson & Loftesness, 2013. My description
of processes in the payments industry is derived from this, Glenbrook Payments Boot Camp (2014), Paragon Edge
Payments Industry Online Training Classes, various other industry websites and resources, and conversations with
those who work in the industry.
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For a history and in-depth analysis of the system of standardized messages, see Stearns, 2011.
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amounts due. The network collects those funds from the issuing bank and distributes the money
to the acquiring bank, minus interchange fees. Until the network returns the funds to the acquirer,
the acquirer had been fronting the money—and therefore holding the risk—for the payment. The
acquirer then sends the settlement to the merchants, minus acquirer and interchange fees. This
happens at the end of a business day or other defined period.
In general, parties pay to be paid. Banks pay fees to be members of the network. The
acquiring bank pays interchange fees to the issuing bank. Interchange was conceived of as a
means of cost recovery to the issuer when the card networks were member associations.
Interchange fees are set by the network according to the card type (whether debit or credit, if
issuer rewards are offered, etc.) and acceptance environment (whether the card is present or not,
as in online transactions). The table of interchange fees by the VISA network is presently over
100 pages long. The acquiring bank then passes these fees along to the merchants, plus an
additional mark-up.
Broadly speaking, this process has changed relatively little since it was first developed in
the 1960s and 1970s. However, new entities have become involved in the process. This chapter
is particularly concerned with the acquirer value chain. Card acquiring is one of the least
understood aspects of the payments industry, because there are so many entities that might
provide this function (Benson & Loftesness, 2013, p. 70).
As payment cards became more and more ubiquitous in the 1980s, network member
banks began to outsource many of the tasks of processing payments. A range of middle men
emerged to meet the demand. One of the more powerful groups of these relatively new entities is
the third-party processors, companies who develop and sell information system services to
acquiring banks to actually power the computers that conduct the processes of authorization and
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settlement. As the number of payment cards grew, and customers and merchants expected
greater speed at check-out, back-end processors began to create systems to produce faster real-
time authorizations. Similarly, as the number of transactions made through cards scaled up, back-
end processors began to develop better systems to handle batch settlement. Many processors
have become large companies themselves, offering a variety of other services. There are also
additional companies called “gateways” that connect merchants to multiple different front-end
processors or provide other additional value-added services.
Very large merchants, such as “big box stores” usually connect directly to the network,
processor, or gateway. Because they bring scale, they are charged low, fixed rates for
transactions. They may also develop their own payment management software and have a whole
team of employees tasked with managing payments. In this process, they are underwritten by an
acquiring bank with which they have also negotiated a customized service package at scale.
Conversely, it does not make sense for small or medium-sized merchants to connect
directly to a network or gateway. They don’t bring enough scale to get competitive pricing, and
they don’t usually have the resources or need to deal with the kind of data provided by the
network, processors, or gateway. The acquiring bank usually doesn’t directly provide merchant
customer service and primarily serves an underwriting function.
Most small merchants, then, connect to the payments ecosystem through an independent
sales organization, or ISO. ISOs are essentially payment services wholesalers. They buy
processing services in bulk, and then resell them to merchants. In addition, they provide ongoing
customer service to the merchants they service. They sell or lease software packages and
hardware, such as point of sales terminals. There can be multiple ISOs in-between a merchant
and the processor, each of whom gets a cut of the fees the merchants pay. There is a lot of
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variability among ISOs. Some sell payment services on behalf of one acquirer, while others shop
between different acquirers. An ISO could be one person or a very large company. Some large
ISOs access the processor directly as a non-bank acquirer, but others need to go through an
acquiring bank to get to the processor. Pricing by ISOs is highly variable, depending on the
merchant’s industry and the kind of services the ISO provides.
ISOs are often referred to as the “feet on the street” for acquirers (Benson & Loftesness,
2013, p. 99). The business of ISOs is one of direct sales. ISOs may have a connection to a given
industry, and their agents may have formerly worked in that industry. The ISO is usually the only
connection small and medium-sized merchants have to the card payments ecology. For this
reason, like most middle men, they are unpopular among their merchants and seen as price
gougers. Nevertheless, the ISO business is very lucrative, in part because, for a long time, it was
the only way for small and medium-sized merchants to accept card payments.
In the 1990s, high penetration of the World Wide Web promised a peer-to-peer economy,
but there wasn’t a way for individuals to pay each other using cards. The primary value
proposition of PayPal, then as now, was to offer peer-to-peer payments in an online setting.
There aren't clear “merchants” and “cardholders.” Instead, there is parity between users, who
sometimes buy and sometimes sell. Ordinary people are not merchants, however, and they aren’t
accustomed to paying a fee in order to get paid. For this reason, PayPal had to offer payment
services at a lower rate than the existing payment system. This would have been difficult, if not
impossible, in the existing middle man model. PayPal would have been just another, additional
middle man in the chain. PayPal's primary innovation, then, was to bypass this value chain. In
the industry, PayPal and other intermediaries like it are referred to as Payment Services
Providers, or PSPs.
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PayPal does this (as do other PSPs) by decoupling consumer payment authorization and
background settlement. It takes ownership of the users’ funds and aggregates them into its own
account. ISOs, on the other hand, facilitate the flow of processing funds and underwrite
associated risk, but at no point do they take ownership of them directly. Unlike in the ISO model,
when one user pays another through a PSP, the PSP records a transfers on their internal system
of accounts, debiting the account of one user and crediting that of another. This called a “book
transfer.” Then, the PSP uses a separate system to withdraw the funds from the paying user’s
checking account or credit card and deposit the funds into the receiving user’s checking account.
It is most advantageous to a PSP when funds stays in its “closed loop,” when the money never
leaves the PSP’s accounts and just goes continuously back and forth between them as book
transfers. In this scenario, the PSP can charge fees of users without paying out fees to external
systems.
Payment are then batch settled between the service and banks through an external
mechanism. If a checking account is used to fund a payment, PSPs frequently use the Automated
Clearing House (ACH), a network for batch clearance managed in part by the Federal Reserve.
The ACH was intended to function as a public utility and charges very low fees. If a credit card
is used to fund the payment, PSPs enter the acquiring ecosystem not as an ISO, but as a merchant
that is operating on behalf of other small merchants. In the industry, this is called being a “master
merchant.” As a master merchant, the payment service can then negotiate directly with the
network, processor, or acquirer to receive custom, large-scale pricing, the same way a big box
store would. It cuts out most of the middle men, instead serving as the primary intermediary
itself. This newer approach to acquiring began with PayPal in the 1990s and continues to be the
dominant model for emergent PSPs coming out of the tech industry.
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Although many PSPs offer peer-to-peer payment services, their main client is usually the
platform facilitating peer-to-peer transactions. For example, PayPal was a subsidiary of eBay for
most of existence, and while it can be used to pay in many different contexts, its primary
function has been to power the eBay economy. Similarly, WePay, a leading PSP start-up,
initially offered peer-to-peer payment services. It made its name as the preferred payment system
to collect donations for the Occupy movement.
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It soon pivoted, however, to offering
customizable payment services for crowdfunding platforms, such as GoFundMe, CrowdRise,
and Community Funded. Unlike ISOs, and with the notable exception of PayPal, most new PSPs
are not yet profitable on their own. Instead, like their platform clients, they rely on venture
capital funding.
Managing Risk in Payments
In the acquiring value chain, risk is conceived of in terms of “chargebacks.” If a
cardholder disputes a charge, citing fraud, deception, or error, the acquirer is responsible for
refunding the transaction. In the industry, this is called a chargeback. The acquirer can attempt to
collect for the merchant, but in the case of real fraud, that might be difficult, as the merchant may
be hard to track down. Even without the presence of fraud, most chargebacks are received weeks
or months after the original payment, so it can sometimes be difficult to recover the funds from
the merchant. For example, a merchant may face a cluster of chargebacks because their product
is faulty, and they may go out of business for the same reason and be unable to repay their
acquirer. In any case, in the acquiring value chain, revenues come in as small transaction fees,
but losses to chargebacks occur as whole transactions.
131
http://www.forbes.com/sites/elizabethwoyke/2012/01/31/wepay-the-online-payment-startup-behind-occupy-wall-
street/
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In the payment industry, it is accepted that certain transactions carry greater risk of
chargebacks. Merchants with poor financials are at high risk for non-collection of chargebacks.
Online transactions are more risky because they are conducted without the card being physically
present. In these card-not-present transactions, the merchant and its acquirers have less
protection against fraud, according to network rules.
Certain industries are considered high risk for chargebacks and outright fraud. These
include those that sell products that are borderline illegal, such as counterfeit luxury goods and
herbal drugs; those that are controlled in some states but not others, such as firearms; those that
sell products customers are likely to be unsatisfied with, such as psychic readings and get-rich-
quick schemes; those that engage in deceptive marketing, such as diet pills and vacation rental
scams; and those that sell products that customers might later be embarrassed to admit they
ordered, such as pornography and gambling.
Today, there are two dominant industry imaginaries around the way risk is managed,
roughly corresponding to the ISOs and PSPs. ISOs and PSPs are usually the front-lines of fraud
prevention, and they are required to ensure that their merchants follow the laws and rules set in
place by everyone up the value chain from them, including the card networks and their acquiring
banks. First, there is what I characterize as the “market” model, which emerged from within the
payment industry itself through ISOs. Then, there is what I characterize as the “innovation”
model, which has come from the outside, from technology start-up PSPs.
The Market Model
Just as ISOs serve as middle men for processing services, they also function as middle
men for risk. They take on the risk of the merchants they service for the acquirer. In this model,
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risk is managed through a market mechanism. A higher perceived risk for chargebacks means
higher ISO fees per transaction. Risk is conceived of as a function of both the industry and the
merchant itself. Merchant risk is determined using a variety of metrics: the personal credit
worthiness of the merchant business owner; the finances of the business; its history with card
acceptance; and its industry, project, and business practices. A high risk merchant enters into a
market for payment services, hoping to find an ISO who will take them on.
Different ISOs have different “risk appetites.” Some avoid high risk merchants but
charge lower rates or offer other added value services. Some ISOs specialize in high risk
merchants. For them, the ideal merchant is one who is considered the most risky—and therefore
can be charged the highest prices—but who doesn’t actually generate that many chargebacks
and, crucially, is not actually doing anything actually illegal.
According to industry guidance, due diligence guidelines can help “eliminate prohibited
and undesirable merchants from entering into or remaining in the card acceptance ecosystem.”
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But it is common knowledge within the industry that “risk pays” (Benson & Loftesness, 2013).
The ISO may ask the high risk merchant to pre-secure the account, require personal guarantees
from business owners, or implement other policies to mitigate loss. Any legal merchant, no
matter how risky, can accept payment cards if they are able to find an ISO that will take them
on—and if they are willing and able to pay the fees the ISO sets.
In the market model, merchants generally learn about their risk profile when they contract
with an ISO. ISOs may be unpopular and seen as price-gougers, but there are usually no
surprises about sudden account closures. Merchants pay ISOs for stability. If a legitimate
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Electronic Trade Association. (2014). Guidelines on Merchant and ISO Underwriting and Risk Monitoring.
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merchant has an increase in chargebacks, it is in the best interests of the ISO to put them on an
improvement plan before cutting them off as a client.
Most ISOs do not take on the risk of individuals. Although the personal finances and
credit score of an owner may be evaluated as part of determining the risk level of his or her
business, and that owner may be held personally responsible for losses, in general, ISOs prefer to
work with incorporated businesses. Ordinary people can’t enter into the market for risk, and
can’t, in this model, interact with the card payment system directly as a merchant.
The Innovation Model
In the innovation model, risk is managed not through a market, but through a mechanism
native to the tech industry. Like other forms of social media, participation in these payment
systems is governed by terms of service. In the market model, cardholders are represented by
issuers, and merchants are represented by acquirers, but in the innovation model, all users are
subject to the terms of service they agreed to (although probably didn’t read) when they signed
up for an account. Some innovation model PSPs have made dispute resolution part of their
product, and they compel sellers and buyers to abide by the decision of the internal review if they
wish to continue using the service or association platforms.
In the innovation model, platforms (such as eBay) and not users (such as individual
buyers or sellers on eBay) are the true clients of the PSP. Users are beholden to terms of service,
which are opaque, inconsistently applied, and offer little recourse for contestation. Platforms, on
the other hand, negotiate directly with the PSP and provide the context within which payment
transactions originate. Economic activity deemed to be high risk is excluded from the innovation
model, and those who offer services considered high risk must partner with an ISO. This
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effectively excludes individuals, community groups, or other entities not incorporated as
businesses.
Indeed, just as innovation model PSPs are closed-loop payment systems, functionally,
they create closed-loop economies. Because innovation payment systems try to keep funds inside
their closed loop of accounts, it is easier for them to collect from users in the case of
chargebacks. If a chargeback occurs on a decoupled transaction, it may only exist inside the
closed loop. If this is the case, the payment system is not subject to the liability policies of those
up the acquiring chain. Users are subject to the terms of service of both the payment system and
the platform. These usually work together, but at times it can be confusing. When a user disputes
their account being frozen, customer service representatives from the platform may blame the
terms of service of the payment system or vice versa.
If the funds have already been removed from the account by the user, the account can be
frozen until the chargeback is collected. If a user’s activity is flagged as violating terms of
service, his or her account can be frozen until the issue is resolved. In these cases, users who run
afoul of the terms of services can be temporarily or permanently excluded from the economy of
the platform. High risk products, however, are simply excluded from participation.
For the most part, traditional high risk industries remain in the old middle man model,
accessing the payment networks through ISOs. This shapes the character of online commerce.
Only certain types of goods and services can be offered through peer-to-peer platforms, leading
to cottage industries and individual entrepreneurship. Other goods and services are difficult to
exchange as an individual, and merchants offering them remain codified as incorporated
businesses with ISO relationships.
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As innovation model payments move offline, the same bifurcation of payment services
are replicated. For example, Square, a leading payment start-up that allows anyone with an
account and a mobile device to accept payments using a piece of hardware that plugs into the
device’s headphone jack, is designed to facilitate peer-to-peer or small business card payments in
circumstances where, previously, only cash was accepted. Typical contexts include food trucks
at a farmer’s market or paying a babysitter.
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High risk transactions are prohibited by Square’s
terms of service. There isn’t an available mechanism for high risk categories of peer-to-peer or
informal transactions. Face-to-face or online, people may try to use Square and other PSPs for
purposes not approved by the terms of service, but they risk having their accounts frozen or even
permanently cut off from the PSP and its related platforms. Although these services endeavor to
replace cash, they expressly prohibit the sort of flexibility that characterizes the peer-to-peer cash
transaction.
Preventing terms of service violations is an important aspect of the business model of
innovation PSPs. Increasingly, they propose to manage this risk through proprietary algorithms
and social “big data.” For example, WePay, a leading start-up, offers a product called Veda, an
“intelligent social risk engine” that uses publicly available social and business data to detect
potentially fraudulent merchants.
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As WePay founder Bill Clerico puts it, “A traditional credit
score only shows a sliver of who you are, but an online profile allows us to assign our users a
more accurate ‘WePay credit score’ based on their personal history of verified, social data.
Veda’s intelligent brain is the new, smarter way to assess risk” (ibid.). These novel measures of
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See http://www.paymentssource.com/news/retail-acquiring/sitter-pals-square-credit-card-payments-3007650-
1.html; http://bits.blogs.nytimes.com/2013/02/20/square-bundles-cash-register-equipment-into-one-package/
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http://social.techcrunch.com/2013/05/09/wepay-debuts-veda-an-intelligent-risk-engine-that-leverages-social-
media-data-to-prevent-merchant-fraud/
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risk depend on the public or semi-public availability of personally identifiable data about each of
their users.
Veda asks potential merchants for five pieces of information: first name, last name, name
of business, email address, and phone number, and then uses its proprietary systems to mine
additional data from social networks such as Facebook, Twitter, and Yelp. Using proprietary
algorithms, Veda analyzes the merchant’s “social signals” to measure risk and a make a decision
about whether or not WePay will offer or continue to offer payment services. Veda and similar
PSP systems can also be used to identify high risk transactions before they happen. Although
WePay and other innovation PSPs promise their clients and venture capital funders elimination
of risk through automation via sophisticated algorithms, at present, they seem to primarily offer
increased detection of violations of terms of service by mining social media data for indicators of
high risk, prohibited behavior.
Proxy Censorship: Political Pressure and Payment Flows
Payment flows have long been subject to political and even moral valences. For
example, in the 1970s and the early days of the industry, the credit card operations were
compartmentalized within banks, because rotating consumer debt was considered a morally
ambiguous and a less desirable business than more traditional banking (Stearns, 2011). In the
1990s, the early executive staff of PayPal were socially conservative market libertarians who
agreed that online gambling was an acceptable use of their new system, but that pornography
wasn’t.
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Nor were these opinions lightly held; the company was willing to engage in costly
litigation to defend them. In 2002, PayPal fought and lost against the New York Attorney
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Jackson, E. M. (2012). The PayPal wars: Battles with eBay, the media, the Mafia, and the rest of Planet Earth.
Washington, DC: WND Books.
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General’s efforts to bar the service from delivering payment from New York residents to
offshore gambling websites (Kreimer, 2006). In payment, as elsewhere, politics and morality are
codified through the design and deployment of new technologies.
Today, payment technologies function alongside the software and hardware systems that
make up the global telecommunications ecology, each of which operates interdependently with
the others. Within this context, legal scholar Seth F. Kreimer (2006) observed that internet
intermediaries like payment networks, domain name registry services, and other infrastructures
may be used as “proxy censors” to disrupt the flow of data representing information, speech, and
money. Because these networks rely on a complex set of interconnections, the entire system may
be compromised by failure at the “weakest links” in the chain.
One of the most notorious examples of the political application of payment infrastructure
came in 2010, with the embargo of WikiLeaks. At the height of the international firestorm
caused by the organization’s release of thousands of government and private documents, the
accounts of the German foundation accepting donations for WikiLeaks were frozen by PayPal,
MasterCard, VISA, and Bank of America.
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PayPal initially posted on its blog that it restricted
the accounts used by WikiLeaks because WikiLeaks was in violation of PayPal’s Acceptable
Use Policy. Specifically, the blog noted, the Policy stated that PayPal could not be used for any
activities that “encourage, promote, facilitate or instruct others to engage in illegal activity.”
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PayPal followed up five days later with a more lengthy statement, explaining that Wikileaks’
account had been opened for review when a memo from the U.S. Department of State indicated
136
http://www.washingtontimes.com/news/2010/dec/18/bank-of-america-stops-handling-wikileaks-payments/
137
http://web.archive.org/web/20110107091859/https://www.thepaypalblog.com/2010/12/paypal-statement-
regarding-wikileaks/
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that WikiLeaks may have been in possession of documents that were provided in violation of
U.S. law.
PayPal made certain to state that it had not been contacted directly by any government
organization in the U.S. or abroad, and that the decision to freeze WikiLeaks’ account was made
because the organization was determined to be in violation of PayPal’s Acceptable Use Policy,
because it “encouraged sources to release classified material, which is likely a violation of law
by the source.”
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By acting preemptively against WikiLeaks, PayPal and the card networks
demonstrated their power over transnational payment infrastructure and the flows of funds
through it, as well the political nature of that power.
Although some of the documents Wikileaks released were classified and had likely been
illegally obtained, neither the organization nor any of its sources had been officially charged or
convicted of any wrongdoing (Benkler, 2011). Indeed, PayPal's enforcement of its Acceptable
Use Policy was highly idiosyncratic. Both PayPal and the card networks and banks continued to
provide payment services to The New York Times, historically the publisher of many classified
leaks, including those collected by WikiLeaks, and to NewsCorp, who admitted to illegal theft of
information during its 2011 phone hacking scandal.
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Clearly, compliance with (and
enforcement of) the payment acceptable use policies was negotiable.
WikiLeaks may, indeed, have been engaged in illegal activities, but as Yochai Benkler
(2011) notes, if the government had attempted to go through a normal judicial process to stop its
use of payment intermediaries, the barriers in law would have been insurmountable. Even if
138
http://web.archive.org/web/20110107114420/https://www.thepaypalblog.com/2010/12/updated-statement-about-
wikileaks-from-paypal-general-counsel-john-muller/
139
See http://web.archive.org/web/20111014232000/http://www.bloomberg.com/news/2011-10-13/ebay-s-paypal-
microsoft-move-payments-to-xbox-game-consoles.html;
http://web.archive.org/web/20110729000511/http://www.bbc.co.uk/news/uk-14124020
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PayPal and other private infrastructures were not working in direct collusion with government
entities, the suggestion by the U.S. Department of State that PayPal may have encouraged
sources to obtain documents illegal sufficiently “chilled” these intermediaries’ willingness to
delivery payment to the organization.
