Virtual Currency: Money, Mining, & Marx

By Colin Bodayle

Virtual currency, Bitcoin or otherwise, teases those with laissez-faire taste (such as Rand Paul, the first candidate to accept Bitcoin donations), portending a privatized economy of the future: a brave new world where currency defies both states and international organizations. Neither an economist nor a computer programmer, I won’t try to scry the palm of capitalism; I leave speculation to the speculators (who should not forget the pit that awaits them). Instead, I sketch out a basic framework for interpreting virtual currency from a Marxian economic perspective.

Bitcoin and Virtual Currency

In 2008, Satoshi Nakamoto, an anonymous person or group, published a paper describing Bitcoin. A year later, Bitcoin was released: the first decentralized virtual currency. Bitcoin is open source, providing a model for other virtual currencies (many others have since emerged). Neither an individual nor a company administers Bitcoin. A many-headed hydra, the currency is maintained by a loose confederation of individual users.


A unique private key proves ownership of a unit of virtual currency. The private key is verified by the network with a public key. Bitcoin encrypts ownership using large prime numbers (similar to RSA encryption), an area of cryptography called a trapdoor function. If the private key is lost, so are the Bitcoins; hard drive crashes have resulted in financial losses as large as $7.5 million U.S. dollars.

The “block chain” is a public ledger that keeps track of every Bitcoin account in a distributed database. This ledger updates six times an hour to prevent double spending, which means that Bitcoin transactions take roughly ten minutes to process. This “block chain” creates unique time stamps, ensuring authenticity. The unique properties of the block chain allows for information to be notarized without a third party, creating unique time stamps for the data. Essentially, the “block chain” allows for third-party transactions without a third party.

Initially, virtual currency seems more like a banking system than a unique currency. However, unlike programs like Paypal or a credit card, Bitcoin isn’t defined merely in terms of a specific national currency. Rather, Bitcoins are, in many ways, themselves a commodity.

“Mining” generates new Bitcoins. Mining, essentially, involves devoting a computer network to “checking” the transactions, verifying the transaction and maintaining the integrity of the block chaim. Basically, “mining” involves devoting one’s computer to solving complex mathematical puzzles while processing the transactions, maintaining the ledger of every previous Bitcoin transaction. Miners are rewarded with Bitcoins for each new block (complex mathematical puzzle) discovered. Thus, mining “generates” new Bitcoins, providing an incentive.


A desk-sized Bitcoin mine.

One can acquire Bitcoins by selling commodities or by exchanging currency, but one can also “generate” coins by mining. In this way, Bitcoins serve both as a commodity and as a medium of exchange.



Marx’s Theory of Money

In Capital, Marx derives the concept of money from a complex series of arguments, beginning with his well-known discussion of the dual nature of the commodity, where he breaks the commodity down into its “use-value” and “exchange value.” A use-value is familiar enough; a car, for instance, has the “use-value” of being able to be driven; this is intrinsic to the design of an automobile. The exchange value, on the other hand, refers to the thing that I can trade the car for; as such, it contains a relation to other commodities. Since cars are more difficult to make than, say, a t-shirt, one car can trade for a several thousand t-shirts. In fact, I could trade the car for all kinds of things, and each time I would be expressing the value of the car by comparing it to a quantity of another commodity. Marx calls this the “value-relation,” writing:

By means of the value-relation … the natural form of commodity B becomes the value-form of commodity A, in other words the physical body of commodity B becomes a mirror for the value of commodity A. Commodity A, then, in entering into a relation with commodity B as an object of value, as a materialization of human labour, makes the use-value B into the material through which its own value is expressed (Capital, 144).

The abstract concept of “value,” for Marx, refers to the “socially necessary labor time” required to bring the commodity into existence. The labor must be socially necessary, which implies that there is some use for the commodity. Further, the labor time put into the commodity must be the necessary time; thus, if the production process becomes faster, the value goes down. Marx writes:

Socially necessary labour-time is the labour-time required to produce any use-value under the conditions of production normal for a given society and with the average degree of skill and intensity of labor present in society. (ibid. 129)

“Demand,” for Marx, causes minor fluctuations in price, but does not determine value. Although labor must create commodities that have a “use-value,” the amount of labor time required to produce a commodity determines the value [Note: Marx, somewhat controversially, simplifies “skill” to “simple labor,” a matter of dispute I wish to address in a later essay; cf. ibid. 135].

Money, for Marx, is itself a commodity. More specifically, money is gold. Because gold requires a particular amount of labor time to dig it out of the ground, it has a measurable “value.” As a metal, gold can be measured in precise amounts; this makes it more opportune than other commodities. Not merely a symbol of value; gold functions as money because it is a commodity. The value of gold becomes adopted by society as a universal measure of the value of commodities; thus, it becomes money. Marx writes:

The universal equivalent form is a form of value in general. It can therefore be assumed by any commodity … Only when this exclusion becomes finally restricted to a specific kind of commodity does the relative form of value of the world of commodities attain objective fixedness and general social validity … becomes the money commodity, or serves as money (ibid. 162).

Money, for Marx, has a duality: it measures values (like iron weights measure on a scale), but also functions as a means of circulating commodities. Money acts as a “universal.” Insofar as money can both buy commodities and commodities be sold for money, “money” represents “any commodity.” Marx refers to money as “alienating,” insofar as it alienates sellers from the particular product of their labor, representing instead the universal commodity.

Of course, money no longer has a gold standard. There is some question of how Marx would interpret today’s currency; arguably money still serves to measure value and value remains somewhat tied to socially necessary labor time (because it can purchase commodities). Although no longer tied to the value of a particular commodity, today’s money still measures the value of commodities universally.

