Disclaimer: there are a lot of really cool projects growing in the crypto-finance & DeFi space, and nothing here is meant as a critique of any specific project. The critique here is focused on totalizing narratives, like ‘blockchains are financial systems,’ ‘Ethereum is financial infrastructure’ and related memes.

What Is Finance?

According to the Oxford Dictionary of Finance and Banking (5th ed., 2014), finance is the practice of manipulating and managing money.

The 1st definition is OK, but the 3rd definition is closer to the mark: in today’s usage, finance refers mainly to myriad ways in which money is lent.

how did Alice finance her house? → what are the terms of Alice’s mortgage?

her house? → what are the terms of Alice’s mortgage? how are Bob’s finances looking? → what’s Bob’s debt-to-asset ratio?

looking? → what’s Bob’s debt-to-asset ratio? how is FedEx financing that new drone delivery program? → what sort of corporate debt instruments is FedEx potentially using?

The definition of finance-as-lending also corresponds to the thousands of derivative finance-related terms, like financial instrument, financial gearing, or, say, financial obligation or financial risk:

The ability to define money and finance is, of course, wildly lucrative. That ability also confers extraordinary power. Like all powers, this power is prized (& jealously guarded).

Among other ways, money-makers guard their money-making power by producing an incredibly complex institutional matrix in which finance games are played — aka, ‘the financial system.’

The system facilitates, encourages, and handsomely rewards financial innovation, even when that ‘innovation’ leads to financial crisis and financial ruin for the bottom-rung borrowers who bear the heaviest material costs.

The complex institutional matrix that structures ‘the financial system’ is called … Law.

The point here is that centuries of financial and monetary ‘engineering’ have gone hand in hand with ‘legal innovation.’ Both give institutional life to increasingly complex forms of finance and money.

The question isn’t which came first (law or money), or what is more powerful (financial institutions v. legal institutions). In capitalist societies, they are really one and the same; or, to be a bit more precise, they operate in largely symbiotic ways, perhaps because the folks who control legal institutions spend an awful lot of time at brunches with folks who control financial institutions.

This is why, to this day, nobody has faced any real accountability for the 2008–2009 financial crisis.

Bitcoin As Anti-Finance?

The Blockchain Revolution was a rejection of this order.

Finance — which can *only* manifest through ‘financial institutions’ — was the problem that Bitcoin set out to solve.

That’s literally the first line of the abstract, and the first two sentences of the Bitcoin Whitepaper. These are the only mentions of finance in the entire Whitepaper.

The whole point of Bitcoin was to open the “possibility for small casual transactions” without the need for a trusted financial party.

The key innovation is a peer-to-peer network “for electronic transactions without relying on trust.”

Crucially, the “unstructured simplicity” that assures robustness of the network was never solely a function of ‘money’ incentives. It was also operational simplicity (vote with CPU power; freedom to “leave and rejoin the network at will”).

And freedom to leave or rejoin the network necessarily meant legal freedom of maneuver, which is why the Whitepaper does not mention property, contract, assets, and why the Whitepaper does not claim that Bitcoin is some new type of financial instrument.

There are exactly three mentions of ‘money,’ but even those are heuristic — once to restate the problem of centralized banks (p. 2) and twice to describe possible ‘money’ incentives that could motivate a would-be attacker (p. 6).

Please pause on that a bit.

Honest nodes are transacting, mining “new coins,” recording messages to the public history of transactions. They are going about their business of building a disintermediated peer-to-peer data ledger in their unstructured [encrypted] simplicity (eg, the data represents whatever the peers want it to represent — nobody has to know or care about what this data represents).

And when “money” and “wealth” come into the picture, they are there to describe and address the greed motives of would-be attackers:

Grinch ought to find it more profitable to play by the rules, such rules that favour Grinch with more new coins than everyone else combined, than to undermine the system and the validity of Grinch’s own wealth.(p. 4).

Translation: “if you’re such a power-hungry Grinch that you’ll stop at nothing to control the network, please realize that your power after that point (vis-a-vis the network) depends on the flourishing of … the network.”

But, Bitcoin Is Money!

Nakamoto couldn’t have been any clearer regarding why there’s a need for pure peer-to-peer transactional networks: because “financial institutions CANNOT avoid mediating disputes.”

Nakamoto is 100% correct here. Financial institutions cannot avoid meddling with private parties that want to create their ‘own money’ or #WriteTheirOwnLaw because that would be suicide — it amounts to voluntarily relinquishing their own power, Cincinnatus-style.

There is little historical precedent of states voluntarily giving up their financial and monetary sovereignty. Monetary unions like the EU are counter-examples, but to what extent are those centripetal transfers of power really voluntary? And in any event, the viability of those experiments is still very much an open question.

On the contrary, for states and money-making financial institutions, power politics is still very much a zero-sum game. That’s why French and German finance ministers cannot avoid proclaiming:

We believe that no private entity can claim monetary power, which is inherent to the sovereignty of Nations.

That’s why Marc Zuckerberg & US political leaders cannot avoid articulating the current money debates in existential terms.

Because these are existential money/finance/law/power debates for these actors.

People can survive without money; Bitcoin & blockchain networks can survive without money. Today’s states and corporations cannot survive without money.

Maybe this is why the Whitepaper does NOT call Bitcoin ‘money’ (or Ideal Money) or a ‘financial product’ or ‘property’ or a cluster of ‘contracts’ or a ‘digital asset’ or any other term in legalese that could have been interpreted as a shot at the King. One that would have severely undermined Bitcoin’s unstructured simplicity.

Maybe this is why we still don’t know who are Satoshi Nakamoto?

Because that type of unstructured simplicity reduces liability and adds to security.

Is Ethereum A Financial Network?

Like the Bitcoin Whitepaper, Ethereum has maintained a healthy ambivalence towards finance, money, and law — since inception.