As a Wired magazine blogger noted, there was an “element of theater” to Wikileaks’
struggles against censorship by its data and domain-name service providers, because the
information was mirrored elsewhere, including on more secure servers, but the attack on
WikiLeaks’ money flow was, in contrast, “the real deal and [had] the potential to genuinely
impact the organization” (Poulsen, 2010). According to WikiLeaks, the payment embargo
“blocked over 95% of our donations, costing tens of millions of dollars in lost revenue.”
140
Indeed, Kreimer also points out that not being able to receive funds through payment
intermediaries is perhaps the most effective form of proxy censorship, because it can effectively
shut down an organization. While supporters contend that the goal is to shut down fraudsters,
and opponents contend that the goal is to shut down political enemies, this is precisely the
method endorsed by Operation Choke Point.
In August 2013, The Washington Post reported that the Justice Department had begun a
probe targeting fraud and financial institutions.
141
Later nicknamed “Operation Choke Point,” the
probe was a partnership between the Justice Department and the multi-agency Financial Fraud
Enforcement Task Force, established by President Barack Obama after the of the 2008 financial
crisis. As part of the operation, subpoenas were issued to banks, investigating the link between
payment intermediaries and fraudulent and predatory merchants. Earlier that week, in a related
140
https://wikileaks.org/Banking-Blockade.html
141
http://www.wsj.com/articles/SB10001424127887323838204578654411043000772
153
action, the New York Department of Financial Services had sent cease-and-desist letters to cross-
jurisdiction online payday lenders, whose services are illegal in that state.
According to the Post story, Operation Choke Point represented an important “shift in
strategy” (Zibel & Kendall, 2013). Rather than focusing on individual companies, the
government was now “going after the infrastructure that enables companies to withdraw money
from people’s bank accounts.” As one Justice Department official was quoted, “We are changing
the structures within the financial system that allow all kinds of fraudulent merchants to
operate,” with the intent of “choking them off from the very air they need to survive” (ibid.).
Operation Choke Point drew attention to the management of the payment system, an essential
infrastructure that is not typically part of ordinary or political conversations.
Almost immediately, Operation Choke Point was met with criticism. This backlash
hinged on one document, a 2011 FDIC supervisory report titled, “Third Party Payment Processor
Relationships.” It included a list of “high risk” industries and merchants, and it was circulated
alongside Operation Choke Point efforts. The list consisted of a variety of industries that the
FDIC claimed posed a high risk of fraud, including payday lenders, get-rich-quick products,
pyramid schemes, but also ammunition, firearms, pornography, home-based charities, drug
paraphernalia, and online gambling.
One of the major slippages in the discussions about Operation Check Point was around
the idea of “high risk” merchants and industries. Republican Representative and Head of the
House Oversight Committee Darrell Issa of California, one of its most vocal and powerful
critics, conflated “high risk” with what, as he put it, the Obama administration found “otherwise
objectionable.” But supporters and task force representatives were correct that “high risk” has a
154
particular and long-standing meaning in the payments industry. In this context, high risk has
more of an economic than political or moral valence.
Republican Representative Patrick McHenry of North Carolina, where many online
payday lenders are located, called the FDIC list a “government hit list.”
142
Similarly, Republican
Representative and Head of the House Oversight Committee Darrell Issa of California, stated
that the “true goal” of Operation Choke Point was not to combat fraud, but to “‘choke out’
companies the [Obama] Administration considers a ‘high risk’ or otherwise objectionable,
despite the fact that they are legal businesses.”
143
Those in the payday lending industry argued
that they provided a legal and necessary service that kept the poor out of the hands of
underground loan sharks and were being unfairly targeted.
144
The National Rifle Association
suggested that banking regulations were being “misused to choke off the exercise of Second
Amendment rights.”
145
A lobbyist from the Third Party Payment Processors Association, which
formed in reaction Operation Choke Point, was quoted as saying, “How would [liberals] like it if
we started cutting off things liberals like, like birth control?”
146
Operation Choke Point was
broadly construed by conservatives as “nanny state” regulation designed to limit “liberty.”
Supporters of the investigation saw it differently. An editorial in The New York Times
suggested that Republicans were trying to “confuse the issue” and “intimidate” regulators into
abandoning an important strategy that would protect consumers against bad actors.
147
They cited
the first action under Operation Choke Point, which came against North Carolina’s Four Oaks
142
http://blogs.wsj.com/moneybeat/2014/07/15/doj-operation-choke-point-isnt-targeting-gun-dealers-payday-
lenders/
143
Committee on Oversight and Government Reform, The Department of Justice’s ‘Operation Choke Point:
Illegally Choking Off Legitimate Businesses? (Staff Report, 113th Congress). U.S. House of Representatives.
144
See “Choking the Poor,” Investor’s Business Daily, January 27, 2014.
145
https://www.nraila.org/articles/20140829/operation-choke-point-choking-off-credit-to-the-gun-industry
146
http://www.huffingtonpost.com/2014/03/29/bank-petty-fraud_n_5055720.html
147
http://www.nytimes.com/2014/10/11/opinion/operation-choke-point-hits-the-mark.html
155
Bank, which had processed payments for unscrupulous merchants, including a ponzi scheme,
allowing them to collect over $2.4 billion from consumers in unauthorized debit transactions.
148
They argued that the claims of ideological targeting were overstated. In fact, a company offering
birth control had been affected: Sex-positive condom maker Lovability, Inc., was mistakenly
labeled as pornography and had its payment systems suspended (Carter, 2014). One argued that
banks were over-applying the FDIC list, and that resulting crackdowns were an intentional over-
reaction, a result of banks attempting to “scapegoat regulations they don’t like.”
149
Officials from the involved regulatory agencies tried to depoliticize Operation Choke
Point, noting that there was not much new about any of the actions. They were simply a
continuation and targeted re-emphasis on anti-fraud and anti-money laundering policies that had
been around for decades. These policies came not just from external regulators, but from the
payments industry itself. At a hearing organized by Issa, Richard J. Osterman, acting general
counsel for the FDIC, stated that the list of high risk industries had been misinterpreted.
150
It was
not intended to be a list of merchants that banks and payment intermediaries should not be
allowed to do business with, but instead, guidance about the kind of merchants that are at high
risk for consumer fraud and requiring greater due diligence by the payment intermediaries who
service them. Furthermore, the list was not new, but had been fairly standard in the industry for
over a decade.
Operation Choke Point illustrates key issues in the management of the flow of funds
through payments infrastructures. As its proponents and critics alike have noted, payment
148
http://dealbook.nytimes.com/2014/01/26/justice-dept-inquiry-takes-aim-at-banks-business-with-payday-lenders/
149
http://www.salon.com/2014/05/30/spying_sex_and_finance_what_banks_and_payment_processors_are_
secretly_watching_to_avoid_risk/
150
Osterman, Jr., R. J. (2014, July 15). Statement of Federal Deposit Insurance Corporation by Richard J. Osterman,
Jr. Acting General Counsel on Supervision of Banks’ Relationships with Third Party Payment Processors before the
Subcommittee on Oversight and Investigations Committee on Financial Services U.S. House Of Representatives.
U.S. House of Representatives.
156
systems are more than modern conveniences. Being able to be paid, by whom, and how, defines
the terms of existence for organizations and even individuals. In the metaphor of Operation
Choke Point, money is like oxygen; those who are denied it can be “choked” off.
“Whorephobia” Payment Risk and Pornography
The power of payment intermediaries was evident in drafts of the proposed Stop Online
Piracy Act (SOPA) and PROTECT IP Act (PIPA). A lesser-known section of these two bills also
described how payment infrastructures could be used to disrupt online gray markets by denying
services to suspected “pirate” websites. SOPA/PIPA was ultimately shelved because of massive
online protest from those, including free speech advocates and powerful tech companies, who
saw the proposals as serious threats to network neutrality—the principle that internet service
providers and other intermediaries should not be able to discriminate among internet traffic.
In practice, payment systems are already non-neutral intermediaries. Transactions for
illegal goods and services are already prohibited by payment providers. Transactions for
questionably legal or otherwise controlled goods and services are also discriminated traffic. In
the “market model,” they are priced higher than other transactions. In the “innovation model,”
they are prohibited entirely.
In the case of overt political proxy censorship, it wouldn’t matter if a payment
intermediary were governed according to a market or innovation model. Intermediaries of both
types could be—and in the case of Wikileaks, were—pressured equally to collaborate with
government agencies to interrupt an organization’s access to payment. Beyond these most overt
examples, however, much of what of is perceived as censorship is a function of how the payment
industry manages risk. Risk is managed differently in the market and innovation models, and
157
these differences are reflected in the effects that risk management has on organizations and
individuals.
Although it may effectively lead to limits on speech, constraints on the flow of payment
are best understood as discrimination, rather than censorship. In the market model, this constraint
occurs in the form of legal price discrimination: ISOs rely on high risk merchants’ willingness to
pay to participate in the card infrastructure. Individuals are simply not able to access this market.
In the innovation model, which takes on individuals as users of client platforms, all activities not
explicitly permitted outside terms of services are subject to discrimination. Risk management in
innovation model PSPs depends on strict enforcement of terms of service. As this increasingly
depends on the monitoring of users’ social media habits, PSPs are shifting from discerning and
discriminating against high risk transactions to determining and discriminating against “high
risk” users.
The sex industry provides a productive lens through which to understand the implications
of risk management in the payments industry. Pornography has been at the forefront of payment
innovation, and it is considered a high risk industry. This risk profile has patterned the structure
of the online porn industry, privileging larger, formalized companies over individual
entrepreneurs. As the innovation model becomes more widespread, the risk that would normally
be assumed by companies is distributed to individuals who work in the industry, limiting their
participation in a variety of new economic platforms. This is important not just to those working
in pornography; it signals a larger set of interconnections among risk management systems,
governmentality by terms of service, surveillance-based business models, and access to
economic infrastructure.
158
Pornography, it is often (and cheekily) said, drives innovation in media and technology
and “powers the internet.”
151
Porn has been credited with facilitating the development and
adoption of faster modems, better internet traffic optimization, online video streaming, and the
JPEG image file format. Online payments are no exception. Although it may be apocryphal,
many in both the payments and the porn industry will explain that online payments were
developed to pay for porn. Such is the plot of the 2010 film Middle Men, which tells a
fictionalized version of the life of Chris Mallick, an entrepreneur who started one of the first high
risk ISOs to process payments for online porn in the 1990s.
152
As Mallick put it, pornographers
“had two jobs: taking pictures, and collecting cash. It turned out that they were really good at one
of those things, and really bad at the other.”
153
There was tremendous opportunity for Mallick to
make money by taking care of the cash collection—or, rather, online credit card processing—
part.
Mallick’s vision of the “pornographer” as one who “collects the cash” and “takes the
pictures” mirror the way payments are managed in the sex industry. For the most part, the
payments industry has developed solutions for those who manage the production and distribution
of pornography. Pornography, according to regulatory and industry guidance, is a “high risk”
industry. It is accepted that customers tend to ask for their money back for pornography. This
may be because pornography is taboo, and if purchases are discovered by a spouse or an
employer, the purchaser may be inclined to claim that they did not authorize the transaction. This
may also be that—also because pornography is taboo—many websites distributing it use
151
See http://www.theguardian.com/technology/2002/mar/03/internetnews.observerfocus;
http://www.businessinsider.com/how-porn-drives-innovation-in-tech-2013-7; and
http://www.cnn.com/2010/TECH/04/23/porn.technology/; see also Coopersmith, 1998, 2000; Grenzfurthner,
Friesinger, & Fabry, 2008.
152
http://www.details.com/culture-trends/critical-eye/201103/chris-mallick-middle-men
153
http://www.businessinsider.com/the-producer-of-middle-men-talks-to-us-about-how-pornographers-invented-e-
commerce-2010-8
159
borderline fraudulent tactics, such as misleading subscription pricing and spam. Pornography has
also been used as a trap to capture and illegally use credit card information. Merchants are
subject to extra scrutiny, because transactions for pornography do present a high rate of
chargebacks. Pornography and related services are, for the most part, completely excluded from
the innovation model of payments. Instead, most pornography enterprises contract with ISOs
who specialize in high risk payment services.
Crucially, this industrial arrangement leaves out individuals, small businesses, and
anyone else who may not want, need, or be able to develop a long-term relationship with an ISO,
including pornographic performers and individual sex workers. An adult entertainer must always
access the card payment system through a manager. This mirrors and replicates long-standing
practices in the sex industry: individual performers are commodities, not entrepreneurs,
compelled to remain dependent upon managers who have access to the infrastructure through
which money flows. While many industries have been radically changed by the internet’s peer-
to-peer economy, pornography—at least insofar as money and power are concentrated among
middlemen managers—is not one of them.
The sex industry is excluded from innovation payment systems. It and other high risk
industries are disallowed by terms of service. However, individuals who happen to work in
pornography, like anyone else, may seek to participate in platforms that use innovation payment
systems. When terms of service are enforced by social media surveillance, these individuals may
find themselves excluded from these platforms. The mere fact that they participate in the sex
industry in ways evident on social media may be enough to exclude them from participation. The
market model of ISOs excludes them from receiving payments because they are individuals. The
innovation model of PSPs excludes them because they are associated with high risk industries.
160
While there have been several high-profile examples of adult entertainers being excluded
from the card payment system, one of the most striking cases is that of Eden Alexander.
154
In
2014, Alexander had a life threatening medical emergency. Her friends started a crowdfunding
campaign to raise money for her medical expenses. She used GiveForward, a crowdfunding
platform specifically designed to raise money for medical costs and serviced by WePay. On her
twitter account, Alexander describes herself as a “Multiple award nom'd Adult, Fetish, Bondage
+Alt Model, FemDom, CamGirl. Teazeworld Girl! (Ultimate)Grand Supreme. Feminist Porn &
BDSM director.” Alexander's GiveFoward campaign, however, made no mention of her job and
focused entirely on her medical expenses. After a week, with $4,000 raised, GiveFoward sent
Alexander an email notifying her that WePay, their PSP, had “flagged her account” as in
violation of WePay’s terms of service, which stated that the service could not be used “in
connection” with pornographic services. Alexander posted a screenshot of the email on her
twitter account.
155
Immediately, there was a flurry of tweets, blog posts, and news coverage
criticizing WePay.
Two days later, WePay published a post on its company blog, stating that their system
had detected that Alexander had retweeted other supporters who’d offered adult material in
exchange for donations to her crowdfunding campaign.
156
Indeed, Alexander had in fact
retweeted two supportive pornography companies: a studio that had offered a free video clip to
anyone who donated $50 to Alexander, and a website that had offered a set of pictures to anyone
who donated $20 or $50, and a year’s membership to anyone who donated $100.
157
In the blog
154
See http://missfreudianslit.tumblr.com/post/72699647615/ugh-payoneer-is-gonna-make-me-spit-glass-i-am;
http://www.thefrisky.com/2014-04-02/the-soapbox-how-paypal-wepay-discriminate-against-the-adult-industry/
155
https://twitter.com/EdenAlexanderXX/status/467706769578270720
156
http:blog.wepay.com/wepays-terms-of-service-as-it-relates-to-adult/ (no longer available, archived by author)
157
https://twitter.com/WildmanP/status/467122824532865024;
https://twitter.com/SinfulSolos/status/467115806388518913
161
post, WePay wrote, “Upon further review, WePay suspects Eden may not have been aware of the
terms of service and we are offering her the ability to open a new campaign for further
fundraising.” Alexander stated that she was not aware of the terms of service and, furthermore,
that she herself had never agreed to them, as the crowdfunding campaign was started and
managed by Alexander's friends, not Alexander herself.
158
It not did not enable her to restart the
same campaign or to collect any of the funds that had already been donated. CrowdTilt, another
crowdfunding site serviced by a different back-end processor, Balanced Payments, offered to
host her campaign, and she quickly raised over $10,000.
159
While WePay offered Alexander another chance to raise funds using GiveFoward, it did
not explain the limits or scope of its social media monitoring, or how Alexander could make
certain she did not run afoul of it again. Alexander—someone who would be the beneficiary of
the crowdfunding, but who had not agreed to GiveFoward or WePay’s terms of service—had
interacted with the tweets of two others, neither of whom had agreed to GiveFoward or WePay’s
terms of service either.
Melissa Gira Grant, a journalist who writes about sex work, asked, “Even if Eden’s
supporters offered “adult material” informally on Twitter for donors, why is Eden culpable?”
160
In her story on the issue (Grant, 2014), she noted that, for most people who use Twitter, a retweet
does not equal an endorsement. People may retweet for many reasons, including critique. While
Alexander’s retweets of the offers of pornography may have, in this case, been endorsements, it
is not clear that WePay’s automated surveillance program was able to untangle the complexities
of interaction on social media, nor to whom the terms of service apply.
158
http://www.xojane.com/it-happened-to-me/eden-alexander-wepay-giveforward#comment-1406858245
159
https://www.tilt.com/campaigns/eden-alexander-emergency-medical-care-fund/description
160
https://twitter.com/melissagira/statuses/467799008342458368
162
In its blog post responding to the uproar, WePay argued that it did not take a moral stance
against pornography or sex workers, and that it had successfully managed crowdfunding
campaigns for other pornographic performers in the past.
161
Just as GiveForward had blamed the
terms of service of WePay, WePay blamed the policies of its payment processor. WePay did not
name its processor, Vantiv, nor describe its policies. However, Vantiv, founded in 1971 as Fifth
Third Bank, is one of largest and oldest merchant transaction acquiring processors, and it works
with ISOs that serve numerous industries, including higher risk merchants. Rather than blame
Vantiv’s “policies,” it may have been more accurate for WePay to point to the specific contract
Vantiv had negotiated with WePay.
WePay Co-founder and CEO Bill Clerico tried to explain on his Twitter account that his
company did not take a moral stance against pornography, but that WePay had to follow the
“rules set by banks, Visa & MasterCard.”
162
He elaborated that WePay was “required to monitor
customer websites and social media [because] we have to, not [because] we want to.”
163
Neither
of these are statements are strictly true. While WePay may have negotiated a particular rate or
service package from Vantiv and others up the acquiring value chain, there are no generic rules
prohibiting certain kinds of legal services. Furthermore, WePay monitors social media activity
because the insights it extracts or claims to extract from these data are its primary value
proposition and the basis for most of its venture capital funding.
Ironically, WePay had originally made its name as the preferred payment processor of the
Occupy movement, vowing to not surveil or freeze accounts associated with the protest
161
http:blog.wepay.com/wepays-terms-of-service-as-it-relates-to-adult/ (no longer available, archived by author)
162
https://twitter.com/billclerico/statuses/467799421137072129
163
https://twitter.com/billclerico/statuses/467799421137072129
163
movement the way that PayPal and the card networks had done to Wikileaks.
164
Previously,
staffers from WePay had criticized PayPal and its notoriously opaque and inconsistently
enforced terms of service by pranking the 2010 PayPal Developers Conference. They dropped
off a 600-pound ice sculpture filled with five dollars bills that directed people to the WePay site,
UnfreezeYourMoney.com.
165
At the time, WePay founder Rich Aberman described his company
as the “anti-PayPal,” in large part because of their better customer service around confusing
account freezes.
166
In another ironic twist, WePay’s origin story involves its founders splitting
the costs of a friend’s bachelor party, an event which, as many of Alexander’s supporters pointed
out, would have likely included activities outside the bounds of its present terms of service.
167
Supporters of Alexander—which included a variety of constituencies, such sex workers,
civil libertarians, and internet freedom advocates—speculated about what the larger significance
of the debacle would be. Those working in the sex industry wondered what implications
Alexander’s experience would have for them. One blogger argued that unfair treatment in
everyday life by WePay and others was one of the most dangerous aspects of working in the
adult industry: “The hardest part about being a sex worker is not the Johns or STDs, [it is] the
discrimination from people who don’t know anything about it.”
