Bitcoin (BTC), the much in-the-news and up-for-government-discussion cryptocurrency favored by Deep Web drug markets, libertarians, anarchists and would-be assassins everywhere, has been on a tear recently, and as of yesterday has hit an all-time high (albeit briefly) of more than USD $900 mark. It’s not hard to find—in fact it’s difficult to avoid—cyberlibertarians of all stripes celebrating this surge and similar ones in the past as proof of Bitcoin’s importance. While the surge does indicate something, it is beyond remarkable to read celebrations of the surge as if they prove Bitcoin’s feasibility as what it is advertised to be, a currency: because it is only through an incredibly blinkered and uninformed worldview, one typical of the paradoxes found throughout cyberlibertarian discourse, that dramatic surges in the (relative) value of an instrument can be understood this way, since under any conventional economic theory such surges prove not that it is a new government-toppling currency, but to the contrary, that it is nearly useless as a currency. Like so many other parts of cyberlibertarian discourse, Bitcoin’s supposed power is so fully and transparently perched on blatant contradictions that it is shocking to find people taking it seriously, and yet take it seriously they do.

In many ways this is a familiar story about digital arrogance. Engineers imagine that their domain-specific knowledge translates into universal knowledge (“guys [who] are really good at what they do, and [who] think that makes them an expert at everything“); that all problems are engineering problems and that unsolved problems simply indicate that nobody so smart as they are has come along to solve those problems; that domain-specific knowledge is a kind of “elitism” meant to keep out true experts like them. It’s also a story about the permeability of cyberlibertarianism with Tea Party libertarianism, as lurking under the celebration of Bitcoin is an endorsement of Ron Paul-ite conspiratorial intuitions about monetary policy that do not stand up to scrutiny, even, for the most part, from more reputable Right and Libertarian economists (see, for example, criticisms of Bitcoin from an economist at the real (not Paulite) Libertarian Mises Institute: “The Bitcoin Money Myth,”; “Bitcoin: Money of the Future or Old-Fashioned Bubble?“; also see well-known digital investment analyst Henry Blodget making much the same fiscal argument I am advancing here, in “Bitcoin Could Go To $1 Million“). Together, we have the spectacle of rabid cyberlibertarians like Pirate Party leader Rick Falkvinge promoting Bitcoin because it displays exactly those features that disqualify it for its putative use. While Falkvinge may be the most visible and loudest advocate of this contradictory “analysis,” one need only check the comment boards for any article raising critical questions about the economics of Bitcoin to see it being repeated, ad nauseum, and in a typically trolling and dismissive style of any point of view not directly based on grokking the genius of the Bitcoin algorithm (in addition to their ubiquity on Falkvinge’s site, see comments on articles like this one on the Washington Post or this one on Bloomberg or this excellent blog post on Naked Capitalism).

To see this, one need only start at the beginning. Bitcoin is touted as a replacement for “fiat currency.” “Fiat currency” is a buzzword from libertarian economics and especially from Paulites; here are the key bits of the definition from Wikipedia:

Fiat money is money that derives its value from government regulation or law. The term fiat currency is used when the fiat money is used as the main currency of the country. The term derives from the Latin fiat (“let it be done”, “it shall be”) The Nixon Shock of 1971 ended the direct convertibility of the United States dollar to gold. Since then all reserve currencies have been fiat currencies, including the U.S. dollar and the Euro.

In the simplest terms, one can understand “fiat money” as money without “intrinsic value” (that is, where the currency itself has value in another form; the most typical example is gold). This distinction is actually much harder to make than advocates want us to think; more on this below. As the Wikipedia entry goes on, “while gold- or silver-backed representative money entails the legal requirement that the bank of issue redeem it in fixed weights of gold or silver, fiat money’s value is unrelated to the value of any physical quantity. Even a coin containing valuable metal may be considered fiat currency if its face value is higher than its market value as metal.”

OK: fiat money is “bad” because it has no value other than as money; non-fiat money, also known as “commodity money,” has “intrinsic value.”

Now, what’s supposed to be wrong with fiat money? This is a age-old canard for libertarians; it’s one of the favored talking points of the Paul clan. What it’s supposed to be about is stability of value.

Ron Paul: “if unchecked, the economic and political chaos that comes from currency destruction inevitably leads to tyranny” (Ron Paul, Paper Money and Tyranny, Speech in U.S. House of Representative, September 5, 2003, quoted on http://wiki.mises.org/wiki/Criticism_of_fractional_reserve_banking)

What people supposedly hate about “fiat” currencies is that “central bankers” can manipulate the value of the currency, supposedly unlike asset-backed currencies like gold. The whole point of this is to have a stable currency. A currency whose value does not fluctuate wildly.