The amount of money in circulation, for Marx, increases based on the total sum of prices of commodities and decreases based on the velocity of coin turnover. At the state level, money is minted and paper currency is issued; however, state-level currency is in turn regulated by the world market.

For Marx, money works as a medium of exchange when it mediates the exchange of one commodity for another. If I sell my car for $6,000 and then use that $6,000 to buy furniture, I have traded one particular commodity (a car) for another (lots of furniture). Classical economists argued that, since every sale has a buyer and every buyer has a sale, the aggregate production always equals the aggregate demand. This classical view discounts a different kind of transaction: if I buy a car for $6,000 and then sell the car for $7,000. Here, money is transformed into capital. Marx writes:

Here it is not the piece of money which is displaced twice, but the commodity. The buyer takes it from the hand of the seller and passes it into the hands of another buyer (ibid. 249).

Selling in order to buy, Marx claims, ends in consumption. Buying in order to sell, begins and ends with money, “and this very fact makes this movement an endless one” (ibid. 252).

As such, capitalism experiences a monetary crisis due to “hoarding,” when money is held rather than spent, awaiting an accumulation in its value. Hoarding creates an effective demand problem, leading to overproduction. Here, Marx points to the (now well-known) liquidity trap (outlined in Keynesian theory), where fears such as that of insufficient aggregate demand or poor interest rates cause people to hoard, creating a recession. The great depression serves as a notable example of such a crisis.

Bitcoin as Money


Bitcoin Mine in the Tibetan mountains

In his interview with Vice, Jerry Brito of Coin Center (a Bitcoin advocacy group) states that Bitcoin is based on the same “faith” as governmental currency. Although Brito articulates (according to Marx) a classical “bourgeois” theory of money (in which even gold and diamonds represent “fiat” currency), from Marx’s perspective it seems Bitcoin’s abstract value, insofar as “mining” generates Bitcoins, is rooted in the labor time required to produce a Bitcoin. Although, as a commodity, Bitcoin remains volatile, it seems no more of a fiat currency than gold. Numerous Bitcoin farms have sprung up around the globe and the “mining” of Bitcoins, insofar as this generates new Bitcoins, involves production with measurable labor time.

Jeremy Clark of the Concordia Institute for Information Systems Engineering, told the Canadian senate people can’t own Bitcoins; rather “what you possess is a cryptographic key that gives you signing authority over an account.” Nevertheless, Clark also refers to the Bitcoin as a commodity, originating when the Bitcoin is first mined. Marx defines value as “socially necessary labor time,” and since unique Bitcoins are generated through the labor of mining, they are a commodity. Insofar as they serve as a medium of exchange, they serve as a universal measure of value. In this way, Bitcoin fits Marx’s definition of money.

Marx claims that money becomes “the universal material of contracts” (ibid. 238). Indeed, Bitcoin is often explained as a “decentralized ledger,” as a notarizing service without a third party. Julian Assange pointed out that Bitcoins can “time stamp” data to prevent malicious government modification, stating:

“We are now approaching the state of Orwell’s dictum, perfect dictum, that ‘he who controls the present controls the past’. He who controls the Internet servers controls the intellectual record of mankind, and by controlling that, controls our perception of who we are, and by controlling that, controls what laws and regulations we make in society.”

There are different providers of Bitcoin, yet each remains grounded in mining. Here, the situation is analogous to the “minting” a currency, a process formerly exclusive to states. Of this, Marx writes:

The business of coining, like the establishing of a standard measure of prices, is an attribute proper to the state. The different national uniforms worn at home by gold and silver as coins, but taken off again when they appear on the world market, demonstrate the separation between the internal or national spheres of commodity circulation and its international sphere, the world market (Capital, 222).




Although many different mints of virtual currency are possible – including the (now sued and disbanded) “Coinye,” a virtual currency employing the image of Kanye West – the value of virtual currency, at the level of the world market, remains tied to the labor time necessary for mining bitcoins.


Like other forms of currency, Bitcoin is speculated upon and hoarded. Given the currency’s volatility – as well as the luring millions made by early speculators – Bitcoin’s lack of liquidity raises serious questions about its viability. Despite many claims of advocates to the contrary, Bitcoin’s  volatility remains consistent with Marx’s (and Keynes’) general analysis of capitalism’s systemic problems. A recent study by Reddit user John Radcliff showed in November that more than 70% of Bitcoins have been dormant over the last six months.


Bitcoin trends show enthusiasts speculating and hoarding Bitcoin, which seems natural given its dramatic fluctuations and economic potential. As an medium of exchange, however, Bitcoin’s utility is restricted to black markets, online gambling, and those attracted to the currency for ideological reasons. Although the crypto-currency has gained some popularity in South America as an alternative to incredulous fiat currency, even Bitcoin’s strongest advocates admit that virtual currency won’t replace state currency anytime soon.


By Marx’s analysis, Bitcoins function similarly to gold: as a commodity expressing socially necessary labor time. Insofar as laissez-faire economists such as Ron Paul and Milton Friedman advocate the gold standard, the libertarian fetishism for Bitcoins should come as no surprise. Yet, if we follow Marx’s analysis to his conclusion, Bitcoin cannot eo ipso eliminate the systemic risks of monetary crisis and recession, a problem its decentralization may even exacerbate. Given Bitcoin’s volatile propensity and the reluctance of consumers to circulate Bitcoins; while capitalists might applaud this step towards the privatization of everything, the story of Bitcoin fits all too aptly into the framework of Marx’s theory of capitalism, including his prescient warnings.


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