168
WePay’s discriminating
policy may have been an artifact of a risk management protocol, but in practice, it was
experienced by Alexander and other sex workers as a condemnation of their jobs and a
disruption of a necessary service.
164
http://www.forbes.com/sites/elizabethwoyke/2012/01/31/wepay-the-online-payment-startup-behind-occupy-wall-
street/
165
http://web.archive.org/web/20120106171720/http://blog.wepay.com/2010/10/28/icing-paypal-how-we-did-it/
166
http://money.cnn.com/2010/10/12/technology/wepay/
167
http://www.dailydot.com/lifestyle/eden-alexander-wepay-cam-girl/
168
http://therumpus.net/2014/05/eden-alexander-crowd-funding-and-discrimination-against-sex-workers/
164
Individuals associated with high risk industries face an unstable and difficult-to-navigate
world of payment. Indeed, in the course of my research, a representative from a feminist sex
worker organization contacted me to find out if I had suggestions for payment systems they
could use to collect entrance fee donations for their annual conference. The representative
explained to me that, on the one hand, they wanted to avoid companies that “actively
discriminated against sex workers” but, even more importantly, their organization and
conference would be crippled if their account were suddenly frozen without timely recourse. She
had contacted several PSPs and asked about what precisely would trigger a violation of their
terms of service, and she didn’t feel confident in any of their answers. Indeed, others—a blogger
collecting money for Christmas toys for needy children and a game developer selling forum
subscriptions that would finance completion of game—had contacted PayPal in advance, only to
find that their accounts were frozen anyway.
169
A list of “Sex Worker Approved Payment Options” on the website Sex Worker Helpfuls,
which offers resources and information to those in the industry, similarly was of little help.
170
It
listed the terms of service of PayPal, Square, WePay, Venmo, and other PSPs that prohibited
“sexually oriented materials or services,” “adult entertainment,” and the like. The services that
were described as sex worker friendly were, in fact, operating not in the innovation model, but
the market model. For example, Verotel, one of the providers listed, is based in Amsterdam and
describes itself as an Internet Payment Service Provider, but it operates like an ISO, in that it
offers payment processing services to high risk websites. It is not clear how an individual sex
worker would be able to accept payments using it. Another company listed, RedPass, describes
169
See http://www.regretsy.com/page/2/?s=paypal; http://www.rockpapershotgun.com/2011/10/09/enemy-known-
xenonauts-vs-paypal/
170
http://sexworkerhelpfuls.tumblr.com/post/81030602902/sex-work-approved-payment-options
165
itself as “The ultimate payroll solution for the adult entertainment industry.” Indeed, it focuses
on companies that send paychecks to individuals. RedPass does offer a personal product, but this
is mostly an e-wallet for managing paychecks from RedPass-affiliated companies.
171
There
seems to be no way to be an independent individual also associated with the sex industry who
can reliably accept card payments for any purpose.
Many saw WePay’s actions as overt discrimination against sex workers. Blogger and
feminist porn star Kitty Stryker overtly cast the disruption of payment as a moral judgment on
Alexander’s profession, “Because Eden is a cam girl, I guess she doesn’t deserve fundraising.”
172
Stryker also noted that the WePay Terms of Service prohibited “Adult or adult related content,
including performers or ‘cam girls.’” This wording, to Stryker, implied that Alexander had
violated WePay’s Terms of Service, “not by raising money FOR porn, but by being a cam girl
at all” (emphasis in the original). For Stryker and others, it seemed clear the campaign was shut
down because the beneficiary of the funding, not the organizers of the campaign, worked in the
sex industry, and her social media presence was bound to reflect that.
Critics of WePay have pointed out that their enforcement of their own terms of service is
inconsistent at best and confusing at worst. Stryker noted several examples of successful
GiveFoward campaigns that seemed to directly violate WePay’s terms of service: WePay
prohibits “weight loss programs,” but GiveFoward had hosted a campaign to pay for someone to
go to a weight loss clinic and another for someone to have weight loss surgery; WePay prohibits
“magic, enchantment, sorcery, or other forms of yet-to-be-explained science,” but GiveForward
had hosted a campaign to accept “love gifts or love donations for psychic readings”; WePay
prohibits “hate, violence, racial intolerance, or the financial exploitation of a crime,” but
171
https://www.redpass.com/personal-account/
172
http://kittystryker.com/2014/05/not-waving-but-drowning-how-wepay-failed-eden-alexander/
166
GiveForward had hosted a campaign that promised to reveal “the evils of the homosexual
agenda” (ibid.).
In September 2014, GoFundMe, another crowdfunding platform partnered with WePay,
hosted a campaign to support Darren Wilson, the Ferguson, Missouri police officer who fatally
shot unarmed teenager Michael Brown.
173
Many accused GoFundMe and WePay of violating
their own terms of service, particularly the language about “hate, violence, racial intolerance, or
the financial exploitation of a crime.”
174
Backers of the campaign had posted statements like,
“You deserve a medal, not a trial by jury” and “Thanks for giving that gorilla what he
deserved.”
175
Whether or not the campaign’s organizers expressed racial intolerance, it’s clear
that their supporters—who would have consented to the terms of service when creating an
account to donate money—did not hesitate to do so.
WePay did not respond to concerns about racist language on the campaign’s page, but
GoFundMe wrote a blog post defending themselves against the “misinformation” surrounding
the Support Officer Darren Wilson Campaign. In it, they argued that while there were many on
social media stating racist and hateful content in connection with the campaign, and even making
comments on the GoFundMe page for the campaign itself, the organizers of the campaign were
not responsible for the actions of others. Furthermore, according to GoFundMe’s blog post, the
campaign’s organizers had “repeatedly acknowledged and apologized for any offensive
comments left by others and manually removed the comments from appearing on the
campaign.”
176
In this case—unlike Alexander’s—it seemed to matter that the organizers of the
campaign were distinct from its beneficiary and its supporters, and the actions of each were
173
http://www.gofundme.com/2014/09/02/understanding-gofundmes-policies/
174
http://slantist.com/wepay-no-porn-yes-racists/
175
http://slantist.com/wepay-no-porn-yes-racists/
176
http://www.gofundme.com/2014/09/02/understanding-gofundmes-policies/
167
carefully parsed. It is difficult to understand where GoFundMe and (ultimately) WePay draw the
line between endorsement and merely coincident actions by others that violate terms of service.
Ultimately, the campaign raised $500,000 for Wilson.
177
Supporters of Alexander who took note of the issue of risk interpreted sex work as a
“reputational risk” to WePay. That is, simply being associated with pornography or sex workers
would tarnish WePay’s brand. Well-known activist, artist, and writer Molly Crabapple wrote on
Twitter, “Corporations deny service to sex workers because of feared ‘scandal’—never
imagining sex workers have enough community to cause scandals too.”
178
The Twitter hashtag
that supporters of Alexander used was #whorephobia, a play on homophobia, implying that
WePay was afraid of such an association.
Those whose primary interest related to privacy and freedom of information flows were
concerned about the implications of WePay’s surveillance-based business model. One poster on
a progressive-oriented forum for discussing issues of social justice on Reddit wrote, “My worst
fear wasn’t realized (that there is a sex worker blacklist being distributed by banks and money
exchangers), but my second to worst fear was: they actively monitored her social media for an
excuse to ban her (and used a retweet as the excuse).”
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That there would be a blacklist for those
would be excluded from the payment system was disturbing, but so was the prospect of private
social media surveillance that would effectively accomplish the same thing. Jillian C. York of the
Electronic Frontier Foundation wrote on her Twitter account, “What someone does in their free
time isn’t [WePay’s] business to monitor.”
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While sex was Alexander’s job, not her “free
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http://www.huffingtonpost.com/2014/08/31/darren-wilson-fundraiser-support_n_5745858.html
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https://twitter.com/mollycrabapple/status/467751678901780481
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http://www.reddit.com/r/SRSDiscussion/comments/25t59g/wepay_suspends_medical_fundraiser_payment_to/
chko1gw
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https://twitter.com/jilliancyork/status/467806470482841600
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time,” York’s point was that WePay’s surveillance had unfairly conflated aspects of Alexander’s
life. She also tweeted, “Wow, do they follow me around SF too to make sure I don’t accidentally
strip?”
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Instead of pornography being treated like a high risk transaction, pornographic
performers were being treated like high risk people.
Others pointed out that, under a system governed by terms of service, there was little
recourse to users, except public shaming. Terms of service seldom include a mechanism for users
to register a formal complaint again the service provider, and if they do, the process is usually
byzantine and ineffective. One blogger saw WePay’s offer to restart Alexander’s campaign as an
offer “to make an exception for her, because people complained.”
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If Alexander had not been a
popular member of a vocal and visible online community, WePay would likely not have felt the
need to publicly offer her the opportunity to start her campaign over, and CrowdTilt would likely
not have publicly stepped in to offer her assistance. As an MSNBC blogger wrote of another
high-profile account freeze by PayPal, “If you ever find yourself under the thumb of a corporate
monolith, make sure you have an army of Internet followers to back you up.”
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If independent
consumer complaint forums dedicated to cataloging grievances against PayPal such as
PayPalWarning.com and PayPalSucks.com are any indication, many more users than Alexander
have been aggrieved by their PSPs. But without the support of a community, they were left to
abandon their cases in frustration.
Some who were concerned about larger issues around the control of intermediaries like
payment systems cited Operation Choke Point, taking up the FDIC high risk list in the same way
Republican Congress members had. One poster on a Reddit thread about the controversy wrote
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https://twitter.com/jilliancyork/status/467808457026859008
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http://laurie-penny.com/stand-up-for-sex-workers-eden-alexander-wepay-and-whorephobia/
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http://digitallife.today.msnbc.msn.com/_news/2011/12/07/9280634-why-paypals-bad-reputation-is-bigger-than-
regretsy
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that banks were intolerant to sex workers, and that “this intolerance was given power by the
FDIC when it gave a formal warning to banks against doing business with anything that contains
pornography.”
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In this discussion, a minority of those posting were concerned about other sub
rosa motivations for WePay’s decision to block payments to such a high-profile member of the
feminist pornography community. One wrote on the message thread, “There’s also apparently
some astroturfing
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by the banking trade association going on in regards to how much pressure
the FDIC is putting on the industry in regards to porn (in order to make the FDIC look bad and
weaken public support for future FDIC regulation I guess), so dunno what to think about that.”
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For some, it remained unclear whether or not WePay was purposely provoking an active
community of internet freedom and feminist activists, and putting Alexander’s life in danger in
the process.
Everyday Payment Flow Instability
The card payment system presently discriminates traffic in a variety of ways beyond the
most striking cases, such as the adult entertainment and sex industries. Presently, individuals
can’t access the card payment system through ISOs and the market model. There are many ways
that those using innovation model PSPs can trigger high risk alerts, run afoul of terms of service,
and lose access to the payment system. This can be frustrating and even crippling. Many times,
users may not even know why this happened, and may never find out, even if their account is
restored.
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http://www.reddit.com/r/SRSDiscussion/comments/25t59g/wepay_suspends_medical_fundraiser_payment_to/
chko1gw
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“Astroturfing” refers to the practice of powerful interests creating or facilitating faux “grassroots” activism.
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http://www.reddit.com/r/SRSDiscussion/comments/25t59g/wepay_suspends_medical_fundraiser_payment_to/
chl1hr6
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The very practice of crowdfunding is a high risk category in the payments industry. That
is, unless properly managed, crowdfunding presents a high risk for chargebacks. It remains
difficult for individuals to conduct a crowdfunding campaign without going through a platform
like GiveForward or Kickstarter, because few payment systems will allow it. Most crowdfunding
campaigns fall into two categories: charity and project financing. Both categories are associated
with high risk for fraud and chargebacks. Charity fraud, in which donations are solicited for a
fictitious charity or otherwise diverted from the stated cause, is one of the most common forms
of internet fraud. Once the fraud is discovered, many donors will initiate a chargeback.
Project financing also presents a high risk for chargebacks, because it supports the
development of a product that does not yet exist. In this sense, it is an investment, rather than a
payment. If the project does not work out, the acquirer will be left to pay for the chargebacks.
For this reason, many payment systems, including PayPal, do not allow pre-orders. When
Kickstarter first started out, PayPal refused to partner with the nascent crowdfunding platform
because of the risk associated with chargebacks. Instead, Kickstarter worked out a partnership
with Amazon Payments, which charges backer credit cards only when the campaign hits a
certain donation threshold. It conducts pre-authorizations on large pledges. In most cases,
Kickstarter does not allow chargebacks, although backers may attempt to petition Amazon
Payments for them.
For this reason, it is nearly impossible to independently crowdfund for a project and
reliably accept credit card payments. In the independent game development world, it has become
common practice to sell pre-orders for new games, and then use that funding to develop the final
stages of the product. This is basically a method of independent crowdfunding, but it is
becoming difficult because of PSPs’ terms of service. PayPal has frozen accounts during pre-
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sales because the product being sold does not yet actually exist. Chris England, the developer of
indie game Xenonauts, explained that he had anticipated this problem and preemptively cleared
with PayPal the idea of selling a one-off “forum account” that came with “free game” to be
delivered once it was developed. He was surprised when his account was frozen 12 months later
for doing just that (Meer, 2011). Often, these games are developed by one person or a very small,
informal collective, so the resources are not always available to dispute claims or implement new
payment systems.
Being denied funds for any reason can pose a true threat to the very existence of an
organization. In the highly competitive and fast-moving world of technology innovation, frozen
accounts and delayed payments can have serious negative consequences for start-ups. Diaspora,
the open source, privacy-oriented social networking site started in 2010 by four New York
University students, raised their public profile and also over $200,000 when their Kickstarter
campaign was successful.
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After this initial funding, Diaspora began accepting donations on a
recurring or one-time only basis through PayPal on its site.
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The plan was to focus on
developing innovative, decentralized social networking software, with the business plan as a
secondary concern.
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In October 2011, Diaspora announced on its blog that PayPal had “arbitrarily” stopped
processing donations and frozen its account (Diaspora, 2011). Donors were not notified that their
recurring payments were being stopped, and many did not notice that the small monthly sum was
no longer being charged. The company was told that it would not be able to access the $45,000
in its PayPal account for six months. As with the freeze of Alexander’s account, PayPal restored
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http://readwrite.com/2010/05/13/the-diaspora-project-and-kicks
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http://observer.com/2011/10/paypal-unfreezes-diasporas-account-after-twitter-outrage/
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http://readwrite.com/2011/10/19/diaspora-becomes-paypals-lates
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Diaspora’s account after public outcry in blogs and on Twitter within 10 days (Jeffries, 2011b).
Although PayPal called Diaspora and apologized, no public explanation was ever given for how
or why Diaspora’s account had been frozen.
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Most mundane cases of proxy censorship never
achieve the visibility of either Eden Alexander or Diaspora: Indeed, there are thousands of posts
on the forums hosted on PayPalSucks.com, Screw-PayPal.com, PayPalWarning.com, and other
gripe sites from small business owners and casual sellers whose accounts have been incorrectly
flagged for fraud and frozen for six months, the usual amount of time an account is frozen when
it is flagged as fraudulent, without explanation or apology from PayPal. In effect, these sites
function as unauthorized customer support resources, in that they allow users to share
information about navigating PayPal’s opaque and inconsistent application of its Terms of
Service.
In one case, a British woman, Shelley Michaels, sold multiple computer tablets and
gaming consoles in one month on eBay, resulting in a PayPal account balance that was much
higher than it had ever been, triggering PayPal’s fraud detection alert. Michaels presented PayPal
with receipts that she had originally purchased the items legally, tracking information for the
shipments, and positive feedback from the buyers, but her account remained frozen for the
requisite six months. Michaels successfully sued PayPal in small claims court, but PayPal
maintained that the judgment was limited to specifically Michaels’ case and did not concern
PayPal’s user agreement or it ability to apply limitations to customers’ accounts as part of its risk
controls.
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http://web.archive.org/web/20121130085524/http://blog.diasporafoundation.org/2011/10/20/paypal-acts-like-a-
pal-unfreezes-the-diaspora-communitys-donations.html
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http://www.independent.co.uk/money/spend-save/simon-read-is-paypal-right-to-freeze-customers-accounts-
2360058.html
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People and organizations who face account freezes by innovation model PSPs usually
don’t have a sense of how they violated the terms of service, or how they might avoid doing so
again in the future. One commenter on a blog post about Xenonauts speculated that the problem
was “The same as always: The ‘system’ has ‘detected’ an ‘unusual’ amount or frequency of
money transferred. So they closed it for ‘security reasons’ and it will take days, if not weeks to
reopen it again.” The protocols that govern terms of service seem like a black box to most users.
Conclusion
Although there is presently a proliferation of new payment services and technologies,
most of these are coming out of the innovation model—funded by Silicon Valley venture capital,
envisioned as a social media service, value promised through user data, and governed by terms
of service. This homogeneity among seemingly disruptive services provides little change to those
whose payment traffic is prohibited or routinely blocked by existing services.
Even Bitcoin—the libertarian anarchist cryptographic currency—provides little help to
businesses and individuals caught in the high risk matrix. Bitcoin intermediaries, such as Bitpay,
which provide an interface to the system to facilitate payments, are also governed by terms of
service prohibiting high risk transactions, including certain adult entertainment services.
Furthermore, for individuals, Bitcoin can be difficult to use in everyday life, both because the
price is so unstable, and because it is not widely accepted by the likes of landlords and grocery
stores.
Nevertheless, the innovation model is expanding. For example, despite not yet coming
close to turning a profit, Square is increasingly competing directly with ISOs to deliver payments
to brick and mortar shops. Other PSPs—including those which promise value by integrating
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point of sale with accounting software (and therefore data mining all aspects of small business
accounting information)—are becoming more and more common.
In the present and emergent payment ecology, some kinds of payment traffic are allowed
to flow freely, while others are not. While this discrimination among various kinds of payments
traffic according to perceived transaction risk may not be overtly political, it impacts payment
and therefore communicative flow. It can literally shape politics, too, by choking off flows of
funds and thereby restricting an organization or individual’s ability to function as an agent. The
choice is between market model ISOs and innovation model PSPs; that is, between markets as
regulatory agents and terms of service as regulatory agents.
In the older payment model, ISOs create a market for risk and also for flow. While
paying more for transactions that have been calculated as “high risk” is a form of price
discrimination, outside the rare case of direct political pressure, the payment flow they produce is
reliable. The market model functions to price and then distribute risk. Innovation model PSPs, on
the other hand, like other social media, are “walled gardens.” They create closed loop economies.
They distribute risk onto users while participating in something that is not so much a market, but
an ecosystem of other venture-funded platforms. They rely on terms of service, a governance
form that is opaque, arbitrarily enforced, and mostly uncontestable through either market or
democratic pressures. Ultimately, the market model provides a degree of predictability,
transparency, and fairness that the newer innovation model does not. Nevertheless, it does not
have the capacity to support payments between individuals.
Previously, I mentioned how, in the course of my research on the use of payment systems
by sex workers, I mentioned that I was contacted to recommend a form of payment for that could
be used to collect donations and registration fees for a feminist sex worker conference. I could
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only recommend the two systems that are produced and maintained by the state in the public
interest to produce economic polity among citizens: cash, which would be difficult for any
payments that were not face to face, or check, which, the organizer told me, was impractical for
many of those she hoped to attract to the conference, who may not have a formal bank checking
account. These two infrastructures are both mediated as paper and are insufficiently able to
interoperate with the digital systems and spatial organization through which we live our lives
today. The question of how flows through payment infrastructure are managed is an increasingly
important component of the public interest in economic life.
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CHAPTER FIVE
FUTURES? TRANSACTIONAL CRYPTOGRAPHY AS RAIL, TOKEN, AND LEDGER
“I think the internet is going to be one of the major forces for reducing the role of government.
The one thing that’s missing but that will soon be developed, is a reliable e-cash.”
– Milton Friedman, Economist and Nobel Laureate, 1999
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“There is a famous scene in the Matrix where Morpheus asks Neo if he wants to take the blue
pill and go back to life as he knows it or take the red pill and see life as it is. Neo takes the red
pill and begins a period of exploration about humanity, hierarchy, rules, etc. Bitcoin is a red pill.
There will be some bad and awkward moments, but lots of good, useful and powerful things will
also ensue. It will reallocate financial strength and power to the people versus keeping it within a
few centralized authorities. I am hopeful that Bitcoin prevails. The world needs more red pills.”