But because Bitcoin is completely uncontrolled, it cannot separate its asset from currency functions. That means that when it appears to be deflating, investors (ie “hoarders”) will jump in, as they are doing now. The problem with this is that, in just the way the libertarians scream about, it makes the instrument too volatile to use as a medium of exchange.

This is why most economists warn against deflation in currencies in general. The problem with “fiat currency” is value fluctuation. The most dangerous kind of value fluctuation is the deflationary spiral–it’s usually considered worse, even, than the kind of inflationary spiral experienced in the 1990s & 2000s by the Zimbabwean dollar.

That is, a merchant cannot hold onto their Bitcoins as profit, because they have no guarantee that their profits will be worth the amount they were when they took the profit. The 6 Bitcoins I get for selling a lawnmower today, may (likely will) only buy me a box of cereal tomorrow. This forces people to constantly transfer their Bitcoins into the supposedly-outdated national currencies, which actually underpin Bitcoin, are actually necessary for it, rather than being the old-fashioned predecessors to it.

Which world currency is currently experiencing among the most dramatic deflationary spirals anyone has ever seen? Bitcoin, the “existential threat to the liberal nation state.” Any sane person putting their life’s savings into Bitcoin among all world currencies right now is as foolish as a Dutch person buying tulips bulbs during–well, you know when. That is because the problems with currencies actually aren’t formal, or mechanical, or algorithmic, despite what BTC-heads desperately want to believe. They are social and political problems that can only be solved by political mechanisms. That is why, despite the rhetoric, right now most sovereign currencies are far more stable than Bitcoin will ever or can ever be (since Bitcoin has no mechanism for value control whatsoever, is almost designed to produce deflation, and BTC-heads have an historically-disproven belief that lack of regulation produces stability–when we can see time and time again that lack of regulation produces boom-and-bust cycles of an intensity far greater than the central bank shenanigans BTC-heads loathe so much.) Fine, let’s go back to the Gilded Age–but don’t pretend for a second we had stable currency values back then, asset-backed or otherwise. We had fiscal chaos, ruled by the most concentrated and powerful holders of capital.

Many economists recognize something that appears to have been beyond the inventors and advocates of Bitcoin. Without direct regulatory structures that prevent an instrument from being used an an investment (aka “hoarding”), any instrument (even gold) will be subject to derivation, securitization, and ultimately extreme boom-and-bust cycles that it is actually the purpose of central banks to prevent.

The more Bitcoin fluctuates in value, the less functional it can be as a currency. The less impact it can have on “world governments,” whatever that is supposed to mean. The more Bitcoin “rises in value”—that is, experiences radically deflationary spirals—the more useless it is as currency.

In fact, because the cycles of rapid deflation and inflation provoke constant exchanges of Bitcoin for other stores of value, usually national currencies, Bitcoin can more readily be understood not merely as a commodity, as just one among many other digital commodities, but also as a kind of derivative itself–an option or futures contract related to the value of other instruments and on which investors of all sorts can speculate and, depending on the volume of transactions, even manipulate the market. Given Bitcoin’s foundational anti-regulatory stance, it is almost inconceivable that major players are refraining from such manipulation. Thus the involvement of high-profile players like the Winkelvoss twins, too, cannot be a cause for celebration of Bitcoin’s potential as a currency, but rather demonstrates its utility as a manipulable commodity for typical, existing capital to use to its own ends. In this sense, it becomes a tool for existing power to concentrate itself, rather than a challenge to the existing order.

Few attitudes typify the paradoxical digital libertarian mindset of Bitcoin promoters (and many others) more than those of “Sanjuro,” the alias of the person who created the Bitcoin “assassination market” written up by Andy Greenberg. He believes that by incentivizing people to kill politicians, he will destroy “all governments, everywhere.” This “will change the world for the better,” producing “a world without wars, dragnet panopticon-style surveillance, nuclear weapons, armies, repression, money manipulation, and limits to trade.” While not directly about the revolutionary powers of Bitcoin, the sentiment flows from the same fount of misguided computational “wisdom.” Only someone so blinkered by their ideological tunnel vision could look at world history and imagine that murdering democratic governments out of existence would do anything but make every one of these problems immeasurably worse than they already are.