– Chamath Palihapitiya, Venture Capitalist, 2013
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“It’s gold for nerds!”
– Stephen Colbert, Comedian, 2014
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Introduction
Although Bitcoin
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has not proven to be a practical alternative money form for most
situations, it has acted as a staging ground for discourse on the role and meaning of money in
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http://www.cato.org/blog/friedman-hanke-bitcoin
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http://www.bloomberg.com/news/2013-05-30/bitcoin-the-perfect-schmuck-insurance.html
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http://thecolbertreport.cc.com/episodes/wllm5p/april-30--2014---audra-mcdonald
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In general, following community convention, I capitalize “Bitcoin” when referring to the concept or system (e.g.,
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society. Bitcoin enthusiasts seem to produce as much discussion as they do anything else.
Discussion is instantiated as computer code, giving meaning to that code and shaping the way it
will be implemented. Code then sets parameters for the range of actions possible, becoming what
Lawrence Lessig describes as “law.” Because Bitcoin is an evolving, dynamic software project
with many off-shoots, discourse and code continue to shape each other. Like other free software
projects, the Bitcoin ecosystem is a “recursive public,” a group of people talking, then producing
code that reifies their talk, over and over again, reflexively (Kelty, 2008).
However, this discourse is not unified, and the meaning and practices it produces are not
monolithic. Like other technologies, it is shaped by a variety of stakeholders, but its discursive
field is distributed, reflecting the architecture of Bitcoin itself. Bitcoin is not so much
polysemous but polycentric: Its discursive agents cluster around specific points of practice and
politics. Bitcoin is best understood through three distinct functions: as token, or commodity; as
rail, or payment system; and as ledger, or protocol. Each of these functions is representative of a
particular vision of Bitcoin’s present and future use and meaning. Each of these visions carries
with it ideologies, which recursively shape discussion of Bitcoin, expectations of what it can and
should be able to do, and how its code is implemented. Although the three modes seem to
emerge in stages, they are not linear or teleological. Although these functions and related
ideologies are not perfectly distinct, they are often in tension.
Most popular and media accounts tend to focus on Bitcoin as a token, its commodity
function (how much it’s “worth,” how high the “price” has soared, how low it’s crashed, etc.) or
a very particularized version of its payment function (its supposed capacity to support
“anonymous” online purchases of drug, sex, and murder). These accounts elide the wider
She has written a lot about Bitcoin) but do not when referring to a unit of account (e.g.., “She spent 50 bitcoins”).
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applications of Bitcoin as a rail for payments and, more broadly, as a protocol for distributed
ledger-keeping. They omit Bitcoin’s more fundamental purpose: an attempt to “hard code” a set
of social and political orders into a technological organization.
Crucially, then, these accounts also miss out on Bitcoin’s role as a staging ground for
discourse about the larger meaning and use of money in society. In this way, Bitcoin offers a
critique of dependence on state and corporate infrastructures, asserting instead what I call
“infrastructural mutualism.” Adherents value Bitcoin and other cryptographic systems built on a
blockchain for their ability to produce, in an idealized vision, a network of individualistic,
economistic peers engaged in a volantaristic effort to produce a decentralized, distributed
infrastructure for the benefit of the cooperators. Although Bitcoin’s commodity token function
has undergone a bubble of attention and value, this infrastructural mutualism is present both in
Bitcoin’s origins as a payment rail, and in its future as a ledger protocol.
First, Bitcoin’s political potential is threatened by its own practical success: As a
protocol, several next-generation so-called “Bitcoin 2.0” projects have received significant
attention from corporate and financial institutions who see Bitcoin as just another “neutral”
mechanism that can be adapted for use in mainstream business activity. Although this
incorporative use may deprive other projects of resources, it may not actually prevent
infrastructural mutualist uses of Bitcoin and its ilk to persist. However, Bitcoin’s ledger-keeping
protocol and its infrastructural mutualism is also threatened by contradictions in its own political
vision and material design. In most variations, even those that expand beyond payment to ledgers
of all kinds, the protocol uses “coins” of some kind to “power” the blockchain. There is almost
always a secondary market in those tokens, which reasserts speculation in them as commodity
tokens. These markets tend to favor early adopters and those with the capacity to buy-in at
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volume, leading to an oligopoly in the infrastructure itself, as well the very means of mutualistic
participation.
This chapter first offers a short technical introduction to Bitcoin, attending in particular to
the functional attributes that are required to understand its philosophical, political, and social
terms. It then gives a pre-history of Bitcoin, describing the cypherpunk and crypto anarchist
groups of the late 20th century, as well as various attempts within those communities to develop
digital cash. Next, this chapter describes the emergence of Bitcoin, contextualizing it in a
moment marked by surveillance and financial crisis, a time when the concerns of the
cypherpunks and crypto anarchists became more generally popular. The next two sections
demonstrate practical tensions between different visions of Bitcoin, as payment rail, political
tool, and speculative commodity token. Finally, the chapter looks to the future of Bitcoin, a
trajectory caught between incorporation into existing power structures and a deepening of
political commitments, which are themselves not without paradox.
A Short Technical Introduction to Bitcoin
Just as it is not necessary to understand the finer details of the video compression
algorithm that powers YouTube in order to understand its larger cultural and social implications,
it is not necessary to understand the finer details of the mathematic theory and computer science
that enable Bitcoin’s cryptography in order to understand it from a sociotechnical
communication point of view. However, some closer examination of Bitcoin’s technical
processes is warranted in order to understand the ways in which it was overtly designed to
instantiate a particular set of political and social agencies. With Bitcoin, unlike most other
technological projects, this ideological engineering is explicitly part of the project. This section
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explains the important technical components as they relate to the larger social and political
project that is Bitcoin, including its general function, decentralized and distributed nature, and
privacy model.
Simply put, as Satoshi Nakamoto (2008) does in the very first sentence of the abstract of
the white paper describing it, Bitcoin is “a purely peer to peer version of electronic cash [that]
would allow online payments to be sent from one party to another without going through a
financial institution.”
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Bitcoin is a currency token (a bitcoin), the payment rails for exchanging
those tokens (Bitcoin), and a distributed ledger-keeping protocol (the Bitcoin blockchain).
As with cash, in the Bitcoin system, the payer sends a value token—also called a
bitcoin—directly to the payee. This is accomplished using public-key cryptography. The sender
hashes a transaction with their private key and the recipient’s public key, assigning ownership of
bitcoins to the recipient. This transferal is broadcast, without any identifying information, on the
blockchain, the system’s decentralized accounting public accounting ledger. The blockchain also
prevents the so-called “double spending problem,” copying a Bitcoin and using it more than
once. This eliminates the need for a third party, like a financial institution, to oversee and verify
the transactions.
Also as with cash, the identities of the payer and payee could remain unknown to each
other, and to the public. Satoshi called this a “new model of privacy” (2008, p. 6). In traditional
payment, financial institutions keep track of identities and transactions, all of which are hidden
from public view. In Satoshi’s new model of privacy, the blockchain is a public record of all
transactions, but the identities associated with those transactions are hidden from public view.
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Following Jeong’s (2013) lead, I have chosen to refer to Satoshi Nakamoto as those in the Bitcoin community do,
using singular male pronouns and his first name.
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The blockchain is produced by the network of all node computers running the Bitcoin
client software. It keeps track of the assigned ownership of all bitcoins, as well as their flow and
transfer. Each computer running the client works on the latest block of transaction history in the
longest and latest time-stamped instances of the blockchain. The blockchain is decentralized
across all node computers, and the computational processes that power it are distributed among
them. There is no central server, and no single point of failure.
By running the blockchain and participating in the Bitcoin network, users “mine”—or, as
it was originally termed, “generate”—bitcoins for their own use. The same set of computational
operations that conducts and keeps track of payments occasionally rewards one of the computers
connected to the network with a bitcoin, which can, in turn, be used to make payments. Users
can gain bitcoins to use in the system in three ways: my “mining” them, by accepting them in
exchange for a good or service, or by trading state currency for them.
The “mining” of bitcoins works as incentive for those running the client. There is a built-
in scarcity curve for the mining of bitcoins. As time goes on, bitcoins are awarded with less and
less frequency, halving every four years. As fewer and fewer bitcoins become available, miners
may begin assessing transaction fees to recover resources spent—computer, electricity—in
running the client. Bitcoin transaction fees work like a market, with various active, available
nodes bidding to run each transaction.
The Bitcoin software is free and open source and can be forked and adapted by anyone.
This has allowed a proliferation of “alt-coins,” other cryptographic currencies that work in a
similar way as Bitcoin, with adjustments made as preferred. For example, Litecoin, the second
largest cryptocurrency by market capitalization, differs primarily by having a decreased block
generation time (and therefore faster transaction processing) and an increased maximum number
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of coins (and therefore greater liquidity).
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MazaCoin, which was developed in partnership with
the Lakota Nation of Native Americans, has no upper market cap and began with 50 million pre-
mined coins, which are equally split between a national reserve and a planned tribal trust.
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Because the Bitcoin software is non-proprietary, it can also be a platform for related
third-party applications, which usually offer a graphical interface and do not require running the
blockchain ledger. These include Bitcoin wallets, Bitcoin exchanges, Bitcoin ATMs, and Bitcoin
debit cards.
A Short Pre-History of Bitcoin
Cypherpunk and Crypto Anarchism
Most accounts of Bitcoin trace its origins back to the cypherpunk movement, which
coalesced in the 1990s, in the cypherpunk email list and in-person meet-ups. Understanding the
cypherpunks is key to understanding the pre-history of Bitcoin as both a technology and a set of
ideologies. The term “cypherpunk” references “cyberpunk,” a form of science fiction noir, and
“cypher,” meaning an algorithm for encryption and decryption; that is, the scrambling and
unscrambling of messages. The cypherpunks were interested in the potential of “strong
cryptography,” the study and practice of using advanced mathematics and computing systems to
create sophisticated cyphers, for social and political change.
For most of the 20th century, cryptography was produced primarily by military and state
intelligence agencies. In fact, from World War II through the early 1990s, cryptography was very
strictly regulated by most countries, and was classified as a munition in the United States
(International Traffic in Arms Regulation, 1992). However, in the 1980s, those who would
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http://www.technologyreview.com/news/513661/bitcoin-isnt-the-only-cryptocurrency-in-town/
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http://bitcoinmagazine.com/10857/dawn-national-currency-exploration-country-based-cryptocurrencies/
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eventually call themselves cypherpunks began to think about ways to challenge the state’s
monopoly on cryptography.
This was spurred in the late 20th century by developments that democratized access to
state-of-the-art cryptography. In 1967, David Kahn published The Codebreakers, the first
comprehensive account of cryptography, which controversially included details of recent and
contemporary practices of the National Security Agency that had otherwise been kept secret
(Kahn, 1967). In 1975, the U.S. Department of Commerce made public the Data Encryption
Standard, a cypher intended to be used by government agencies, financial institutions, and other
organizations to transmit non-classified sensitive data (National Bureau of Standards, 1977).
The next year, cryptographers Whitfield Diffie and Martin Hellman published a new
standard for the exchange of encrypted messages, called public-key cryptography (Diffie &
Hellman, 1976). Traditionally, a plain text message could be encrypted by the sender using a
cypher key, and then decrypted by the receiver using that same key. Both sender and receiver
had to have access to the cypher key. Public-key cryptography offered a way around this: Every
user has two keys—a public key and a private key. The public key can be distributed openly,
whereas the private key must be kept top secret. A sender uses a receivers’ public key to encrypt
a message, and then the receiver uses the private key to decrypt it. In 1977, Ron Rivest, Adi
Shamir, and Leonard Adleman invented the RSA asymmetric cypher, a practicable algorithm for
strong public-key cryptography (Rivest, Shamir, & Adleman, 1978). Cryptography could be used
on a large scale by those who did not have previous access to each other’s decryption keys. The
sender and the receiver did not have to be partners.
Crucially, these developments meant that strong cryptography was now possible with
relative modest computing systems. In addition, the information on how to accomplish this was
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available to the general public, including cryptographers both professional and amateur.
Cryptography had begun to seem like a means of technological empowerment of individuals,
rather than a weapon of the state.
The cypherpunks who emerged from this milieu were thrilled by the promise of
encryption. They believed that privacy was a fundamental and endangered right, and that strong
cryptography was the only thing that could protect it. The 1993 Cypherpunk Manifesto, written
by Eric Hughes, one of the founders of the cypherpunks email list, defines privacy as “the power
to selectively reveal oneself to the world.” They believed, as Hughes put it, that “information
longs to be free.” This means that individuals should be able to freely conceal and express
information. In Cypherpunk Manifesto (1993), Hughes described privacy in terms of
communication processes:
If two parties have some sort of dealings, then each has a memory of their interaction.
Each party can speak about their own memory of this; how could anyone prevent it? One
could pass laws against it, but the freedom of speech, even more than privacy, is
fundamental to an open society; we seek not to restrict any speech at all. If many parties
speak together in the same forum, each can speak to all the others and aggregate together
knowledge about individuals and other parties. The power of electronic communications
has enabled such group speech, and it will not go away merely because we might want it
to.
The only way to ensure privacy was by producing cryptographic systems outside of the purview
of government or corporate entities. Hughes wrote, “we cannot expect governments,
corporations, or other large, faceless organizations to grant us privacy out of their beneficence.”
Instead, “we must defend our own privacy if we expect to have any.” Privacy was seen as a
natural right, beyond something that states could bestow, but it could be taken away if the
communication and information infrastructures within which privacy was formed were
developed and controlled by those who did not value it.
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The cypherpunks, or so it seemed to them, were the only ones able to produce systems
that would protect privacy. Hughes wrote, “Cypherpunks write code,” meaning, essentially, that
cypherpunks have the ability to produce the technologies that, in this view, would enable and
constrain the basis of communicative reality. He continued, “We know that someone has to write
software to defend privacy, and since we can’t get privacy unless we all do, we’re going to write
it.” Another cypherpunk put it even more powerfully, and wrote that “to write code” meant “to
take unilateral effective action as an individual” and “take personal responsibility for
empowering themselves against threats to privacy” (Sandfort, 1994, cited in May, 1992). In this
view, human relations were enabled and constrained by code, and the design of protocols was the
design of institutions. To “write code” was, to the cypherpunks, to write the social contract.
But many cypherpunks believed that the stakes were even higher than this. They believed
that privacy via strong cryptography was the key strategy for enacting massive social change.
Indeed, cypherpunks seemed to spend as much time discussing the future of society on email
lists as they did writing code. They called a related, though perhaps more radical, political
ideology “crypto anarchy.” Although it is reductivist to do so, and not all participants may agree,
for the sake of clarity and argument, I am going to use the terms “cypherpunk” and “crypto
anarchy” to tease out unarticulated distinctions within the group.
The promise of strong cryptography extrapolated into “the building material for a new
age” (May, 1994). Crypto anarchy recognizes no laws that can’t be expressed and enforced
through cryptographic relations. Between 1988 and 1993, Tim May, another of the founders of
the cypherpunks email list, wrote and circulated the Crypto Anarchist’s Manifesto, in which he
wrote that “A specter is haunting the modern world, the specter of crypto anarchy” (May, 1992).
The political project of crypto anarchy extended far beyond simply protecting privacy.
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In the Cyphernomicon, a Frequently Asked Question text file that circulated among
cypherpunks beginning in the early 1990s, May summarized the new age as an consisting of
“voluntary communications only, with no third parties butting in” (May, 1994). These third
parties included the world’s governments. He wrote:
Some of us believe that various forms of strong cryptography will cause the power of the
state to decline, perhaps even collapse fairly abruptly. We believe the expansion into
cyberspace, with secure communications, digital money, anonymity and pseudonymity,
and other crypto-mediated interactions, will profoundly change the nature of economies
and social interactions.
Through strong cryptography, individuals could “opt out of the permission-slip society” and
begin “making their own decisions on who to trust, who to deal with,” providing a “throwback to
the pre-state days of individual choice about which laws to follow.” Instead of institutions, non-
coercive, voluntaristic, mutually beneficial cryptographic contractual relationships and, in turn,
networks, would emerge to accomplish collective needs. In general, crypto anarchy privileged
“technological solutions and self-protection solutions over rule-making.” Getting the protocols
right meant absolute control both over what information was revealed in any interaction, and
over the terms of interactions. These contractual, cryptographic interactions would form the basis
for a new society.
Crypto anarchy extended cypherpunk’s logic of free expression to free markets. Crypto
anarchy went hand-in-hand with an “anarcho-capitalist market system” (May, 1994). They
believed that markets would be amplified as a key organizing system for society, but they also
believed that through strong cryptography, “future market societies [were] no longer in the hands
of ‘The Authorities‘ but [were] rather in the hands of those trading on the market; i.e., everyone
on earth” (Frissell, 2001). According to the Cyphernomicon, cryptography would “change the
balance of power between individuals and larger entities.” The power of governments to “coerce
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and tax” would be decreased, producing a “sort of a digital Galt’s Gulch,” wrote May, referring
to the libertarian utopia of novelist Ayn Rand.
Unlike cypherpunk, which emphasized that “People must come and together deploy these
systems for the common good” because “privacy only extends so far as the cooperation of one’s
fellows in society” (Hughes, 1993), it mattered little to crypto anarchists that not everyone would
be able to participate. May wrote, “Some will be too incompetent to prepare to protect
themselves, and will want a protector” (May, 1992). He also wasn’t concerned with evangelizing
for crypto anarchy, “Things will just happen,” he wrote, “just as the masses were not converted
on issues of world financial markets, derivative instruments, and a lot of similar things.” The key
was, “Don’t think in terms of selling crypto anarchy to Joe Average. Just use it.” The implication
of this advice was that any rational, self-interested “Joe Average” would see the superiority of
the crypto anarchist position and adopt it himself.
It is important to note that cypherpunk and crypto anarchist are messy categories.
Certainly not everyone who identified as a cypherpunk extended freedom of expression to free
markets. Further, there were also those who identified with crypto anarchists who were anti-
capitalist communitarians. However, I have traced and labeled two dominate positions. The first,
cypherpunk, is primarily concerned with the application of cryptography to produce code that
ensures privacy and civil liberties. The second, crypto anarchy, extrapolates this logic from free
expression to free markets and sees cryptography as the kernel for a coming anarcho-capitalist
society. In addition, not everyone who was interested in or practiced cryptography was interested
in either position. Indeed, when May passed out copies of the “Crypto Anarchist Manifesto” at
the 1988 academic conference Crypto, the scholarly community “pretty much ignored him”
(Greenberg, 2012).
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Digital Cash
From the very beginning, money was an important building block of both the cypherpunk
and crypto anarchist visions. Monetary transactions were one of the communication exchanges
over which cypherpunks most sought to maintain privacy. In this sense, for cypherpunks, money
is a form of speech that should be freely and privately expressed. There needed to be a system to
accomplish economic exchange that would not also record all transactions for the benefit of a
third party. For crypto anarchists, money was also essential to anarcho-capitalism. Authority
over the value of money needed to be wrested away from the state. Over the last decades of the
20th century and the first decades of the 21st, cryptographers attempted to design and implement
systems that would accomplish some combination of these goals.
Cryptographer David Chaum, who is credited by many as laying the philosophical roots
of cypherpunk, did so in work that was primarily about the creation of cryptographic digital cash.
In his highly influential 1985 paper, “Security without identification: Transaction systems to
make Big Brother obsolete,” Chaum was concerned that “automation of payment and other
consumer transactions” meant ever-greater “mass surveillance,” which would lead to
corporations being able to infer “individuals’ lifestyles, activities, and association.”
Chaum proposed a technical solution that would allow companies to take advantage of
the efficiency of automation without violating two “new information human rights” (1985). The
first was “the right of individuals to parity with organizations in transaction system use.” This
involved freedom from general non-discriminatory and universal service. The second was “the
right of individuals to disclose only the minimum information necessary: in accessing
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information sources and distribution channels, in transactions with organizations, and—more
fundamentally—in all the interactions that comprise an individual’s informational life.”
To Chaum, the architecture of technology—and most importantly, that of payment
technology—that was being built in the in the 1980s would produce the architecture of society to
come. Getting it right would “make Big Brother obsolete.” Getting it wrong would “threaten
democracy” and “chill individual participation and expression in group and public life.” Shaping
the relations produced by payment rails was the fundamental way to shape the future.
In 1990, Chaum founded DigiCash, an electronic cash payments company to implement
his research. The DigiCash system used cryptography to allow a seller to debit a buyer’s account
without gaining access to any details of the seller’s identity. By 1997, DigiCash had raised
millions of dollars in venture capital and attracted a blue chip board of directors, including tech
celebrity Nicholas Negroponte, who called it “the most exciting product I have seen in the past
20 years” (quoted in “How DigiCash Blew Everything,” 1999). Investors betting on DigiCash
hoped that consumers would be leery of using their credit cards online, and that merchants would
resist paying credit card transaction fees for small purchases (Pitta, 1999). Chaum was in talks
with VISA, Microsoft, and Netscape to integrate DigiCash into their products (Levy, 2001).
However, Chaum was notoriously difficult to work with, and he kept withdrawing from
partnerships. According to many accounts, he was greedy, but according to others, he was a
perfectionist. Indeed, after failing to go to market in 1996, he said, “The difference between a
bad electronic cash system and well-developed digital cash will determine whether we will have
a dictatorship or a real democracy” (“How DigiCash Blew Everything,” 1999). As one early
employee put it, “DigiCash was founded by crypto-people, and good crypto-people are a bit
paranoid” (“How DigiCash Blew Everything,” 1999).
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By 1998, DigiCash declared bankruptcy. Consumers, it turned out, were willing to use
their credit cards online, and the terms of service of the start-up that cornered the market on this
service in the same time period, PayPal, does indeed shape the flow of online payments and
subsequently sociality (see Chapters 1 and 2 for more on this). The legacy of DigiCash lives on,
however, in the Dutch highway toll system, which uses its technology to reliably charge drivers
without recording their identities (“How DigiCash Blew Everything,” 1999).
Despite DigiCash’s failure, the promise of Chaum’s original work inspired cypherpunks
and crypto anarchists. In 1996, May described a cryptographic black market called BlackNet
powered by CryptoCredits (May, 2001). Like cypherpunks, May desired a payment rail that
supported privacy, but as a crypto anarchist, he also desired a free market for all goods, including
those considered illegal by the state. That a free market is possible is, in this view, nearly as
important as having privacy for its own sake.
In addition, money, or at least a money-like incentive system, was essential for the crypto
anarchist vision of market-driven utopia. In 1998, computer scientist Wei Dai published a
description of an anonymous, distributed electronic cash system which he called “b-money.”
Money was important, Dai wrote, because “a community is defined by the cooperation of its
participants, and efficient cooperation requires a medium of exchange (money) and a way to
enforce contracts” (Dai, 1998). Without a theoretical and technological solution to the money
problem apart from the state, crypto anarchy was not possible.
In the late 1990s and early 2000s, legal scholar and cryptographer Nick Szabo (Szabo,
2008) developed a proposal for “bit gold.” Szabo argued that the problem with money was that it
depended on trust in a third party—namely, the state—for its value. In the crypto anarchist
vision, it was necessary to have some form of commodity tokens to transact as sovereign peers.
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Bit gold, like real gold according to the commodity theory of money, would get its value from
unforgeable scarcity. Bit gold’s unforgeable scarcity would be a determined using a proof of
work function through which a computer “mined” for tokens, strings of characters referred to as
bit gold. My co-authors and I (Maurer, Nelms, & Swartz, 2013) have previously characterized
this crypto anarchist belief in commodity token currency as “digital metallism.” Cryptographer
Hal Finney, one of the original cypherpunks, implemented the first reusable proof-of-work
system, a version of the bit gold idea, in 2004.
In the late 1990s and early 2000s, different stakeholder groups under the broad rubric of
cypherpunk and crypto anarchy tried to bring some form of digital cash to fruition. DigiCash was
a payment rail that could be incorporated into existing infrastructures and still protect privacy,
but it was a commercial failure. B-money and bit gold were digital commodity token currencies,
but they were not successfully implemented. The cryptography money vision was on hold for
some time.
The Crypto Dream?
In the 1990s, May was confident that the “point of no return” for crypto anarchy was just
around the corner. Of course, this didn‘t happen. If anything, the rise of Web 2.0 business
models, user generated content, social networking sites, and big data hype has undermined
precisely the kind of privacy cypherpunks and crypto anarchists sought to protect.
In a series of articles titled, “What Happened to the Crypto Dream?”, computer scientist
Arvind Narayanan (2013a, 2013b) argues that cypherpunk and crypto anarchism have done
“miserably little to save privacy” in the last 20 years. While “crypto-for-security”—the kind of
“pragmatic crypto” that ensures, for example, that a mainstream credit card processor can
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securely encrypt account numbers—has flourished in recent decades, “crypto-for-privacy”—the
kind that many hope can produce true social change—has floundered. The crypto anarchy
revolution, he argues, has not occurred because of both a lack of concrete implementation and
lack of societal buy-in.
Nevertheless, crypto anarchy, and certainly cypherpunk, were popularized by Wired
magazine and Neal Stephenson‘s novel Cryptonomicon. There have been a few key
developments in recent years in line with both visions. Peer-to-peer file sharing systems like
Napster and BitTorrent radically changed the music industry. Tor, a software package that allows
users to browse the Internet anonymously, has been used to circumvent government and
corporate surveillance and censorship. Julian Assange titled his 2012 book on WikiLeaks,
Cypherpunks: Freedom and the Future of the Internet. Bitcoin has become the first and most
successful implement of a cryptographic digital currency. The “Crypto Dream” is here, as
William Gibson might have said, but it is not evenly distributed. And its future is uncertain.
Between Digital Metallism and Infrastructural Mutualism
In 2008, an individual or group using the pseudonym Satoshi Nakamoto posted to a
cryptography email list a white paper outlining a new system for cryptographic digital cash,
called Bitcoin. This section describes the emergence of Bitcoin as a directed by both cypherpunk
and crypto anarchy goals, and also demonstrates the ways in which differences of emphasis in
the two philosophies has produced material tensions.
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The Emergence of Bitcoin
At nine pages, Satoshi’s paper is fairly straightforward, detailing a system that uses a
decentralized, peer-to-peer network to produce and transmit value tokens.
In a post dated
November 1, 2008, on bitcoin.org—the first and main website for the project—Satoshi
summarized Bitcoin as such: “Double spending is prevented with a peer-to-peer network; No
mint or other trusted parties; Participants can be anonymous.”
Soon Satoshi, along with members of the email list, began a free and open source
software project to implement the white paper. There were Bitcoin email lists and online forums.
In 2009, the first Bitcoin client was released, and Satoshi mined the first “genesis block” of 50
bitcoins. Hal Finney, one of the original members of the cypherpunk list, was probably the first
person besides Satoshi to run the Bitcoin client, and he became the first transaction recipient
when Satoshi sent him 10 bitcoins as a test.
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The first “real world” Bitcoin transaction took
place when a programmer in Florida used them to order two pizzas by sending 10,000 bitcoins to
a volunteer in England, who called in a credit card order to Papa John’s pizza (Wallace, 2011).
Bitcoin is clearly a descendant of earlier cypherpunk and crypto anarchist currency
projects. Although the email list it was launched on was not explicitly about cypherpunk or
crypto anarchy, many of the same people participated in it who had participated in earlier, more
explicitly political email lists. Bitcoin incorporated technical and theoretical ideas from
DigiCash, bit gold, b-money, and other previous proposals for cypherpunk and crypto anarchist
cryptocurrency. Chaum, Dai, Szabo, Finney, individually and together, were all suggested as the
true identity of Satoshi, a suggestion which all of them denied.
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https://bitcointalk.org/index.php?topic=155054.0
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Most of Satoshi’s participation related to technical or project management issues. He
rarely wrote explicitly about politics, but when he did, what he wrote was usually aligned with
both cypherpunk and crypto anarchist values. In one email to the cryptography listserv, he wrote
of Bitcoin, “It’s very attractive to the libertarian viewpoint if we can explain it properly. I’m
better with code than with words though.” It is unclear what he meant by “libertarian.” It is clear
that he was concerned with both civil and financial liberties.
Satoshi’s 2009 blog post on the P2P Foundation website launching the Bitcoin project
was one of his more explicitly political moments. In it, he complained of banks, “We have to
trust them with our privacy, trust them not to let identity thieves drain our accounts” (Nakamoto,
2009). He was also frustrated with transaction fees, writing, “Their massive overhead costs make
micropayments impossible.” He was also as concerned with the dangers of fractional reserve
banking as he was with privacy, and he expressed a theory of money aligned with crypto
anarchy:
The root problem with conventional currency is all the trust that’s required to
make it work. The central bank must be trusted not to debase the currency, but the
history of fiat currencies is full of breaches of that trust. Banks must be trusted to
hold our money and transfer it electronically, but they lend it out in waves of
credit bubbles with barely a fraction in reserve.
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Similarly, Satoshi encoded the first block of Bitcoin with the message, “The Times 03/Jan/2009
Chancellor on brink of second bailout for banks,” a reference to a newspaper article from the
same day announcing a second phase of the controversial United Kingdom Bank Rescue
Package.
Indeed, Bitcoin debuted at a time when both surveillance and banking were important
issues for many people. Corporate and government infrastructural power over the means of
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communication were becoming an intransigent part of everyday life. Although earlier waves of
online sociality were built primarily on free and open source protocols, sites whose business
model was built on surveillance of the behavior and relations of its users had begun to fully
coalesce into large scale companies. In 2008, Facebook reached 100 million users.
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That same
year, Apple came out with its first iPhone, a product that promised to add location to the set of
data collected about users.
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Google, which had acquired YouTube in 2006, was asking
$200,000 for advertisements that would be displayed to what it estimated as a billion views per
day worldwide.
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As media studies scholar Trebor Scholz (2008) explains, the user data-centric
ideology of Web 2.0 business models meant that “the Web makes people easier to use. By
‘surfing’ it, people serve their virtual hosts and they are not unhappy about it.” But this is exactly
what the cypherpunks and crypto anarchists had always been unhappy about, and their concern
was becoming more relevant to a broader range of people.
For a technically adept minority, resistance to growing corporate surveillance took the
form of building alternatives. Bitcoin represented one such material critique, an attempt to build
an infrastructure that would allow people to circumvent corporate monitoring. As one supporter
put it, Bitcoin had the potential to “free people from the tyranny of middlemen.”
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In a post on
the forum bitcointalk.com, one poster shared a short “Bitcoin Manifesto” that explained that
“flow capitalists” who did little but control infrastructure and charge rents on it (including in the
form of personal data) constituted a “middle-man mafia” that was “strangling the world” (genjix,
2011).
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https://www.facebook.com/notes/facebook/our-first-100-million/28111272130
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https://www.apple.com/pr/library/2008/07/14Apple-Sells-One-Million-iPhone-3Gs-in-First-Weekend.html
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http://www.forbes.com/forbes/2008/0616/050.html
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http://www.newsweek.com/virtual-currency-bitcoin-anonymous-web-shopping-67841
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Even more to the point for Bitcoin enthusiasts, this use of user data was pioneered,
though to a much lesser extent, by credit card companies, who had long used transactional data
to assess risk and assist in collections (Duhigg, 2009).
By 2008, these two industries were
beginning to converge. Social media companies were trying to launch their own payment
platforms and capture transactional data for themselves. Meanwhile, payment providers were
attempting to link their customers’ payment and social media profiles. The capacity to trace a
consumer interaction from advertising to point of purchase—known in the industry as the “holy
grail of marketing,” seemed within reach.
Bitcoin also emerged in the context of the 2008 global financial crisis (Castells, Caraca,
& Cardoso, 2012; Engelen, 2011; Shiller, 2008; Stiglitz, 2010). The crisis, which has been
measured by economists as the worst since the Great Depression of the 1930s, threatened the
collapse of large banking institutions. This was circumvented by bailouts from national
governments, but stock prices still plummeted worldwide. The American “Great Recession” also
contributed to the European Sovereign Debt crisis beginning in 2009. Individuals faced long-
term unemployment, home foreclosure, and loss of retirement funds.
The crisis, its causes, and potential ways forward were discussed in detail on Bitcoin
forums. Many early adherents of Bitcoin were attracted to it because of attributes that appeal to
crypto anarchist views. Like bit gold, it is supposedly deflationary. It was offered as a “safe
haven” for assets, and as an alternative reserve currency for countries. One Bitcoin aficionado
even composed a poem, titled an “Ode to Satoshi Nakamoto” (GoWest, 2011) that expressed the
hope many had for Bitcoin in the wake of the crisis:
In the year of the bailouts, 2008,
The bankers were printing more debt for the state
The dollar grew weaker, the big picture clear
As they fed the hangover more Keynesian beer
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Who’s to blame, is this caused by desire for wealth?
When perhaps the real problem is money itself!
The idea isn’t new, maybe every thing’s tanking
‘Cause society is built on fractional reserve banking
And so called “investment” and attempted control
May soon spiral fiat into a death roll
As elected officials looked dumber and dumber
Others started to put their faith into numbers...
Many, like the writer of the poem, thought the financial crisis would be a catalyst for crypto
anarchist social change.
These two factors—information surveillance and financial crisis—shaped the practice
and politics of Bitcoin for years to come. On one hand, it was a privacy-protecting payment rail.
On the other, it was a commodity token backed by code. As the former, it was used to send
funds to the embargoed WikiLeaks foundation, to buy illicit goods on the online black market
the Silk Road, and for other transactions that ran afoul of payment intermediaries. As the latter, it
spawned heavy speculative exchanges between national currency and Bitcoin.
Infrastructural Mutualism
The vision of Bitcoin as payment rail is shaped by what I call “infrastructural
mutualism,” an ideology influenced by anarchist-libertarian thinkers like Proudhon. Bitcoin’s
infrastructural mutualists are invested in the development of peer-to-peer computing systems, so
that they too might interact as peers, collective individuals. The main use of this system is to
offer a payment infrastructure that can circumvent, or at least reduce reliance upon, state and
corporate infrastructure.
Payment has been an important function of Bitcoin from its earliest instantiation. In fact,
it was originally highlighted as the primary purpose of Bitcoin. In its earliest documentation, it
was described as a form of “electronic cash.” In the original paper and on bitcoin.org, there is
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little description of Bitcoin as a store of value, a unit of account, a token, a commodity, or
anything other than “electronic cash,” a way to transmit value, a payment rail. The very first line
of Satoshi’s paper read, “Commerce on the Internet has come to rely almost exclusively on
financial institutions serving as trusted third parties to process electronic payments” and offered
Bitcoin as, primarily, a way to change this. It was to be an infrastructure for payment, maintained
by peers, in order to circumvent, or at least decrease reliance upon, corporate systems and the
infrastructural power they wield.
Although “miner” would become the default term for those whose computers connected
to comprise the Bitcoin network, the original paper and the early versions of the website
privileged using the network to conduct payment, rather than prospect for Bitcoins. In the paper,
Satoshi described it as “add[ing] an incentive for nodes to support the network and provid[ing] a
way to initially distribute coins into circulation” (2008). The July 2010 version of bitcoin.org
encouraged users to attempt to “get a few coins by helping to run the network.” But cautioned,
“It may take a few days to successfully generate a coin, so be patient.” Generating coins seems to
have been initially intended as a by-product of participation in the network that enabled
payments, or at least portrayed that way on the Bitcoin project’s public-facing front page.
Most of the information on early versions of the website consisted of practical tips for
using Bitcoin as a payment rail. In January 2010, bitcoin.org listed advantages of using Bitcoin:
“Transfer money easily through the internet, without having to trust third parties” and “Third
parties can’t prevent or control your transactions.” By July 2010, the page included as a key
selling point: “Bitcoin transactions are practically free, whereas credit cards and online payment
systems typically cost 1-5% per transaction plus various merchant fees up to hundreds of
dollars.” It also cautioned, “If you’re trying to remain anonymous (pseudonymous, really), be
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careful not to reveal any information linking your bitcoin addresses to your identity.” Bitcoin
users were primarily imagined as spenders and receivers, co-operators of the system, not the
professional miners and speculators they would later become.
Although Satoshi was clear that fewer and fewer Bitcoins would be available over time,
neither in the original paper nor on early versions of bitcoin.org did he assert a particular
preference for commodity-backed token currency over “fiat” currency, as later Bitcoin
aficionados would. In fact, in his original paper, Satoshi wrote:
We define an electronic coin as a chain of digital signatures. Each owner transfers the
coin to the next by digitally signing a hash of the previous transaction and the public key
of the next owner and adding these to the end of the coin.
Satoshi makes clear here a fine distinction between the more pure digital metallism of crypto
anarchists like Szabo. The trusted value of bitcoins comes not from some abstractly bespoke
informational token, but from the community. As one Bitcoin forum member put it:
The value of bitcoin does not come directly from protocol, or from technical details. It
comes from the people who use it. The more people use a currency and exchange it for
real goods, the more value and more power it has.
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The blockchain, really a chain of digital signatures, are a material instantiation of the network
effects of the use and belief.
Bitcoin is not an infrastructure through which to provide mutual aid; it is a mutually-
produced infrastructure. This is in contrast to crowdfunding platforms, such as Kickstarter,
GoFundMe, and IndieGoGo, which have also been referred to as internet-based mutual aid.
These websites allow individuals to give money to fund projects or meet needs, often in
exchange for rewards, equity, or credit. The idea is that a small amount of money from a large
amount of people will up add up. Some advocates have even described crowdfunding as “the
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anarchist welfare state.”
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However, as Jerome Roos points out, the crowdfunding platforms
themselves make a profit from the campaigns they host. Most of these campaigns are small,
simply a way to collect donations from an immediate circle of friends and family. Mutual aid is
transformed into profit for those who own and control the infrastructure. Bitcoin is different
precisely because the infrastructure itself is the mutualist project. It is collectively produced by
peer cooperation.
Like other mutualist efforts, Bitcoin overtly attempted to avoid relying on the state,
instead harnessing collective power to achieve common goals. Despite this, it relied heavily on
public infrastructures, such as the electrical grid. And yet, this vision of direct payment did not
depend on a total rejection of the state, but rather its entanglement with corporate payment
providers. One poster on bitcointalk wrote, “[I]t’s fine that we’ll pay our taxes for our
communities, don’t get me wrong, this is not a tea bagger argument. [I]t’s just not right that all
what we do is in the hands of a third party, that has been caught cheating already many times.”
There was room for pragmatic mutualism. In this sense, Bitcoin is more importantly a
payment rails than a commodity token. For digital metallists, any new money must be backed by
a commodity of some kind in order to produce anarcho-capitalist peership. For infrastructural
mutualists, it is participation in maintaining the network itself that is most important. In this
view, Bitcoin is not an alternative to state currency, but an alternative to private payment
intermediaries that seek to control and surveil its flow.
Digital Metallism
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The digital metallism of Bitcoin is informed by classic economic liberals who advocate a
money supply determined by international currency markets, as well libertarians who advocate
an extra-national money free from state taxation or control. Bitcoin can be thought of as metallist
in two ways: first, in that it draws directly from metaphors of commodity token money, and
second, in that it uses cryptography to obviate trust. Because the system is distributed across
many peer nodes, there is no central administrator. Because Bitcoin provides pseudonymity and
settles payment across its distributed nodes, there is no need to trust one’s trading partner. In
cryptography, “trust” is a problem that can be solved by getting the protocols right. This value,
they argue, should be determined by market forces, not by governments or banks. This view is
opposed by those who see money as ultimately authorized by law or collective promises. It is
defiant of state authority, but not capitalism. It is, in the words of one early adopter, “a
distributed structure to do capitalism with.”
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Digital metallism was an important aspect of Bitcoin, even in its crypto anarchist pre-
history. It is explicit in the proposals for bit gold and b-money. Creating a money that had a
“natural” value—or at least one produced collectively through cryptographic protocols—was
preferable to one whose value was set by governments. In the crypto anarchists’ point of view,
Bitcoin offered “privacy” from the prying eyes of these governments, who sought to levy
coercive taxes. A market for bitcoins provided a suitable incentive system for a marketist society.
Although references to commodity token money have been part of the discussion around
Bitcoin itself at least since Satoshi’s post on the P2P Foundation’s blog, it was not always
emphasized as the main attribute of, or reason for, using the system. However, between 2010 and
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2013, it became increasingly more central. It was not until January 2010 that bitcoin.org listed it
as one of the main benefits of the system:
Be safe from the unstability caused by fractional reserve banking and bad policies of
central banks. The limited inflation of the Bitcoin system’s money supply is distributed
evenly (by CPU power) throughout the network, not monopolized by the banks.
In addition, decentralization was described as a way to circumvent institutions that “ke[pt] track
of transactions,” but also had the authority to “issue new money.” This marked a shift in the
branding of Bitcoin from primarily a critique about infrastructural power to one about central
banking.
Beginning in 2010, there was as much talk of bitcoins, the currency, as there was of
Bitcoin, the system. Official descriptions of Bitcoin shifted to a bifurcation of the currency and
the software, with increased attention on the currency. During 2010, an increasing emphasis on
coin and denomination enabled Bitcoin to be seen as a commodity token to be mined and traded.
In 2011, bitcoin.org was given a slick redesign. This version gave some instructions about using
Bitcoin as a medium of exchange, but featured information about Bitcoin markets more
prominently, including links to charts and live quotes.
In September 2011, bitcoin.org defined Bitcoin as an “experimental new digital
currency,” as well as “the name of the open source software which enables the use of this
currency.” Around the same time, the Frequently Asked Questions page on the wiki en.bitcoin.it,
which bitcoin.org linked to from its front page, did not pose the question, “What is Bitcoin?”, but
instead, “What are bitcoins?”, answering, “Bitcoins are the unit of currency of the Bitcoin
system. A commonly used shorthand for this is ‘BTC’ to refer to a price or amount (eg: ‘100
BTC’).” Bitcoin had become not primarily a medium of exchange, but also store of value and a
unit of account.
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Ambitions and Tensions in the Application of Bitcoin
Both digital metallism and infrastructural mutualism can be traced back to Bitcoin’s roots
in crypto anarchism and cypherpunk. This ideological range represents a tension around beliefs
about the nature of money and a state of rhetorical flexibility around the word “libertarian.” In
practice, adoption of Bitcoin on any level would mean working out tensions around who is able
to benefit from the infrastructure, what sort of limits there should be on speculation, and how the
collective would govern the management of these decisions.
For cypherpunks, Bitcoin is primarily a mutually produced infrastructure that allows
payment to be conducted unconstrained by externalities, free from surveillance. For crypto
anarchists, Bitcoin is a commodity token backed by digital metal, which allows users to transact
as peers without any need for trust in each other or in central authority. Speculating in it creates
new opportunities for anarcho-capitalism: a chance to make a return on an investment outside
mainstream finance, the possibility for a free market in anything, an incentive system for a
marketist sociality.
Bitcoin’s dual role as a commodity token and as an infrastructure or payments rail is
reflected in its current regulatory environment in the United States. On the federal level, bitcoins
are regulated as property for tax purposes, meaning that every transaction is subject to capital
gains taxes (Rubin & Dougherty, 2014b). On the state level, Bitcoin is regulated as a money
transmitter (Brito, 2013).
Bitcoin also demonstrates a paradox in the conflated crypto anarchist and cypherpunk
point of view: Those who invest in bitcoins as a digital metal though large-scale mining or
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speculating wind up owning the means of the infrastructure itself, undermining the possibility of
mutualistic peership, or even decentralized anarcho-capitalism.
Those attracted to the Bitcoin project had a variety of political, social, and economic
ambitions. These ambitions were not separate from the technology of Bitcoin; they were hard
coded into it. Nevertheless, there were times when these ambitions were in conflict, and in ways
that shaped and even limited the material practice of Bitcoin. WikiLeaks provided a test for the
infrastructural mutualism of Bitcoin. Speculation led to inflation in the price of bitcoins,
undermining its ability to serve as a mutualist and digital metallist payment rail.
Payments, Everyday and Political
In 2010, the power of the “middle man mafia” asserted itself and took on an overtly
political dimension, with real consequences. WikiLeaks was embargoed by the major card
processors and PayPal, probably in violations of their own terms of service. It seemed like the
perfect test case for Bitcoin’s infrastructural mutualism. It was an act of aggression by
governments via third-party infrastructure providers against an overtly cypherpunk organization.
However, not everyone in the Bitcoin community wanted to rush to the aid of WikiLeaks.
Instead, they wanted to protect the then-nascent Bitcoin and ensure that it would be able to serve
as an infrastructure for more ordinary payment needs. This forced the questions of who would be
able to benefit from Bitcoin, and who the members of its mutualist association were.
Following the release of thousands of classified documents by WikiLeaks, the accounts
of the foundation accepting donations on its behalf were frozen by PayPal, the card networks,
and other payment intermediaries. PayPal at first offered little explanation, but followed up five
days later with a longer statement, explaining that WikiLeaks’ account had been opened for
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review when the U.S. Department of State published a letter to WikiLeaks on November 27 that
stated that WikiLeaks may have been in possession of documents that were provided in violation
of U.S. law. PayPal made certain to indicate that it had not been contacted by any government
organization in the U.S. or abroad, and that the decision to freeze WikiLeaks’ account was made
because the organization was determined to be in violation of PayPal’s Acceptable Use Policy.
The violation, claimed PayPal, was that WikiLeaks facilitated crime by “encourag[ing] sources
to release classified material, which is likely a violation of law by the source.” For Bitcoin’s
infrastructural mutualists, PayPal—a typical “middle man”—was behaving in exactly the ways
that they feared.
Although some of the documents WikiLeaks released were classified and had likely been
illegally obtained, neither the organization nor any of its sources had been officially charged or
convicted of any wrongdoing. Indeed, PayPal’s independent judgment was not evenly applied
across its many customers. PayPal continued to provide payment services to The New York
Times, which has published many classified leaks in its history, including those collected by
WikiLeaks, and NewsCorp, which admitted to illegal theft of information during its 2011 News
of the World phone hacking scandal. WikiLeaks, it seems, was singled out by its payment
providers and left with no means to accept donations from its supporters.
WikiLeaks may, indeed, have been engaged in illegal activities, but certainly PayPal was
not the appropriate institution to make this assessment. Legal scholar Yochai Benkler noted that,
if governments attempted use the judicial process to directly deny the funding sources, the legal
obstacles would be “practically insurmountable” (Benkler, 2011). Further, the effects of PayPal’s
actions were not limited to the immediate case of WikiLeaks. Even if PayPal and other private
infrastructures were not working in direct collusion with government entities, the suggestion by
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the U.S. Department of State that PayPal may have encouraged sources to obtain documents
illegal sufficiently “chilled” these intermediaries’ willingness to deliver payment to the
organization. The financial stability of all activist organizations was suddenly called into
question.
As Wired blogger Kevin Poulsen noted, there was an “element of theater” to WikiLeaks’
struggles against censorship by its data and domain-name service providers (Poulsen, 2010).
Because the information was mirrored elsewhere, including on more secure servers, it remained
accessible, if less convenient. But the attack on WikiLeaks’ money flow was, in contrast, “the
real deal and [had] the potential to genuinely impact the organization.” According to WikiLeaks,
[payment providers] “blocked over 95% of our donations, costing tens of millions of dollars in
lost revenue.” Time blogger Jerry Brito wrote:
Whether or not payment processors ought to be telling us how to spend our money
online, the fact is they can. We rely on third parties to transact online, and when
government wants to restrict how we can spend money online, it’s these intermediaries
they turn to. . . . To transact online, you have to have an account with a third party like
PayPal that you trust will follow your payment instructions (Brito, 2011).
Indeed, many Bitcoin enthusiasts observed not only that WikiLeaks needed exactly what
Bitcoin could provide—a pseudonymous, direct payment—but also that it was an ideologically
aligned project, similarly supporting freedom, transparency, and social change. One wrote, “It is
the morally correct thing to be supporting WikiLeaks. . . . I’m not afraid of anything that the U.S.
government might do to me if I was associated with backing WikiLeaks financially. If anything,
it would show that I no longer live under a constitutional government any more.”
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Although many Bitcoin enthusiasts agreed with the philosophical underpinnings of
WikiLeaks, others advocated a kind of isolationism, and were hesitant to become involved in the
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https://bitcointalk.org/index.php?topic=1735.msg26876#msg26876
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war that was brewing between world governments and WikiLeaks. Instead of an individual right
to assert political belief, they saw attempts by individual Bitcoin holders to encourage donations
to WikiLeaks as coercively involving the entire community against their collective will. One
Bitcoin developer wrote sarcastically, “Thanks for being willing to helpfully impose risk upon
others.”
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Individualistic libertarianism was being turned against itself and used to counter
arguments to offer assistance to the cypherpunk cause.
At risk, worried some Bitcoin enthusiasts, was the Bitcoin project itself. If the Bitcoin
community were to explicitly rally around WikiLeaks, it would attract the attention of state
regulators and lose the benefits of benign neglect that it had come to enjoy. Was supporting
WikiLeaks worth the potential demise of Bitcoin? One poster on bitcointalk.com wrote:
Yeah this may be good for wikileaks, but not necessarily good for Bitcoin. If bitcoin
becomes publicly associated with wikileaks before going semi-mainstream, then it will be
viewed by the “ruling class” (read: US government) as a tool for doing money laundering
and another “gray” businesses. This may make bitcoin be considered by governments as a
serious threat, and they will start fighting it too soon, holding back mainstream
adoption.
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Another echoed, “I say, we MUST get it accepted at the local grocery store. . . . BEFORE it gets
accepted at WikiLeaks. Then, we’ll have a chance.”
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The controversy over WikiLeaks forced members of the community to make their
political commitments explicit, and it turned out that many were not interested in antagonism. In
particular, Satoshi was not happy with the association with WikiLeaks. Whereas other posters
had a “bring it on” attitude, excited to use Bitcoin to directly aid in a project that was aligned
with their ideals about transparency, he wrote:
No, don’t “bring it on.” The project needs to grow gradually so the software can be
strengthened along the way. I make this appeal to WikiLeaks not to try to use Bitcoin.
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https://bitcointalk.org/index.php?topic=1735.msg26882#msg26882
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https://bitcointalk.org/index.php?topic=1735.0;all
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https://bitcointalk.org/index.php?topic=1735.msg26814#msg26814
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Bitcoin is a small beta community in its infancy. You would not stand to get more than
pocket change, and the heat you would bring would likely destroy us at this stage.
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In what appears to be his second-to-last post on bitcointalk, after which he seemingly
disappeared entirely, leaving his store of Bitcoins untouched, he wrote, “It would have been nice
to get this attention in any other context. WikiLeaks has kicked the hornet’s nest, and the swarm
is headed towards us.”
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The hesitance expressed by Satoshi reflected a growing philosophical disagreement
within the community of Bitcoin enthusiasts. One poster complained of those who were hoping
to avoid association with WikiLeaks:
It seems all you want is your business to not be taxed that we will be free if we have
competition and all that. Its an issue of freedom of press and the fact they need a
anonymous network of donations. I bet you don’t ever see the oppression around society
and decide to go out and do some direct action. Like in the case of the ashvi11e eleven or
oscar grant. Instead you want to have more money and create the perfect economy. For
revolution we need social change before economic. WikiLeaks can be the first step to
achieving this against the government. That’s why I’m deciding to contact and explain to
them the benefits of bitcoin.
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Although it is unclear how many donations actually flowed to WikiLeaks through
Bitcoin, the story was picked up in the popular press. Time blogger Jerry Brito, echoing other
proponents, wrote of Bitcoin: “Want to contribute to WikiLeaks or some other politically
unpopular organization? No problem. Live under a repressive regime and want to buy a
repressed book or movie? Here’s how” (Brito, 2011). The two were inextricable linked in the
popular imagination.
Those who were concerned that Bitcoin could would receive much—perhaps too much—
attention if associated with WikiLeaks were correct. Beginning in early 2011, there was a
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https://bitcointalk.org/index.php?topic=1735.msg26999#msg26999
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https://bitcointalk.org/index.php?topic=2216.msg29280#msg29280
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https://bitcointalk.org/index.php?topic=1735.140;wap2
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tremendous surge of interest in and mainstream coverage of Bitcoin. One poster on
bitcointalk.com half joked, “Looking on the bright side, if Bitcoin did get known as the
WikiLeaks currency, attacked by governments all over the world, at least we’d get our Wikipedia
page back!”
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Before the connection to WikiLeaks, Bitcoin had received so little journalistic
coverage as to not be considered notable enough by Wikipedia standards to warrant a page in the
online encyclopedia.
Everyday Payment and Speculative Commodity
In the popular news coverage of Bitcoin, much is made over its price. This was especially
true in 2013, when its price soared to an all-time high of US$1,162 in November, up from just
US$13.36 on January 5 at the start of the year. The higher it rose against the U.S. dollar, the
more it seemed to prove that Bitcoin was a success.
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Many in the Bitcoin community felt this
way, too. Those who saw bitcoin as a commodity were no doubt happy to see their investment
rise—even if it wasn’t so easy to cash out on it. However, for even the most anarcho-capitalist
digital metallists, the point of having a commodity-backed token was not to hoard it, but to keep
it in motion between sovereign peers. Inflation in the price of bitcoins made this difficult.
In 2012 and 2013, Bitcoin exchanges proliferated, and thousands of new users entered the
economy and began to participate in the online forums. Speculative trading was rampant. Many
new entrants into the Bitcoin market were not digital metallists who valued Bitcoin for its
potential to eliminate trust and offer privacy. Some treated bitcoin as a “get rich quick” scheme.
Discussion on the forum shifted from primarily being about the development, implementation,
and maintenance of the blockchain system, to being about the price of bitcoin, who was bullish,
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https://bitcointalk.org/index.php?topic=1735.msg26860#msg26860
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http://bitcoincharts.com/
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who was bearish, and why. Trading drove up the price, which, in turn, attracted popular attention
to Bitcoin. High prices seemed to legitimize Bitcoin, drive trading, and subsequently fuel future
price increases. The boom of attention and speculation was self-reinforcing.
Not everyone in the Bitcoin community was comfortable with its shift from payments rail
to speculative commodity token. Many posters on bitcointalk.org criticized “hoarding,” and
worried that the price of Bitcoin was too high and too unstable to sustain its economy long term.
They were concerned that those who treated Bitcoin as a speculative vehicle had driven up the
exchange rate high enough to discourage participation by new individuals and merchants. One
poster noted:
A higher price may discourage people from investing in bitcoins. However if bitcoin is
useful and it is easy to convert other currencies in to and out of bitcoins people will use
bitcoin. It seems to me that people using bitcoin is more important than people investing
in bitcoins.
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Indeed, the rapidly rising price may have had a chilling effect on those who might have
otherwise used bitcoin for ordinary, privacy-protected payments. But many people were reluctant
to spend their Bitcoins, assuming that they would continue to appreciate.
Some Bitcoin forum members worried that no one would want to “buy high.” As it
became harder and harder to mine Bitcoins, people would become less interested in using the
system, particularly if its only function was as an investment vehicle. Others were more hopeful:
But you’re looking at Bitcoin from only a speculative point of view. As a currency, it
doesn’t matter what the absolute price is vis-a-vis the dollar or whatever. People will be
attracted to Bitcoin for a variety of reasons, including its low transaction cost and
decentralized and pseudonymous nature. My enthusiasm for it wouldn’t be any less in the
absence of mining.
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https://bitcointalk.org/index.php?topic=4259.msg62050#msg62050
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https://bitcointalk.org/index.php?topic=4259.msg62982#msg62982
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The writer of the “Bitcoin Manifesto” similarly countered those who saw Bitcoin as “simply a
distributed structure to do capitalism with,” and hoped instead that the behavior of early adopters
would be “the shit that fertilizes some beautiful flowers.”
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Even during the headiest days of Bitcoin speculation, there were community members
who insisted that the project had higher stakes than the enrichment of individual miners. For
example, one poster on bitcointalk.com wrote, “If I were Goldman Sachs, I would invest in
bitcoin for a chance of several thousand percent in return.” But another poster was quick to
respond:
“Invest” is the kind of word that the flow capitalism uses. We, as hackers, know, that it’s
possible to create complex software even without any outside investment at all. Now,
what Bitcoin needs to show the world, is that there are alternatives in hoarding capital
and creating megaprojects with huge investments.
From this point of view, Bitcon was an opportunity to produce a new kind of infrastructure, one
that shouldn’t require “investment” in the Goldman Sachs sense. The point was not to buy in
early at a low price and watch that investment pay off in form of financial dividends. Instead,
“investing” in the infrastructure of Bitcoin meant becoming part of a community and benefiting
from the mutual aid it offers, as long as that community persists.
The commodity function of Bitcoin was reinforced when the IRS issued guidelines that,
for tax purposes, treated Bitcoin as property, not currency or an exchange platform.
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This
means that Bitcoin will be subject to capital gains taxes, making it difficult to account for its use
as a payment vehicle. To use one common example, purchasing a $2 cup of coffee with Bitcoins
bought for $1 would result in $1 of capital gains for the coffee drinker, and $2 of gross income
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https://bitcointalk.org/index.php?topic=5671.0
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http://www.irs.gov/uac/Newsroom/IRS-Virtual-Currency-Guidance
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for the coffee shop. As one technology investor put it, “It’s challenging if you have to think
about capital gains before you buy a cup of coffee” (Rubin & Dougherty, 2014a).
The main exception to the tendency to hoard Bitcoins was on The Silk Road, where
bitcoins could be used buy drugs and other illicit goods—often by people who had no other use
for bitcoins beyond that purpose. The Silk Road, a website only accessible on the “deep web”
through the privacy-protecting encrypted web browser Tor, was founded in 2011 as a
marketplace for all things illegal. A shopper would find something they wanted to buy, send
encrypted messages to the vendor through the site, and pay with Bitcoin. The vendor would then
vacuum seal the drugs—preferably LSD, MDMA, or others that are odorless and have a high
cost per ounce—and ship them using a private agency or even the United State Postal Service.
Aside from its unusual products and encrypted transactions, the Silk Road was a rather
conventional e-commerce platform.
It seemed that the only people who were willing to spend a currency that could be double
in price the next day were either desperate drug addicts or recreational users who considered the
potential for price fluctuation to simply be the part of the cost of doing occasional business with
a drug dealer. These proved to be the surest and most regular uses for a psuedonymous, direct
payment rail. From February 2011 to July 2013, the total revenue generated from these sales was
9,519,664 bitcoins, and the total commissions collected by Silk Road from the sales amounted to
614,305 bitcoins, approximately equivalent to $1.2 billion in revenue and $79.8 million in
commissions, at current Bitcoin exchange rates.
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In a 2013 interview, Silk Road administrator and “mastermind” Ross William Ulbricht,
known as the Dread Pirate Roberts, credited Bitcoin with the majority of the Silk Road’s success.
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See https://www.coinbase.com/charts; http://www.coindesk.com/price/; https://blockchain.info/charts/market-
price
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He said, “We’ve won the State’s War on Drugs because of Bitcoin.”
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According to Ulbricht,
Bitcoin also provided the occasion for his involvement in the site. According to Ulbricht, the site
had been founded by someone else, also using the name Dread Pirate Roberts. Ulbricht, a hacker,
noticed a flaw in the security protocols of the original Dread Pirate Roberts’ Bitcoin wallet.
Instead of stealing all his bitcoins, Ulbricht struck up a friendship with the founder, and soon the
torch was passed.
The Silk Road, which assumed that payers would only want to use for Bitcoin for
transactions that required pseudonymity, put this into practice by implementing a built-in
exchange that allowed prices of goods and services to fluctuate with the exchange rate. The
Dread Pirate Roberts explained, “Bitcoin’s foundation, its algorithms and network, don’t change
with the exchange rate. It is just as important to the functioning of Silk Road at $1 as it is at
$1,000. A rapidly changing price does have some effect, but it’s not as big as you might
think.”
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This reflects the more widespread belief that Bitcoin’s high and volatile pricing was not
at odds with its ability to function as a payment rail. From this point of view, Bitcoin was
imagined it as a niche currency that circulated alongside others. One forum poster made the
analogy:
Example 1: You want to buy oil and you need dollars to do so but you only have yen.
Solution: buy some dollars at the current exchange rate and then buy the oil.
Example 2: You want to have pseudo-anonymity and a low transaction cost for a series of
exchanges. Solution: buy some BTC at the current exchange rate and then engage in
your transactions. In each example, another currency was better suited to the task at hand
than the one you currently possessed, so you did an exchange first.
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222
http://www.forbes.com/sites/andygreenberg/2013/08/14/meet-the-dread-pirate-roberts-the-man-behind-booming-
black-market-drug-website-silk-road/
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http://www.forbes.com/sites/andygreenberg/2013/04/16/founder-of-drug-site-silk-road-says-bitcoin-booms-and-
busts-wont-kill-his-black-market/
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https://bitcointalk.org/index.php?topic=4259.40;imode
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If Bitcoin were part of a portfolio of other currencies, then it could be used depending on its
suitability for exchange. This everyday competition in everyday money was, itself, aligned with
crypto anarchist values.
Before his arrest in October 2013, Ulbritch may have been the most successful Bitcoin
entrepreneur, but he claims that his main motivation was not profit, but politics. He was
particularly passionate about agorism, a political philosophy that holds that all actions conducted
outside of the state are a form of counter-economics and ultimately revolution.
The Silk Road, then, for Ulbritch, was a staging ground for Agorism. He wrote, “Every
single transaction that takes place outside the nexus of state control is a victory for those
individuals taking part in the transaction. So there are thousands of victories here each week and
each one makes a difference, strengthens the agora, and weakens the state.”
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Ulbritch held a
reading group on the Silk Road forums devoted to “agorism, counter-economics, anarcho-
capitalism, Austrian economics, political philosophy, freedom issues and related topics.” It
didn’t matter to him that many users of the Silk Road were more interested in buying or selling
drugs than politics, because “[a]nything you do that is outside the control of the state is agorist,
so in some sense we are all agorists whether we know it or not.” Through his book club, he
aimed to enlighten the drug consumer, turning “unconscious agorists” into “conscious active
ones.”
Silk Road vendors, however, found that they could make more money simply by holding
onto their Bitcoins than by accepting them. Bitcoin speculation, at least for a time, became more
profitable, at least for the short term, than selling drugs.
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http://www.forbes.com/sites/andygreenberg/2013/08/14/meet-the-dread-pirate-roberts-the-man-behind-booming-
black-market-drug-website-silk-road/
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Bitcoin’s Future
Since 2013, Bitcoin has, to a certain extent, gone mainstream. The Bitcoin Foundation
serves as a somewhat official, legitimate voice of the project. It is accepted as payment a range
of vendors, including online dating site OkCupid, e-commerce marketplace Overstock.com, and
travel site Expedia.
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Bitcoin-based start-ups are regularly funded by Silicon Valley venture
capitalists, including Marc Andreessen and Tim Draper. Former U.S. Securities and Exchange
Commission Chairman Arthur Levitt serves as advisor to two Bitcoin start-ups.
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Cameron and
Tyler Winklevoss, the twin brothers most known for the legal battles with Mark Zuckerberg over
the founding of Facebook, attempted to list a Bitcoin exchange-traded fund on NASDAQ.
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As next generation “Bitcoin 2.0” projects emerge, some seem to clearly be a call to return
to infrastructural mutualism, to remove the need for authority of all kinds in a variety of
contractual relations—while producing a collective good. These systems, because they are based
on the Bitcoin blockchain and token model, usually use “coins” to “fuel” the processing of these
distributed contracts, and there are digital metallists who would like to see a secondary market
for stakes in the infrastructure itself. Outside institutions have also taken interest in the protocol,
and there are some who are attempting to use it for purposes distinct from either form of
alternative politics.
Just Another Protocol?
226
See http://mashable.com/2013/04/17/okcupid-bitcoin/; http://www.wired.com/2014/09/overstock-com-becomes-
first-major-retailer-accept-bitcoin-worldwide; http://www.bbc.com/news/technology-27810008
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http://www.cnet.com/news/former-sec-chairman-bullish-on-bitcoin-lends-advice-to-companies/
228
http://dealbook.nytimes.com/2014/05/08/winklevoss-twins-to-list-bitcoin-fund-on-
nasdaq/?_php=true&_type=blogs&_r=0
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In addition to thinking of it as a payments rail and a commodity token, many interested in
Bitcoin have recently begun to focus on its properties as a cryptographic distributed ledger
protocol. New, far more sophisticated platforms are being developed to use a bitcoin-like
protocol to achieve more than currency generation and transfer. As one digital currency
consultant put, it “Bitcoin the currency is a sideshow, the blockchain is a revolution.” This
includes those who see it as a useful technology that might be incorporated into existing
mainstream infrastructures, as well as those who see it as an opportunity for deeper
infrastructural mutualism or digital metallism.
Presently, corporations and institutions are exploring private uses of the blockchain
ledger. To them, the blockchain is seen as a “neutral” protocol that can be incorporated into
existing infrastructures. A private blockchain could be used by a large bank to complete internal
settlement between siloed areas of the bank, without incurring the costly fees currently
associated with payment. It could also be used by to build a sector-specific blockchain, like an
equities market. Market makers could form an association to maintain the blockchain as their
cost of entry to the market. This use of the protocol is less like the World Wide Web, and more
like the global distribution system or GDS, which allows all airlines, travel agencies, and
distribution channels to manage reservations and schedules in a single private network.
If these were to happen, it would mirror the surprising history of the VISA card network.
Originally, VISA was a cooperative association owned by its competing member banks.
Chartered in the early 1970s, it was governed according to a charter that included principles of
self-organization, equal participation, distributed decision-making and function, and flexibility.
To Dee Hock, VISA’s designer and founder, the system was much more than just a bank
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information system; it was an opportunity to make a new form of global currency and, beyond
that, a totally new “chaordic”—a mix of chaos and order—way of organizing all forms of life.
Hock did not see VISA as being in the business of consumer debt. Indeed, initially, VISA
did not design any debt instruments, or even any consumer-facing packages. Instead, he saw
VISA as building technological and social systems to exchange value. As he describes it:
Money would become nothing but alphanumeric data in the form of arranged energy
impulses. It would move around the world at the speed of light at minuscule cost by
infinitely diverse paths throughout the entire electromagnetic spectrum. Any institution
that could move, manipulate, and guarantee alphanumeric data in the form of arranged
energy in a manner that individuals customarily used and relied upon as a measure of
equivalent value and medium of exchange was a bank. It went even beyond that. Inherent
in all this might be the genesis of a new form of global currency (Hock, 2005, p. 97).
For him, banks, and also governments, were vestiges. He wrote, “It mattered little that traditional
banks or government might be the settlers of last resort—the ultimate handlers of huge,
accumulated transfers of monetary value. The vast preponderance of the system would fall to
those who were most adept at handling and guaranteeing alphanumeric value data in the form of
arranged particles of energy” (Hock, 2005). To bank leaders, VISA was a simply a membership
organization with the purpose of building and managing infrastructure for use by those banks.
Hock was considered a dangerous eccentric, and he was ousted from VISA in 1984. VISA’s
protocols, though updated, continue to remain the industry standard for the payment card
networks.
The Fuel for a New Form of Governance?
The leading example of these “next generation” or “Bitcoin 2.0” system is Ethereum.
Launched in late 2013 by then-19-year-old Russian-Canadian programmer and founder of
Bitcoin Magazine, Vitalik Buterin. Ethereum is an attempt to create a blockchain with a built-in
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Turing-complete programming language. This means that it would be a universal general
purpose language that could be used to write any program that a computer can run, to make just
about anything. Ethereum would allow any programmer to write decentralized applications that
could run on the blockchain. There have been many different projects that have attempted to use
the Bitcoin blockchain for any number of new purposes, but were mostly convoluted hacks on
the existing system. The point of Ethereum was to start from scratch to create a system that was
intended to have different affordances.
In Buterin’s white paper introducing the project, he outlined three kinds of applications
that Ethereum could be used for (2014). The first category is financial applications, including
financial derivative, savings accounts, and wills. The second category is “semi-financial,” such
as decentralized file storage and identity and reputation systems. The third category is not
considered financial at all, such as decentralized, encrypted voting and other forms of
governance. Buterin and other Ethereum enthusiasts are particularly interested in using it to
implement virtual membership-based entities called “decentralized autonomous organizations.”
These might be overtly capitalist formations (“decentralized autonomous corporations”) or
overtly something else (“decentralized autonomous community”). The functioning of these
organizations would be enforced not by managers or leaders, but by code, which would be
developed collectively by the member peers.
The ideal vision of Ethereum is seen by some as a next step in infrastructural mutualism.
It begins from an assumption that centralized institutions and services are a problem to be solved.
The “Why?” section of the Ethereum website explains, “when you deposit money at your bank,
you trust them to be honest, be secure and be independently audited.”
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Ethereum eliminated the
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https://www.ethereum.org/#why
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need to trust intermediaries who have proven themselves again and again to be untrustworthy.
This is not only true with money and financial institutions, but social media and personal data.
The website explains, “The same is true when you post pictures on Facebook, or an important
document on Dropbox.”
But digital metallism reasserts itself. Although Ethereum is not a currency, it still uses
tokens, called “ether,” to serve as the “fuel that powers all computational steps and storage
operations on the network.” It is often described as a commodity: not gold, but “crypto-fuel.”
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In this sense, Ethereum shores up the digital metallist beliefs of Bitcoin. Ether is assumed to have
intrinsic value. It can be owned and speculated with. As with Bitcoin, Ethereum privileges early
adopters, who could buy into ether in a pre-sale. What it will be for decentralized autonomous
organizations if certain individuals own the means of participation in them?
Conclusion
As a peer-to-peer payment rail, Bitcoin represents a working implementation of the
political philosophy described as “infrastructural mutualism.” Whereas infrastructures of
conveyance and communication, such as the automated clearing house and the telephone
network, depend on pervasive state authority, Bitcoin distributes control among a network of
peers. Each node in the Bitcoin network contributes to the reliability of the overall system by
participating in the computational process of verifying transactions. In this sense, Bitcoin situates
mutual interdependence at the level of infrastructure, rather than formalizing it in a bureaucratic
institution.
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https://www.ethereum.org/#what
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Infrastructural mutualism is embedded in the design of the Bitcoin blockchain ledger, but
since 2008, Bitcoin has been taken up by a number of stakeholders with a diverse array of
political commitments. Early enthusiasts imagined Bitcoin as a form of digital cash for making
peer-to-peer payments the internet. This vision first appeared in Satoshi Nakamoto’s white paper
as a potential outcome of the proposed system. Shortly, however, the hypothesis was realized on
The Silk Road, where thousands of users successfully conducted pseudonymous transactions
outside of the established state and corporate payment rails. In fact, Bitcoin became such an
integral aspect of The Silk Road that some merchants abandoned their earlier trades in favor of
developing financial services around Bitcoin.
As the Bitcoin economy swelled with entrepreneurs and curiosity seekers, the bitcoins
themselves were increasingly seen as commodities, rather than tokens of payment. As such, an
alternate vision emerged that regarded Bitcoin primarily as a site of speculative investment.
Adherents to the payment vision disparaged this insurgent ideology as “hoarding” and worried
that the project would stagnate if the currency were not used for day-to-day transactions. But
news of Bitcoin’s rising valuation against the U.S. dollar generated regular publicity, drawing
even more newcomers to the network. Non-specialists began to talk about and acquire Bitcoins.
In the last year, public curiosity about Bitcoin as an investment opportunity has begun to
wane. In its place, a third discourse has emerged that focuses on the technical affordances of
Bitcoin’s underlying protocol as a distributed ledger system. Exemplified by Ethereum, the
stakeholders in this discourse endeavor to integrate Bitcoin into existing financial apparatuses.
Instead of building a distributed network of peers, the adherents of this vision hope to use the
blockchain as a complement to existing centralized practices. These modest goals are,
admittedly, a far cry from the revolutionary rhetoric of Bitcoin’s most vocal early proponents.
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Today, the technology, community, and social meaning of Bitcoin are reaching a point of
inflection. With The Silk Road shut down by law enforcement, the Bitcoin community has lost
its living laboratory. Certainly, there are merchants willing to accept Bitcoins, however
symbolically, but the payment function of Bitcoin appears to have been tainted by its association
with criminal goods and services. The vision of Bitcoin as a commodity is similarly stymied. The
World Bank recently called Bitcoin an “unintentional ponzi scheme,” not because of any
intentional fraud, but because of perceived flaws in its design; the soaring exchange prices are
unsustainable, and the model overly favors early adopters (Basu, 2014). In the face of such
criticism, the ideology of digital metallism appears to have brought the Bitcoin economy to a
standstill.
Interest in Bitcoin as a protocol for distributed ledger-keeping, however, provokes a new
set of possibilities. Companies like Ethereum are attempting to divide the blockchain mechanism
from the Bitcoin economy. The products and services they sell to financial institutions will not
fundamentally transform the organization of global financial power, but rather, offer
instrumental improvements to the status quo. In the same sense that Hock’s radical vision of
VISA was domesticated during the 1980s, Bitcoin’s radical adolescence may soon fade from
memory. The blockchain will become another transparent feature of the infrastructure of global
finance.
Central to Bitcoin’s future is the lingering tension between its status as either a payments
rail or a fungible commodity token. If Bitcoin, and similar cryptocurrencies, are to achieve
widespread acceptance as peer-to-peer cash, they may have to lose their reputation as an
investment opportunity. In other words, can something like a bitcoin be unthought of as a
commodity? Or is commoditization irreversible? Despite its attempts to create distance from
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Bitcoin, Ethereum updates the commodity metaphor of the “coin” to “oil.” The Bitcoin protocol
is not easily disentangled from its politics.
Bitcoin represents a working implementation of infrastructural mutualism. Each of the
participating nodes in the Bitcoin network may be owned and operated independently from one
another, but the trust and function of the network depends on their shared interdependence. As
Bitcoin is increasingly embraced by the financial industry, will it be fully incorporated into
existing infrastructural power? Or, will the decentralization inherent in the Bitcoin protocol
enable a polycentrism in which multiple implementations are able to exist simultaneously, each
with its own social meanings and political philosophies? And if there are commodities involved,
will the network begin to organize itself into a hierarchy reminiscent of classical liberalism, with
a small number of nodes acting as “enlightened peers” in the network by controlling and
hoarding coins? Considering this tendency to recentralize, how might those who care about
privacy and autonomy create governance structures that allow for the formation of a public,
rather than insist on economic individualism?
The tensions and diverse meanings that characterize the recent history of Bitcoin reflect a
larger pattern in the commercialization and regulation of internet infrastructure. Just as the
radical early vision of Bitcoin is challenged by projects like Ethereum, the peer-to-peer
architectures that traditionally form the basis of the internet are increasingly enclosed by large-
scale, vertically-integrated silos. Whereas earlier “walled garden” services, such as America
Online, operated internally on a different set of protocols from the internet, “cloud” services have
effectively built opaque centralized systems using decentralized technologies. In this respect,
infrastructural mutualism—as exemplified by Bitcoin—offers a novel way to think about the
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prevailing conflicts in finance and telecommunications between the limits of civil liberties, the
ownership of infrastructure, and the role of the state.
CONCLUSION:
TOWARD A COMMUNICATION THEORY OF MONEY
“We believe that human connection should be present in every transaction. Money isn’t just
buying power, it’s a sign of appreciation—an intermediary that connects people. We want to
bring surprise and joy into the experience, because we believe that every transaction should, in
the end, exchange something more valuable than money.”
– Mobile payments start-up Clinkle in 2013, after raising $30 million in what was widely
reported as Silicon Valley's largest-ever seed round.
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“After raising _NUMBER_ million only to endure a _BAD THING(S)_, at least _START UP_
got something out the door. Even if it’s doubtful anyone will use it.”
– Commenter on a 2014 article about Clinkle’s status as a “mobile wallet laughing stock”
for failing, despite hype, to bring a viable product to market.
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Bubbles of Hope, Bubbles of Money
Money20/20, one of the largest and most important payments industry events, was
founded in 2011, filling an emerging niche at the intersection of the tech industry and the
traditional payments industry. By Money20/20’s third annual event, in 2014, it seemed that the
vision of payments I had first glimpsed in 2011 (and described in the introduction to this
dissertation) at Los Angeles Mindshare’s Future of Currency event had come fully into bloom. It
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https://vimeo.com/68576734; http://techcrunch.com/2013/06/27/clinkle-raises-celebrity-filled-25m-round-as-it-
gears-up-to-eliminate-the-physical-wallet/;
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http://techcrunch.com/2014/09/23/clinkle;
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was less staid than the long-running Electronic Transactions Association show. In addition to the
card processors, point of sale terminal makers, and security firms, there were countless start-ups,
many based on rethinking the whole value chain of payments, and maybe much, much more
about our everyday social and economic relations. Held at the Aria casino, resort, and convention
center in Las Vegas, Money20/20 also featured Circe du Soleil performers on stilts running
around the exhibition hall and coming down from the ceiling, suspended by aerial silks and
pouring champagne at the opening party. There was the sense that big funding deals and
acquisitions were being made in hotel rooms and poolside cabanas throughout the Aria.
“Everyone who’s everyone is here,” one consultant told me with excitement.
So important was presence at Money20/20 in 2014 that, it was rumored, keynotes to the
entire conference were available mainly to those who’d paid for them in the form of sponsorship
at the level of hundreds of a thousands of dollars. Cameron and Tyler Winklevoss, twin brothers
who claimed that Facebook had originally been their idea, sued Mark Zuckerberg over it, and
ultimately received $65 million dollars, gave one of these keynotes. The Winklevoss brothers
had, perhaps hoping to avoid missing out on the next big thing, become ardent Bitcoin
entrepreneurs. By 2014, they claimed to own 1% of all bitcoins in existence.
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There was some anticipation when they took the stage: Money20/20 attendees expected
the brothers to announce the launch of a major Bitcoin project, perhaps a partnership with a
mainstream financial institution or the launch of their long-planned Bitcoin exchange-traded
fund. Instead, the Winklevosses gave a much more general, pseudo-academic lecture on the
history of money, drawn from a mix of Menger’s (2009) commodity theory, modern Libertarian
interpretations of Austrian economics, and blatant cribbing of a 2010 NPR story on the
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http://www.washingtonpost.com/blogs/the-switch/wp/2013/11/09/the-11-million-in-bitcoins-the-winklevoss-
brothers-bought-is-now-worth-32-million/
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affordances of gold.
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In addition, they asserted that soon we’d witness the “cryptographic
singularity,” in which the Bitcoin protocols would produce not only self-aware autonomous
intelligence, but that such intelligence would be manifest in pure, rational economic actors
(Kurzweil, 2005).
A strange—or perhaps shockingly normal, I’d just been in the “field” too long—thing
happened: The audience rebelled. The tweets criticizing and mocking the Winklevosses on the
Money20/20 hashtag came fast, vicious, and hilarious. People started to walk out in droves. The
ballroom, which sat around 8,000 people, was soon at less than a quarter full. As the attendee
sitting next to me gathered his stuff and stood up, he muttered to me, “People don’t give a shit
about this shit. Who are these guy kidding?” As an audience for the Winklevoss brothers and
their dream of a cryptographic singularity, the members of the constituency formed by
Money20/20 were either too immersed in rethinking the essence of money or simply interested in
how to deliver better, more competitive payments services. They had either heard it all before
and weren’t impressed, or never cared to begin with. There was a lot of buzz at Money20/20 in
2014 about “blockchain protocols” and “math-based currencies,” and other potential uses for
Bitcoin-related technology, but none had to do with the political or speculative potential of a
global, commodity-like currency.
By 2014, Money20/20 demonstrated the creation of a new industrial imaginary, one that,
in just a few short years, had taken form, cohering certain elements and discarding others. Just as
it represented the opening of new possibilities for the practice of money in everyday life, so too
did it represent the foreclosing of others. Things had come a long way since the “digital
utopianism” (Turner, 2006) of Mindshare, where community-based alternative economic
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http://www.npr.org/blogs/money/2011/02/07/131363098/the-tuesday-podcast-why-gold
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practices comingled with start-up incubators and, indeed, Bitcoin. Money20/20 was much larger
and much more professionalized than the San Francisco-based Future of Money and Technology
Summit, which also drew start-ups, many of which were inflected by a “funkier,” “Burning Man
aesthetic” (as two different observers put it, respectively), but had less pull for the “big tech”
venture capital firms. By 2014, people in the world of payments seemed to simultaneously dream
a lot bigger and a lot smaller than they had just a few short years before.
In the introduction to this dissertation, I suggested that the “Cambrian explosion” (as
Scott Mainwaring has called it) around money that spawned Mindshare and Money20/20 was the
result of three interconnected trends that converged in 2007 and 2008 (quoted in Nelms, Maurer,
Swartz, & Mainwaring, Forthcoming). The Apple iPhone and Android smart phones were
released and quickly diffused in the American market. M-Pesa, the first successful large-scale
mobile payment system, debuted in Kenya. Global economic crisis undermined trust in and
legitimacy of both the financial and governance systems. This interest in the money form was
influenced not just by technological innovation and economic downturn, but by popular reactions
to it. Whether by the 2008 campaign and election of President Barack Obama, the Tea Party
movement beginning in 2007, or the Occupy movement beginning in 2011, this historical
conjunction was also marked by a swell of economic activism, a belief that things could finally,
maybe this time, as the Obama campaign had argued, “change.” This optimism around changes
to our economic relations were—it seemed likely—ready to be made material in changes to
money in everyday life, to the tokens, ledgers, and rails of payment.
By 2014, political projects that seemed viable post-2008 were on the wane: The radical
expectations of the Obama campaign gave way to a relatively unexceptional presidency; the
populism of the Tea Party was easily coopted by the Republican party, which now has to deal
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with the consequences of adopting an even less coherent platform than it had in the past; the
activist fervor of the Occupy movement, though it has produced a global network of activists,
has gone largely dormant.
A perfect example of the trajectory of new payment systems is WePay. As described in
Chapter 4, WePay began in 2008 as a peer-to-peer payment system. It set out to be the “anti-
PayPal,” free of the seemingly arbitrary and frustrating account closures and bad customer
service associated with the online payments behemoth. To demonstrate this, WePay executives
dropped off a block of ice outside the PayPal developers’ conference with five dollar bills and
the message “UNFREEZE YOUR MONEY” frozen inside.
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WePay made its name as the
unofficial donation system of Occupy Wall Street.
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But as it tried to bring to market a viable
service, WePay found that it was actually quite difficult to produce peer-to-peer payments. Like
most other peer-to-peer payment systems—with the notable exception of Venmo, which serves
as a loss leader for its parent company PayPal—WePay pivoted to a new business model in
2012.
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Instead of providing common carriage as a business model to compete with PayPal, it
began to offer platform payments; that is, payment systems integrated into online marketplaces
and other platforms that connect people as buyers and sellers. Its clients would be these
platforms, not the people on either end of this transaction. As an added value, WePay began
guaranteeing “zero” risk of chargeback by surveilling the social media of individuals using the
system. WePay went from the peer-to-peer payment system that offered payments to Occupy
Wall Street after the movement was frozen out of PayPal to building a new reputation based on
proactively crawling customers’ online profiles and freezing seemingly risky accounts. Today, it
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http://social.techcrunch.com/2010/10/26/wepay-ice-paypal/
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http://www.forbes.com/sites/elizabethwoyke/2012/01/31/wepay-the-online-payment-startup-behind-occupy-wall-
street/
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http://techcrunch.com/2012/08/14/paypal-competitor-wepay-adds-white-label-api-drops-prices/
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has raised over $34.2 million dollars in venture capital funding, including from PayPal co-
founder Max Levchin, and is one of the most widely-used platform payment systems, but WePay
retains little of the critique of infrastructural power from which it was founded.
Like Dee Hock, who imagined in the 1970s that the VISA network would transform
money into pure information and would allow it to flow globally according to new “chaordic
logics,” those who expected social, political, and economic changes to come from changes to the
payment system aren’t exactly wrong. New payment systems are not changing the world in the
ways that many entrepreneurs and activists have planned, but they are new communicative
infrastructures, new sites of meaning, of communication power and counter-power. New tokens,
born of the interchange fees that power credit card infrastructures, trace niche geographies and
form niche transactional publics that, increasingly, compete with national currencies and national
transactional publics. Social payment systems like mobile wallets make apparent the collective,
imaginary ledgers of our transactional relations, and that sociality—the ledgers themselves—are
becoming the basis for new models of value extraction. The power to stop the flow of money
through payment rails is being recognized as a form of censorship, and those flows are governed
according to terms of service and business models that shift the burden of transactional risk onto
individuals and offer little democratic or market-based solutions for redress.
The payment landscape has, indeed, changed dramatically in recent years, in ways that
are more incremental than revolutionary. In many ways, the biggest difference between
MindShare of 2011 and Money20/20 of 2014 is the absence of this economic and ultimately
political optimism. There are still new visions for the tokens, ledgers, and rails of payment, but
their ambitions are different. The politics and the optimism have drained; the hope to make
money by moving money has remained, and this hope produces new politics.
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Indeed, in looking at the waves of interest—popular, political, and economic—in new
payment technologies, it is important to note that the politics of payment, of any technology, are
not bipolar, not a question of making a radical change or upholding the status quo. Desan (2010,
2015) argues that every community makes its own money, and that economies do not actually
follow natural laws, but instead perform according to the context of power and polity in which
they are engineered.
Transactional Communities: Toward a Communication Theory of Money
Everyone at Mindshare, everyone at Money20/20, and everyone I interviewed or
considered in the course of this fieldwork is trying to change, no matter how incrementally, the
way we do money. By doing so, they are trying to alter or produce what I call a transactional
community. By “transactional,” I mean literally a trans-action, an activity of moving across,
between. By “community,” I mean a form of totality produced and sustained through
communication. Transactions become circulations, which then produce communities of shared
experience and expectation. Payment is a means of economic communication that draws people
together in a transactional community. When we use a form of payment, we communicate to
maintain a specific social order, sustaining the transactional community. Payment can be used to
express and shore up existing meanings and bases of power, but it can also be used to form
pathways for new networks of meaning and counterpower. Money isn’t money—it isn’t a
medium of exchange, a store of value, a unit of account, a standard of payment—without more
than one person. Money must always exist in a network of relations. It is inherently social,
always dependent on transactional communities. In turn, these transactional communities are
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dependent on payment technologies—tokens, ledgers, and rails—which are also socially
produced and are mechanisms of maintaining shared senses of identity, value, and space-time.
A transactional community is defined by a shared sense of identity. These identities are
both individual (who I am) and collective (who we are together). These identities differentiate
people as members of a given transactional community and may even further differentiate
members within a transactional community, according to its own distinctions.
Tokens, such as national currencies, were important vectors of the consolidation of the
nation-state and continue to produce national identities. Even within national, mainstream
transactional communities, as Zelizer (1994) notes, money forms are constantly proliferating to
produce new meaning. Frequently, these meanings are vectors of identity. They demonstrate
differentiated relationships to institutions, such as the American Express Centurion black card,
which serves as a form of conspicuous wealth, or the Electronic Benefits Transfer welfare card,
which communicates the opposite. They also demonstrate values, such as a personal check or the
latest version of Apple Pay. Niche tokens, such as frequent flyer miles, truck driver rewards, and
local currencies, similarly produce niche identities that may run alongside and inside of
nationalities. Beyond the momentary interpersonal identity performance described by Zelizer,
these niche tokens continue to be marked as they circulate within closed circuits of payment that
are produced by existing distinctions made in the larger, national transactional community.
Ledgers, whether collective and imaginary or actual material records like the ones
maintained by social media payment companies, produce identity because they are archives of
relationships. Ideal-type primitive economies, such as those described by Simmel (1900) and
Graeber (2011), are transactional communities that exclude strangers, economies of
interobligation between people who know each other deeply, whose identities are imbricated
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over time. In the case of today’s social media payments systems, these transactional data sets are
increasingly being put in conversation with other “social” data sets and used to create identity
profiles that serve as a market segments. These products codify, materialize, and privatize
existing relational identities. Both cash and Bitcoin are seen as “anonymous” because they evade
these processes. As such, the use of cash and Bitcoin demonstrates a particular political position
and thus constitutes yet another performance of identity.
Payment rails produce identities by including or excluding members from participating in
a transactional community. Identities are formed by how individuals and groups can or cannot
economically connect to one another. In early America, the availability of national currency—
cash—determined whether or not people living in rural regions were included in the national
economic “conversation.” One hundred years later, African Americans found that their ability to
use Diners’ Club, a set of private payment rails for travelers, was limited because of existing
racism. More recently, sex workers have found that their professional identities limit their ability
to access payment services. Payment technologies that reveal identity, such as the American
Express Centurion black card, the EBT card, the personal check, and Apple Pay, are themselves
differentiated on-ramps to infrastructures.
A transactional community is also defined by a shared sense of value. Having a shared
way to measure and standardize the value of payments enables an economy to exist. Within a
transactional community, value is determined usually in reference to an authority that guarantees
this value, or in reference to some other form of authorizing mechanism.
National currency tokens are authorized by the state and draw their value from the state’s
ability to perform its role. As Hart (1986) points out, value is performed as “two sides of the
coin”: “tails,” which is a number that describes how much the token is worth, and “heads,”
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which depicts who or what authorizes and, crucially, standardizes that value. Similarly, niche,
closed-circuit currencies are dependent upon their issuers’ ability to guarantee redemption.
Commodity currencies are intended to transcend such authorities. As a token, Bitcoin draws
from this tradition, performing a form of “digital metallism” (Maurer, Nelms, & Swartz, 2013).
However, both state and commodity currencies are produced through coordination of individual
and collective beliefs and values. A token is made valuable when a transactional community
binds, through collaboration or coercion, its collective beliefs about what guarantees value to an
object, material or informational, and puts it into circulation as a viable payment form.
Ledgers maintain records of value, obligations between members of a community, debts
to financial institutions, and taxes and tithes to authority. Value is derived from a transactional
community’s ability to depend on a shared record of the past and project into a shared record of
the future. In the case of Bitcoin, those who understand it as a ledger system value its ability to
produce contractual relations of peership, a form of cryptographic mutualism. In some
transactional communities, these obligations and the records that track them are informal,
intentionally left fuzzy. For example, in the Echo Park Time Bank, a local currency system of
which I am a participant-observer, members exchange “time dollars” for services rendered to
other members. Quite often, however, after initial exchanges, members get to know each other
and stop keeping scrupulous track of time dollars, instead forming reciprocal relationships, only
loosely keeping track of who owes what to whom.
Value is also produced by its ability to interoperate with infrastructure, to “ride the rails”
of a given payment system. Transactional communities are circumscribed by this ability to
transport, make fungible, and otherwise translate value. For example, the value of credit card
rewards is expanded, as is the scope of the transactional community who uses them, when those
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rewards are made to interoperate with Amazon, an essentially universal marketplace. Understood
as evidence of its value—even though it is rarely used to make such payments—was the litany of
retailers who were willing to accept Bitcoin. The value of cash is limited because of its inability
to interoperate with online commerce, and those who, for whatever reason, primarily use cash
and do not have a regular credit or debit card may pay high fees to “load” their cash onto a
prepaid card.
Tokens, ledgers, and rails are also used to support a shared sense of space within a
transactional community. Payment technologies are fundamentally technologies of movement.
This movement, in turn, defines the space in which payment is able to flow. This bounds the
spatial imaginary of a transactional community. Payment technology also enables and constrains
particular modes of movement, of both members of a transactional communication and their
money. The mode of movement within that territory produces differentiated relations,
differentiated mobilities (Massey, 2005).
Just as tokens produce and reflect identities, national and niche, so too do they produce
territories within a transactional community. As Virginia Hewitt (1995) points out, the British
government did not just exert economic control over its colonies; it designed paper currency
tokens for them that reflected the iconography of both the locality and the distant ruling power,
discursively binding far-flung places together as a “commonwealth.” Niche tokens produce and
reflect transactional communities that exist in space and time. It is no surprise that niche
currencies like frequent flyer rewards and truck driver rewards map to existing transportation
corridors: airports and highways. These spaces represent existing flows—and, indeed,
transactional communities—that are both set apart from and necessary to produce the larger
economic order. They are distributed spaces that are everywhere and nowhere. Local currencies
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of all kinds, on the other hand, are precisely an attempt to place-make, to build a transactional
community defined by localist values, using tokens.
The space of a transactional community may be determined by where the ledgers of its
shared transactions can be accessed and updated. Ideal-type primitive economies are described as
tied to ledgers produced, mostly unaided, by human memory (Hart, 2001). As such, they are
transactional economies that are inherently localist. Paper currencies, on the other hand, allow
individuals to access the records of banks or states—indeed, a bank note is just that, a receipt, a
reference to and a draw upon a ledger—and according to Simmel, transact as strangers in the
new modern metropolis. Today, ledgers of transactions are of economic interest to social media
companies because they offer the ability to overlay the built environment with “cyberspace.” Just
as search-based marketing directs “surfers” through the Internet, the idealized mobile wallet
would direct users through physical space, ultimately with the goal of targeting advertising
messages to the point of purchase. Various paradigms of personal transactional data management
offered by the companies attempting to bring mobile wallets to market in the United States alter
this model only insofar as they offer different mechanisms of control over how ledgers of
transactional data are marshalled, how access to them is granted, and to whom.
Space is enacted through rails that enable payment, material and informational, to travel
across distance. New spatial imaginaries require appropriate payment infrastructure. In order to
lubricate a more national, rather than regional economy, the Federal Reserve produce a national
network for check settlement and clearance, removing the justification for non-par clearance of
checks in the South. In mid-20th century America, Diners’ Club emerged alongside the era’s
infrastructures of mass rapid transportation: the highway system, lower-priced jet travel, and the
rental car. In the 1990s, PayPal was envisioned as a global, extra-national payment system for
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the internet age, and was used by those participating in a translocal person-to-person economy
facilitated by that same diffusion of the personal networked computer. Today, because the
payment rails that structure the online economy are, like other social media platforms, governed
by terms of service, certain people and activities are officially excluded from the transactional
community.
Locating the Public Interest in Transactional Communities
When a transactional community is intentionally formed, it is usually to overcome an
existing problem of identity, value, or space. However, by solving one set of problems, new
payment systems may ignore, produce, or reproduce others. How might the transactional
communities be managed and practiced, then, in the public interest? Can a transactional
community become more than a site of collective economic communication? Might we begin to
think about transactional publics? Classic normative visions of the public—here, I draw from
John Dewey and especially James Carey's interpretation of Dewey—describe it as a fundamental
inclusive site of discursive participation, contestation, and meaning-making. However, most
transactional communities are, on some level, circumscribed in their scope and are ultimately
exclusionary.
Only national currencies truly aspire to be, within the context of a nation-state, truly
universal. Since its founding more than a century ago, the United States Federal Reserve system
has worked to develop a payment system that would draw citizens together in a national
transactional community. It has ensured that there is enough physical cash in rural regions, ended
non-par clearance of checks, helped to develop and maintain the Automated Clearinghouse for
electronic funds transfer, and responded to countless crises, for example ensuring that, in the
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days following September 11, 2001, checks were being cleared and there was cash in ATMs all
over the country, despite the total chaos caused by, least of all, the fact that melting steel i-beams
had destroyed the major financial services communication data center, which was located in
Seven World Trade Center (Medley, 2014; Makinen, 2002). This infrastructural work is quite
apart from the Fed’s monetary policy programs, and it largely goes unrecognized, even as it is
conflated with the systems other, more politicized activities.
Cash and checks, the payment systems managed by the Federal Reserve, are in many
ways a public medium for payment. And yet, for many Americans, the state seems as insufficient
and irresponsible a steward of the public interest as any social media company. Whether with
Bitcoin or other alternative currencies, in recent years, many have been eager to try something—
anything, perhaps—other. Of course, this is certainly not true for the vast majority of people who
would not be interested in seeing their payments, let alone their savings, converted into anything
but state-issued currency, but it may be true for those at Money20/20, those envisioning present
and future mechanisms of transaction, even those as mundane as PayPal.
At Money20/20 in 2013, I met a young payments lawyer working at the Federal Reserve.
While staffing the Fed’s booth in the exhibit hall, she’d met and been heavily recruited by a
Bitcoin start-up. By Money20/20 in 2014, she’d moved to San Francisco and traded in her
Federal Reserve business card for a much flashier one from the start-up, her sensible,
conservative suit for a designer dress, and her inexpensive room at the budget motel across the
street for a suite at the Aria. When we met up to talk about the whirlwind her career—and the
world of payments itself—had undergone in the last year, I could tell she was feeling a little self-
conscious that I—an academic observer who’d professed admiration for the Federal Reserve’s
work toward public interest issues in payments and ample skepticism about Bitcoin just a year
237
before—would think she had “sold out.” She explained to me that her new role was a fascinating
challenge. She was truly thrilled to be part of building not just a new asset class, but a new
payment ecosystem. For the first time, she told me, the general public actually cared and was
really interested in payments. Bitcoin was a way of making visible communicative
infrastructures—tokens, ledgers, and rails—that had been invisible for too long.
Even though it is more settled than it was when I began my fieldwork, payment has not
yet fully come to rest. It is, as my informant made clear, becoming more apparent, more
obviously social, more likely to make people mad, more likely to make them care. The
democratization of the communication of money led to its privatization—which, in turn, may
eventually make it available as an object of democracy. In order to come together through
money, we must determine how to come together around money.
238
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Abstract (if available)
Abstract
This project engages the study of money—and in particular, payment—as sociotechnical infrastructure, both in terms of information transmission and as vector of relations, memory, and culture. Since 2008, economic downturn paired with high penetration of information and communication technology has led to an explosion of imagination around the money form. Networked information technology has seemed particularly well-suited to rethinking the tasks that money has traditionally performed, such as assigning value, keeping account of it, and transmitting it. Payment—once a siloed and slow-moving sector of banking—is undergoing tremendous innovation from within the Silicon Valley social media industry. To address these developments and uncover their longer histories, this project engages historical, ethnographic, and documentary methodologies. Money can be understood as a communication technology in three ways: a token that can be used to exchange value, a ledger that we use to collectively remember allocations, and a set of rails that undergird and make transactions possible. These analytical categories are used as theoretical entry-points to understanding changes in payment. The dissertation begins with a chapter on the technological and social history of money and communication, attending in particular to tensions between public and private visions of transactional infrastructure in the United States in the 19th and 20th centuries. The remaining chapters engage present and emergent concerns. New "tokens," such as rewards points and frequent flyer miles, derived from payment system interchange, have been circulating alongside traditional currencies. As the tech industry discovers payment, the "ledger" of transactional data becomes a source of value and a commons undergoing enclosure. Control over the flow of transactions through "rails" provides greater potential for proxy censorship, political and otherwise. As we look forward to possible futures of payments, we find new forms of transactional counter-power, such as the cryptographic transactional systems like Bitcoin, which can be understood as token, a ledger, and a rail.
Linked assets
University of Southern California Dissertations and Theses
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Asset Metadata
Creator
Swartz, Deja Elana
(author)
Core Title
Tokens, ledgers, and rails: the communication of money
School
Annenberg School for Communication
Degree
Doctor of Philosophy
Degree Program
Communication
Publication Date
07/31/2017
Defense Date
04/21/2015
Publisher
University of Southern California
(original),
University of Southern California. Libraries
(digital)
Tag
Bitcoin,credit cards,economic culture,financial technology,infrastructure,mobile wallets,money,OAI-PMH Harvest,payment,transactional data
Format
application/pdf
(imt)
Language
English
Contributor
Electronically uploaded by the author
(provenance)
Advisor
Castells, Manuel (
committee chair
), Ananny, Mike (
committee member
), Gross, Larry P. (
committee member
)
Creator Email
dswartz@usc.edu,lanalana@gmail.com
Permanent Link (DOI)
https://doi.org/10.25549/usctheses-c3-624467
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UC11303236
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etd-SwartzDeja-3788.pdf (filename),usctheses-c3-624467 (legacy record id)
Legacy Identifier
etd-SwartzDeja-3788.pdf
Dmrecord
624467
Document Type
Dissertation
Format
application/pdf (imt)
Rights
Swartz, Deja Elana
Type
texts
Source
University of Southern California
(contributing entity),
University of Southern California Dissertations and Theses
(collection)
Access Conditions
The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the a...
Repository Name
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Repository Location
USC Digital Library, University of Southern California, University Park Campus MC 2810, 3434 South Grand Avenue, 2nd Floor, Los Angeles, California 90089-2810, USA
Tags
Bitcoin
credit cards
economic culture
financial technology
infrastructure
mobile wallets
money
payment
transactional data